Will Foreclosures or Short Sales Drive the Market in 2012?

Bank foreclosures are not a pretty thing to say the least, definitely not from the viewpoint of someone who has taken out a home loan. In essence, they occur when a person who has taken out a home loan fails to be able to keep up with the repayments of his or her mortgage obligations. In bank foreclosures, it is the bank that has taken out a security interest in the person’s home. Therefore, if said person fails to be able to pay back his or her mortgage obligations, the lender (the bank) has the right, thanks to the security interest, to go ahead with a foreclosure on the property. A foreclosure is particularly painful because it will harshly retard the ability of an individual to purchase any form of real estate in the future.

On the other hand, short sale homes options are an alternative to bank foreclosures, yet they are not as widely understood as the foreclosures. A short sale on a home is basically a compromise of sorts between the lender, the person who has taken out the loan and the seller of the property. A short sale is defined as the time when a lender assents to accept a mortgage payoff quantity that is less than what’s owed. This is done for the strategic purpose of making sure that a sale of a property by a financially compromised owner becomes a reality. In essence, what the lender (the bank) does in a short sale is basically forgive the remaining balance of a loan.

With regard to how the rest of 2012 will shape up concerning bank foreclosures or short sales, it seems that short sales will be dominant. Sure, some sources that deal in the financial world have implied that it will be bank foreclosures of cheap homes that will continue to dominate in the 2nd half of 2012. According to CNBC, under President Obama, from December 2011 to January 2012, bank foreclosures skyrocketed by an alarming 28 percent in just one month! That is based on information from Lender Processing Services. Greater than 230,000 bank foreclosures of cheap homes started in January alone!

However, the Calculated Risk Blog implies the opposite, citing that short sales have gone up in lots of places across the U.S., which stands in contrast to foreclosures, which have eased up. Furthermore, according to a March 2012 article in the Chicago Tribune, more and more big banks are utilizing cash incentives to tempt people to pursue short sales instead of foreclosures. This seems to suggest that short sales will be the dominant route in the remaining part of 2012. A March piece in the Examiner.com predicts that short sales will increase in 2012 due to the so-called “robo-signing” settlement reached with the federal government.

All in all, it appears that there are more sources that are pointing to the dominance of the short sale in real estate for the 2nd half of 2012. Hence, it is a good bet to predict that short sales will edge out foreclosures in the 2nd half of 2012.