Home prices may get a boost from a pickup in sales of properties in default before they reach the stage where they are repossessed by the bank and sold.
There has been a shift in banks' willingness to sell a property for less than the mortgage balance to avoid foreclosing,
The transactions, known as short sales, typically change hands at a discount of about 20 percent to homes not in financial distress, compared with a 40 percent price cut for bank-owned homes, according to RealtyTrac. Short sales jumped 19 percent in second quarter from the prior three months while foreclosure sales were flat, the data seller said.
"Banks have become much more supportive of short sales, That's better for the lenders, who have smaller losses on a short sale, and it's going to be better for homeowners, who won't have as mush psychological distress as a foreclosure."
Banks are being more agreeable to short sales as foreclosures slow following a yearlong probe of so-called robo-signing, or pushing through unverified default documents. Foreclosure filings have fallen for 12 straight months through September as banks work through a backlog of paperwork, RealtyTrac data show.
Almost a third of all home transactions in August were foreclosures or short sales, according to the National Association of Realtors. While short sales were flat compared with a year earlier, the trade group's count only includes deals completed with a broker, and short sales often are handled directly with lenders.
Banks are not only approving more short sales, they're doing it in less time. In the second quarter, short-sale homes, also known as pre-foreclosures, sold an average 245 days after default, down from 256 days in the previous period, according to Irvine, California-based RealtyTrac. That reversed three straight quarters of increases.
The time frame remains a lot longer than traditional sales. In a normal transaction, a buyer bids on a home and gets a decision from its owners within days, if not hours. Getting a bank response to a short-sale offer can take two months or more.
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