The Breakdown

Explaining Southern California's economy

There's a short sale boom in California — but will it last?

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The real estate market is California has improved - slowly and steadily - but a shift is underway. Real-estate data firm RealtyTrac, which specializes in foreclosure information, has released its 2012 U.S. Foreclosure and Short Sales Report and it indicates that short sales are supplanting foreclosure-related transactions in the state. 

A short sale is, in essence, a kind of foreclosure without the the bank getting stuck with the property. In a short sale, the lender agrees to accept less than what’s owed on a home — but the homeowner locates a willing buyer. The process can take a while. But for borrowers who are underwater on their loans — and many in California still are — a short sale can be one way out of a bad financial situation.

It also means that the homeowner avoids foreclosure.

RealtyTrac reports that short sales boomed during the third quarter this year. They increased 20 percent from last year and accounted for 14 percent of all residential sales.

But the dreaded fiscal cliff could “stifle this trend,” RealtyTrac’s Daren Blomquist said in a statement. That’s because the Internal Revenue Service can forgive the difference between what short sellers owe and what they sell for. But if we go over the cliff, the IRS could ding them come tax time.

Blomquist's concern is that the expiration of this type of debt forgiveness could slow the pace of short sales. That, in turn\,  would prevent the California market from returning to something resembling health as quickly as it could.

Follow Matthew DeBord and the DeBord Report on Twitter. And ask Matt questions at Quora.

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