More Florida borrowers are short selling their homes without defaulting on their mortgages, a far-reaching change from days when stopping payments was the only sure-fire way to spur bank approval.
About 29 percent of all Florida home sales during late summer and early fall were short sales granted when the homeowner was not yet in foreclosure, according to a new RealtyTrac measure of non-distressed short sales. That's an increase of 32 percent from the previous year.
In Palm Beach, Broward and Miami-Dade counties, 21 percent of sales were of properties where the owner was not in foreclosure, but owed more to the bank than the home was worth -- a 49 percent annual increase. The difference between the sale price and unpaid mortgage balance in South Florida was an average of $106,712.
Daren Blomquist, RealtyTrac vice president, said this is a new trend that reflects recent federal changes that expand what can be considered a financial hardship and attempts to streamline the short sale process. It's also likely that banks are more reluctant to file a foreclosure, hoping to avoid years-long foreclosure proceedings in court.
"We're hearing a lot more about short sales happening outside of foreclosure," Blomquist said. "Everyone is celebrating that foreclosures are down, which is good, but a lot of the reason for that is distressed homes are being disposed of further upstream."
In a short sale the bank agrees to sell the home for less than what the owner owes on the mortgage.
The federal rule changes only affect loans backed by Fannie Mae and Freddie Mac, which announced the new guidelines during the summer. The rules didn't take effect until Nov. 1.
Under the changes, borrowers who are current on their mortgage but suffer a hardship such as a death, divorce, or a job change requiring them to move more than 50 miles from their home can be qualified for a short sale by their loan servicers without additional approval from Fannie or Freddie.
"The bottom line is banks are trying to remedy the number of foreclosures any way they can," said Realtor Dean Hooker of Pompano Beach-based Southeast Realty. "It's taken them four years to get to this position."
About 28 percent of all homes sold during the third quarter in Palm Beach County were properties in some stage of foreclosure, but the majority were sold through short sales rather than as bank-owned homes repossessed through foreclosure, according to a separate RealtyTrac report released this morning.
The 12 percent increase in distressed property short sales from the previous year and 28 percent jump from the second quarter was likely spurred by the National Mortgage Settlement and pending Dec. 31 sunset of the Mortgage Forgiveness Debt Relief Act, Blomquist said.
Joanne Epstein, a South Florida Realtor with the Keyes Company/Ragbir Team, said she has 18 short sales she's trying to close before the end of the year when the act expires. If it isn't extended, sellers will have to count the debt forgiven by the banks in a short sale as income -- an expense that could cost tens of thousands of dollars depending on the tax bracket and amount forgiven.
Epstein is confident Congress will extend the act, even if the vote is taken next year and it's made retroactive.
"They want people to be able to move on and our country to move on," Epstein said.
Nationally, distressed short sales also outnumbered bank-owned sales, increasing 22 percent from last year to account for nearly 10 percent of all home purchases during the third quarter. The shift to more short sales is happening as "both lenders and at-risk homeowners realize that short sales are often a better alternative than foreclosure," Blomquist said.
But it's also a requirement under the $25 billion National Mortgage Settlement signed by the five largest banks in March.
More than $2.2 billion, or 63 percent, of Florida's share of the settlement has come in the form of deficiency waivers for short sales. Nationwide, about 60 percent of the debt forgiven through Sept. 30 had been through short-sale deficiency waivers. Not all short sales are distressed sales
Short sale: Bank accepts less for the home than the borrower owes on the mortgage, but the homeowner has not had a foreclosure filed against them.
Distressed short sale: Homeowner has a foreclosure filed against them, but during the court process, a short sale is conducted.
Bank-owned sale: A final foreclosure judgment is awarded by the court. The home is repossessed by the bank then resold.
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