NEW YORK ( TheStreet) --Banks continue to show a preference for short sales over foreclosures as a way of disposing off their non-performing loans.
According to the latest report from RealtyTrac, sales of properties in pre-foreclosure- those that have received a notice of default or scheduled for auction- rose 15% in the fourth quarter of 2011 over the year-ago period.
In contrast, the sales volume of bank-owned properties (REO) was down 12%.
Pre-foreclosure sales, which is usually executed via short sales, accounted for 10% of all residential property sales in the fourth quarter."We continued to see a shift toward pre-foreclosure sales, or short sales, and away from REO sales in the fourth quarter," Brandon Moore, CEO of RealtyTrac said in a statement. "Pre-foreclosure sales outnumbered REO sales in several bellwether markets, including Los Angeles, Miami and Phoenix, where REO sales had outnumbered pre-foreclosure sales a year ago. That trend will likely show up in more local markets in 2012 as lenders recognize short sales as a better option for many of their non-performing loans." In the simplest form of a short sale, borrowers with underwater mortgages sell their homes to a buyer at a price that is approved by the lender. The lender normally forgives the difference between the loan and the sale proceeds- in essence the bank is being shorted for the loan amount. In cases where loans are sold, investors also need to approve the short sale. However, given the delays in the foreclosure process, investors seem more inclined to accept other alternatives to foreclosure. As TheStreet reported last August, banks including JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) have paid out incentives to borrowers to encourage them to consider short sales rather than hold out for a loan modification that may not be possible and risk losing their homes ultimately to foreclosure.
A JPMorgan spokeswoman told TheStreet at the time that the bank said it saw short sales as an option that was good for both the homeowner and for the bank. It said incentives vary and are available for only certain types of borrowers. Wells Fargo also said it had stepped out its outreach efforts.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV