By Conor Dougherty | The Wall Street Journal
The number of American homes that end up in foreclosure has started to decline, a welcome development that partly reflects an improving housing market.
But a look at data that tracks distressed home sales reveals another reason why foreclosures are becoming less prevalent: More homeowners are turning to so-called short sales—where they sell their homes for less than what they owe in mortgage debt and the bank typically eats the difference.
In the past, short sales were rare. Now they are becoming increasingly common in part because lenders, homeowners and real-estate agents have become more experienced at marketing and pricing the properties, and because short sales are considered a more efficient way than foreclosure to sell underwater properties.
The shift is helping the housing market pare the backlog of distressed mortgages while cutting the amount of time vacant homes sit empty. That has helped keep home prices firm at a time when the real-estate industry is still healing from its multiyear slump.
Cesar Rivera is one beneficiary of the shift. Mr. Rivera paid about $290,000 for a four-bedroom, 2,200-square-foot house in Phoenix in 2003. After he was laid off in 2008 and got divorced, it became difficult to make the nearly $2,000 monthly mortgage payment. He stopped paying in 2009 and abandoned the home.
