Short sales expected to surge this year

@CNNMoney April 19, 2012: 5:13 PM ET

NEW YORK (CNNMoney) -- Short sales are rising sharply, offering many struggling homeowners a better alternative to foreclosure in many of the nation's hardest hit states.

In short sale deals, the sale price of the home is less than what the seller owes. Often, the bank that holds the mortgage takes so long to approve the sale that the deal falls through. But in recent months, the pace of short sales has increased, a trend that should gain momentum, according to RealtyTrac.

In January, short sales rose 33% compared with 12 months earlier, the company reported.

During the month, 32 states saw year-over-year percentage increases in short sales. Even more encouraging, short sale deals outnumbered foreclosures in 12 states, including some of the hardest hit like California, Arizona and Florida.

January's numbers look to be just the beginning. "[W]e believe 2012 could be a record year for short sales," said Daren Blomquist, vice president at RealtyTrac.

Banks are showing signs of being more open and willing to approve the deals -- even if it means accepting less money. The average sales price for a short sale was $174,120 in January, down 4% from December and 10% year-over-year.

Typically, banks get about 20% less for a foreclosed home. Foreclosure can also take years to unload, during which expenses, like property taxes, insurance and other expenses, mount up.

Short sale process to speed up. One of the biggest roadblocks for short sales has been the time it takes to get deals approved. That time shrunk slightly during the first quarter -- to 306 days from 308 days the previous quarter -- but many deals still fall through because the buyer eventually walks away.

However, that could all change come June 1 when a set of new rules are put in place that will require lenders to make a decision about short sale requests within 60 days.

Earlier this week, the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae (FNMA, Fortune 500) and Freddie Mac (FRE), announced the new guidelines, which will also require lenders to review and respond to short sale requests within 30 days and provide weekly status updates to the borrower if the offer is still under review after that time.

Also helping to speed things along is the government's Home Affordable Foreclosure Alternative program, which launched in late 2009, according to Charlie Engel, a spokesman for RealtyTrac,

The program pays incentives to those who sell their home in a short sale rather than let it fall into foreclosure. To top of page


Overnight Avg Rate Latest Change Last Week
30 yr fixed4.22%4.16%
15 yr fixed3.32%3.24%
5/1 ARM3.52%3.35%
30 yr refi4.21%4.15%
15 yr refi3.31%3.24%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Find Homes for sale
  • Property Type
  • Find a home in:
    New York | Atlanta | Chicago | Los Angeles
    Washington D.C | Houston | Philadelphia | More options
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.