The number of homeowners who resorted to short sales in order to get out from under mortgage debt dramatically increased last year.
According to RealtyTrac, the number of short sales were three times as many as the sales of foreclosed homes in 2012.
Foreclosures made for 11% of all sales, down from 13% a year before. At the same time, short sales rose 5% year-over-year, making for 32% of all home deals.
"We're seeing fewer of the most disruptive sales, the [bank-owned foreclosures], hitting the market but there are still a lot of distressed property sales," said Daren Blomquist, spokesman for RealtyTrac. "They're shifting to short sales, though."
A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens' full amounts, and whereby the lien holders (banks) agree to release their lien on the real estate and accept less than the amount owed on the debt.
In such transactions, the bank then sells the house, typically at a better price than it would have gotten had the home gone into foreclosure.
During the fourth quarter, the average discount on a foreclosure was a whopping 39%, while the average short sale sold for 23% below market, RealtyTrac found.
During the second half of last year, the National Mortgage Settlement between the government and the nation's five biggest mortgage lenders fueled the biggest spike in short sales. Under the terms of the agreement finalized last February, the banks receive credit towards the settlement when they approve short sales for distressed homeowners. Of the $45 billion in consumer relief that lenders have reported under that agreement, $19 billion has gone toward forgiving debt in short sales, according to the latest report from the Office of Mortgage Settlement Oversight.
