'Short Sales' Jump as Tax on Forgiven Mortgage Debt Approaches

Short sales of properties not in the foreclosure process increased 15 percent in the third quarter from the previous quarter, and were up 17 percent from the third quarter of 2011, RealtyTrac reported today.
These non-foreclosure short sales accounted for an estimated 22 percent of all residential sales, bringing the total distressed sale share to an estimated 41 percent for the third quarter.
Short sales have been surging in anticipation of pending taxes tied to loan principal reduction. Along with the Bush-era tax cuts, the Mortgage Forgiveness Debt Relief Act of 2007 expires Dec. 31.
The law generally allows taxpayers to exclude income from the discharge of debt on their principal residence, as is the case in the growing number of short sales underway.
Distressed sales encompass both short sales, where a borrower sells his home for less than is owed on mortgages, and those that are sold at a loss to the lender but are in some stage of foreclosure.
Non-foreclosure short sales prices in the third quarter fell short of the total amount of loans outstanding by an average of $82,312 per short sale.
For all short sales, including non-foreclosure and in-foreclosure properties, the sales price was short of combined loan amounts by average of $94,896 per short sale.
Overall, RealtyTrac reported that a total of 193,059 U.S. properties in some stage of foreclosure or bank-owned (REO) were sold during the third quarter, an increase of 21 percent from the previous quarter, but still down 3 percent from the third quarter of 2011.
“The shift toward earlier disposition of distressed properties continued in the third quarter as both lenders and at-risk homeowners are realizing that short sales are often a better alternative than foreclosure,” said Daren Blomquist, vice president of RealtyTrac.

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