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Foreclosures Rise to 24% of U.S. Home Purchases as Short Sales Increase

U.S. homes in or nearing foreclosure accounted for almost a fourth of residential purchases in the last three months of 2011 as lenders approved more short sales, where the price is less than the amount owed.

Deals for bank-owned and distressed properties rose to 24 percent of total home sales from 20 percent in the third quarter, according to RealtyTrac Inc. The transactions fell from 26 percent a year earlier, the Irvine, California-based data seller said today in a statement.

“We expect to see foreclosure-related sales increase in 2012, particularly pre-foreclosure sales,” Chief Executive Officer Bandon Moore said in the statement.

Banks may “aggressively” resume unloading distressed property after an 18-month delay brought on by federal and state legal probes into flawed foreclosure paperwork and documentation, Moore said. The fourth quarter showed lenders turning to short sales as a “better option” than holding a house whose borrower doesn’t make any payments, he said.

The number of short sales jumped 15 percent from the fourth quarter of 2010 while purchases of bank-owned houses fell 12 percent, according to RealtyTrac. Pre-foreclosure deals outnumbered bank-owned sales in the “bellwether” cities of Los Angeles, Miami and Phoenix, Moore said.

“That trend will likely show up in more local markets in 2012,” he said.

A total of 88,303 pre-foreclosure properties sold in the fourth quarter, making up 10 percent of all transactions.

Bank Settlement

Five of the top U.S. mortgage lenders last month reached settlements worth more than $25 billion with the federal government and all 50 states following investigations into abusive foreclosure practices. The lenders agreed to provide $17 billion in mortgage forgiveness programs, $3 billion in refinancing and cash payments to about 750,000 borrowers who lost their homes.

For the full year, purchases of foreclosures and distressed houses totaled 907,138, down 2 percent from 2010 and accounting for 23 percent of all home sales, RealtyTrac said. There were 204,080 such deals in the fourth quarter, down 8 percent from the previous three months and 2 percent from a year earlier.

Bank-owned (HOMFREO) home sales totaled 115,777 in the fourth quarter and sold for an average $164,944, little changed from the third quarter and down 5 percent from a year earlier, RealtyTrac said. The price represents an average discount of 29 percent compared with non-foreclosure properties, down from 34 percent in the third quarter and 35 percent a year earlier.

Pre-foreclosure homes sold for an average $184,221 in the fourth quarter, down 3 percent from the previous three months and 11 percent from a year earlier. The 88,303 properties sold at an average 21 percent discount relative to non-distressed houses.

RealtyTrac sells default data from more than 2,200 counties representing 90 percent of the U.S.

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net

To contact the editor responsible for this story: Daniel Taub at dtaub@bloomberg.net

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