Mortgage lenders used to be reluctant to allow for short sales on houses that secured the mortgages they held. In a short sale, the owner of the home sells the house for less than he or she still owes on the mortgage, so the lender ends up losing money on the transaction. However, it seems that lenders are becoming more open to allowing struggling homeowners to make short sales as an alternative to foreclosing on the properties.
According to RealtyTrac, a company tracking foreclosure and mortgage delinquency data, short sales increased by 33 percent from January 2011 to January 2012. The number of short sales exceeded foreclosures for the first time in November 2011, and that pattern continued in December and January.
Experts predict that short sales will reach record highs in 2012, since home values have decreased by almost one-third since their peak in July 2006 and almost 12.5 million U.S. homeowners owe at least 25 percent more on their homes than the homes are worth, according to RealtyTrac data.
Banks are allowing more short sales in an effort to mitigate losses. The Mortgage Bankers Association reports that almost 12 percent of homeowners are delinquent on mortgage payments or in foreclosure. Most large banks already have a significant number of foreclosed properties on their hands and would face a serious glut of new ones if they chose to foreclose on all of the delinquent mortgages. Short sales usually allow lenders to transfer properties from homeowners unable to pay the mortgage to new owners more quickly than the foreclosure process.
Short sales are just one way for people who are struggling financially to deal with their mortgages. Options such as bankruptcy and loan modifications may be available to those looking to save their homes and stop foreclosure.