Homeowners such as the Rhode Island couple are finding their mortgage companies eager to accept a sale price that falls short of a property's loan balance -- a so-called mortgage short sale. The number of U.S. loans entering foreclosure reached an all-time high in the fourth quarter, according to the Washington-based Mortgage Bankers Association. That's spawning a cottage industry of real estate investors who profit as lenders try to avoid adding properties to their portfolios.
Basically the owner turns over the house to the mortgage company, who in turn puts the house on the market or quickly sells the house to a private investor. This gets the house off of the companies books and may help to prevent a longer-term loss for the bank/lender.
However, this practice will drive prices down as the seller is very motivated to sell and therefore will accept a lower price.
The short sales may mitigate the impact of the housing slump as the properties avoid being tallied as foreclosures. At the same time, they will help push the U.S. median home price to a third consecutive quarterly decline in 2007's first three months, Berson said.
The problem is no one tracks this market so we have no idea what the actual impact it.
