LOS ANGELES, Jan. 9 (UPI) -- Home foreclosure sales in California, a staple since the housing bubble collapsed, are now running second to short sales, figures show.
Research firm DataQuick reported about a quarter of home sales in the state are now short sales, the Los Angeles Times reported Wednesday.
Short sales are deals struck with lenders in which the bank allows the home to be sold for less than what is owned on the mortgage. The bank forgives the owner the remainder and, lately, as the housing market has picked up in some regions, sometimes strikes generous deals including offering moving costs to homeowners and paying handsomely for owners to move, the newspaper said.
Bank of America and JPMorgan Chase are paying as much as $30,000 to $35,000 for homeowners who agree to short sales.
For banks, short sales include several advantages. The five major banks that agreed to a $26 billion settlement with the government for shoddy and sometimes fraudulent foreclosure practices can count loan forgiveness and incentives paid out in a short sale as part of the settlement costs. Homeowners also stay in the home until the short sale is completed, meaning the homes are not neglected for months as they often are with a foreclosure. Banks then receive a market value price when they sell the house, rather than a discounted price with a foreclosure sale. There are also far fewer legal expenses.
In addition, there are fewer hard feelings and less of a chance an angry former homeowner of a repossessed property will strike back.
"If you go through a short sale and a homeowner signs off on it, there is no downstream worry of litigation," said Sean O'Toole, founder of ForeclosureRadar.
The critical ingredient, however, is an improving housing market. Banks do not generally see themselves as home developers, real estate agencies or property management companies. As such, with a collapsing housing market, they prefer keeping the onus on the homeowner, who at least on some level is speculating on the housing market.
An improving housing market at least offers banks a chance at breaking even on a deal.
For homeowners, besides loan forgiveness and sometimes generous offers to cover moving costs, credit scores are hurt less with a short sale than a foreclosure and the waiting period for applying for a new loan is shorter -- usually, two years.
"In general, short sales produce less of a loss than if the property goes through foreclosure. In addition, the property is usually conveyed in better condition, which ultimately benefits the neighborhood," Wells Fargo spokesman Gary Kishner said.