With the number of short sales increasing and even outnumbering REO sales in certain states, experts are speculating short sales might become key to preventing an even greater swelling of foreclosed properties on the market.

Compared to a year ago in January 2012, pre-foreclosure sales, which are typically short sales, increased 33 percent, according to a RealtyTrac report released Thursday.

Short sales even outpaced bank-owned REO sales in 12 states, including Utah, California, Arizona, Florida, Indiana, Colorado, New York and New Jersey. Also, 32 states saw annual increases in pre-foreclosure sales, with the top five being Georgia (+113 percent), Michigan (+90 percent), Wisconsin (+77 percent), South Carolina (+76 percent) and Utah (+70 percent).

Despite the increase, Daren Blomquist, VP of RealtyTrac and author of the report, points out that short sales have declined on a long-term basis, but January’s report could signal a turning point.

“Short sales have long held great promise as a market-based solution to the nation’s foreclosure problem, but short sales transactions over the past three years have actually declined after peaking in the first quarter of 2009,” said Blomquist. “January foreclosure sales numbers, along with first quarter foreclosure activity, strongly indicate that downward trend is ending, and we believe 2012 could be a record year for short sales.”

Average pre-foreclosure prices saw a decline, according to the report, with the average sales price in January at $174,120, down 10 percent from January 2011. This, RealtyTrac stated, shows that lenders are more willing to approve more aggressively priced short sales.

In January, a home sold via short sale sold at a 21 percent discount on average compared to the average price of a home not in foreclosure, according to RealtyTrac.

The five states with the biggest discounts were Massachusetts (40.86 percent), Missouri (35.5 percent) California (29.93), Indiana (29.82), and Georgia (29.31).

The five metropolitan areas with the greatest discounts were Kansas City (56.53 percent), Louisville/Jefferson County (44.25 percent), Milwaukee-Waukesha-West Allis (43.64 percent), Boston-Cambridge-Quincy (41.57 percent), and Indianapolis-Carmel (37.26 percent).

The time it took to approve of a short sale was a bit lower for the 2012 first quarter, averaging 306 days, down from 308 days in the fourth quarter of 2011 and down from a peak of 318 days in the third quarter of 2011. The short sale timeline begins when a property starts the foreclosure process to when it’s sold as a pre-foreclosure.

However, the average time to sell a pre-foreclosure has actually tripled since the first quarter of 2007, when it took an average of 113 days.

There’s nothing short about short sales. If you can survive that process and make that happen it’s going to be a better outcome for everyone, said RealtyTrac VP Charlie Engel during a broadcast hosted by the Charfen Institute for Certified Distressed Property Experts.

Recently, Bank of America and GSEs Fannie Mae and Freddie Mac announced efforts to streamline the short sale process. BofA’s change requires a decision on a short sale in less than 3 weeks.

Starting in June, the GSEs are requiring servicers to make a decision on a short sale within 30 days of receiving an offer or an application package from a borrower; if more time is needed, a servicer must provide the borrower with a weekly update and come to a decision no later than 60 days.

With foreclosure starts – either default notices or scheduled foreclosure auctions – numbering more than 100,000 in March, this means more opportunities for short sales, according to the report.

Compared to the month before, March foreclosure starts increased 7 percent, but were down 11 percent from a year ago. When looking at individual states, 31 posted monthly gains in foreclosure starts in March.

Other properties with potential to become short sales are delinquent loans, which represented approximately 3.5 million properties, according to a fourth quarter 2011 survey from the Mortgage Bankers Association.

RealtyTrac is an online marketplace of foreclosure properties, with more than 1.3 million default, auction and bank-owned listings from over 2,200 U.S. counties, along with detailed property, loan and home sales data.

The Dulcie Crawford Group is one of the top producing short sales group in Clark County, and finished #1 for 2011 in sales volume for the Henderson office of Realty One Group. We started the short sale seminar series in late 2010 to help homeowners find the best solution. The next seminar date is on June 9th, 1-4 PM. But you don’t have to wait that long, call us today to schedule your FREE consultation.