Short sales and foreclosures played a starring role during
the Great Recession. According to National Association of REALTORS® statistics,
in the summer of 2009, distressed sales made up just under 50 percent of all
transactions as. Fast forward to last fall, and that number dropped to only 14
percent.
Short sales are becoming less common for many reasons. For
one, many markets are now well into recovery mode. Home values are rising and
sellers who were underwater only a year ago have a bit more breathing room
today. With fewer homeowners in financial distress—and the worst of the cleanup
from the housing bubble behind us—banks and courts are finally processing
through their backlogs of distressed properties. And employment growth means
more homeowners can afford to stay in their homes and make their mortgage
payments.
In addition, short sales are becoming less favorable for
sellers. For the last few years, the Mortgage Forgiveness Debt Relief Act of
2007, which protects sellers from having to pay tax on unpaid or forgiven debt,
has made short sales a viable option for many underwater homeowners. However,
the Act was sunset at the end of 2013. A short sale in 2014 could significantly
impact your tax obligation, making it less attractive.
Buyer interest in distressed properties has also cooled. Too
much hassle, and most short sales and foreclosures are not such a great deal
after all. Finally, lenders themselves are also less interested in short sales.
As market values increase, there is less need for lender/borrower negotiated
sales. Added to that, the return of third-party purchasers (institutional
investors or cash buyers purchasing at foreclosure auctions) is shifting the
pendulum back toward traditional foreclosure auction and REO.
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