A total of 193,059 properties in some stage of foreclosure or bank-owned status sold across the U.S. in the third quarter, up 21% from the second quarter, RealtyTrac said Thursday.
Despite the sharp increase from a month earlier, the sale of distressed properties actually fell 3% from the third-quarter of last year.
Short sales grew in popularity across the marketplace, with the total number of short sales increasing 15% from the second quarter and 17% from a year earlier, RealtyTrac said. These short sales accounted for 22% of all residential sales during the period.
Pre-foreclosure sales, which account for the sale of properties in default, rose 22% from the previous quarter and 22% from last year.
REO sales, on the other hand, rose 19% from the second quarter, but fell 20% from a year ago. This steep year-over-year drop in REOs suggests the market is finding ways to sell distressed properties before a homeowner has to go through a full foreclosure.
But RealtyTrac warns gains made on short-sales and pre-foreclosure sales could be negatively impacted if the New Year brings changes to how mortgage debt is treated when pushing through a rapid sale.
"The shift toward earlier disposition of distressed properties continued in the third quarter as both lenders and at-risk homeowners are realizing that short sales are often a better alternative than foreclosure," said Daren Blomquist, vice president of RealtyTrac.
He added, "However, the scheduled expiration of the Mortgage Forgiveness Debt Relief Act at the end of this year could stifle this trend toward short sales. If that law expires as scheduled, homeowners who agree to a short sale could see their income tax jump significantly because the portion of the unpaid loan balance not covered by the short sale proceeds will be considered taxable income in many cases."