Since the depths of the housing crisis, homeowners who owed more on their mortgage than their homes were worth had few options. That has begun to change.
More homeowners are now turning to short sales, in which they sell their homes for less than what they owe in mortgage debt and the lender typically forgives the difference.
Nationally, short sales made up 22 percent of all residential sales in 2012, a 4 percent increase from the previous year, according to a report from RealtyTrac. It comprised a bigger portion of the market, 28 percent, in Maryland last year, up 16 percent from 2011. The District also saw an uptick last year, with short sales making up 16 percent of home sales, an increase of 10 percent from 2011. In Virginia, where distressed property sales decreased overall, short sales declined by 7 percent in 2012, making up 21 percent of all sales.
Short sales have become a popular alternative to foreclosures because they eliminate the time-consuming and difficult foreclosure process, said Daren Blomquist, vice president of research firm RealtyTrac.
“Banks are proactively agreeing to a short sale to deal with distressed property,” he said.
For houses in the District, the amount of forgiven debt is the highest in the country — a staggering $122,190. This was an increase of more than $5,000 from 2011 and puts the District ahead of states that were especially hard hit by the housing crisis, including California and Nevada.
It takes a long time for a home to go through the foreclosure process in the District, making short sales more appealing for the banks, Blomquist said.
“One of the things going on in D.C. is that it is almost impossible to foreclose,” he said.
The average shortfall accounted for in a short sale was $82,415 in Maryland and $75,851 in Virginia. That compares to a national average of about $82,000.
The shift to short sales is likely to continue this year. There are still more than 10 million homeowners underwater on their mortgages, Blomquist said.