A Special Research Report from the Minneapolis Area Association of REALTORS®
Q3-2009

Lender-owned foreclosure inventory available for sale in the Twin Cities has fallen by 60 percent in the last year, falling from an estimated 4,886 at the end of last September to 1,960 this year. Short sales are a different story—basically holding steady over the last twelve months (Figure 1). Lender-owned Minnesota foreclosures now account for only 7.9 percent of the total inventory, while short sales represent 17.4 percent of total inventory.

The simple reason for this growing chasm is that foreclosures are selling roughly three times as frequently as short sales (Figure 2). Short sales are complicated transactions and many consumers have reported considerable delays and uncertainties associated with making an offer on a short sale home. These complications are likely the main cause of the relatively quiet sales activity.

Foreclosures are properties in which the financial institution has repossessed the home from the owner due to nonpayment of mortgage obligations. Short sales are unique arrangements where the financial institution and in default homeowner work together in an attempt to sell the home before it is foreclosed upon.

It’s encouraging to see the number of vacant foreclosures drop as they’re absorbed by new homeowners. But it’s discouraging to see that short sales remain such a substantial drag on the market’s forward momentum, especially when we consider that a portion of these short sales will eventually become lender-owned foreclosures.