Although short sales continue to be utilized more and more as an alternative to foreclosure, RealtyTrac suggested the trend may change if the Mortgage Debt Relief Act of 2007 does not get extended.
According to RealtyTrac's Q3 foreclosure and short sales report, short sales increased quarterly and yearly by 15 percent and 17 percent, respectively. Out of all residential sales, short sales represented about 22 percent of the total in Q3.
""However, the scheduled expiration of the Mortgage Forgiveness Debt Relief Act at the end of this year could stifle this trend toward short sales,"" said Daren Blomquist, VP of RealtyTrac.
The act, which will expire at the end of this year if not extended, allows borrowers to be excluded from paying taxes on forgiven debt from a short sale, foreclosure, or modification.
""The prospect of being taxed on potentially tens or hundreds of thousands of dollars in additional income may motivate more distressed homeowners to forgo a short sale and allow the home to be foreclosed,"" Blomquist continued. ""Additionally, if the mortgage interest deduction is eliminated due to the fiscal cliff quagmire, it would give many underwater and otherwise distressed homeowners one less reason to hang on to their homes.""
On average, short sales--including non-foreclosure and foreclosure properties--were sold $94,896 below the loan amount.
Pre-foreclosure sales--properties in default or scheduled for auction--were also up in Q3 and increased by 22 percent both quarterly and yearly. On average, pre-foreclosure properties sold at a discount of 27 percent compared to non-foreclosures, up from 25 percent in Q2 and 19 percent a year ago, according to RealtyTrac.
As for REO properties, purchases rose 19 percent from the previous quarter, but were down by 20 percent from last year.
The foreclosure marketplace found REOs were sold 38 percent below the average price of non-foreclosures, up from 33 percent in Q2 and down from 39 percent a year ago.
RealtyTrac says that unlike the trend seen in recent years, sales of properties in pre-foreclosure outnumbered sales of REOs in the third quarter. Pre-foreclosures totaled 98,125 in Q3 compared to 94,934 for REOs.
When combining REOs and pre-foreclosures, a total of 193,059 properties were sold in Q3, representing a 21 percent increase from Q2, but a 3 percent decrease compared to Q3 2011.
As a share, foreclosure-related sales remained relatively flat in Q3 and accounted for 19 percent of all residential sales, down from 20 percent in Q2 and unchanged from a year ago.
The states with the highest share of foreclosure sales out of all residential sales were Georgia (38 percent), California (36 percent), Arizona (34 percent), Nevada (31 percent), and Florida (26 percent).
Among the metro areas, California metros took the lead for having the highest share of foreclosure sales. In Modesto, foreclosure sales represented 54 percent of all sales. Other California metros with a high percentage of foreclosure sales included Stockton (53 percent); Riverside-San Bernardino-Ontario (47 percent), and Sacramento (40 percent).
Non-California metros in the top 10 included Atlanta (41 percent) and Tucson (40 percent).