Simplified processes, investor demand and a tax credit imminently set to expire have all combined to produce a boom in short sales of residential homes in the Carolinas. Short sales are a type of real estate transaction in which a homeowner owes more on their mortgage than the property is actually worth. Roughly 11 million homeowners in the United States have outstanding mortgage debt greater than their home’s current value, with nearly 1.8 million of them located North Carolina.

Whereas short sales nationwide were up 17 percent in the third quarter of 2012 from the same time in the previous year, North Carolina saw a boost of 25 percent. South Carolina experienced a jump of 22 percent, based on figures released by industry research firm RealtyTrac. Short sales gained traction during the aftermath of the real estate market collapse, when many property owners needed to sell but were confronted with home values that were in steep decline. Recent improvements in the market have made short sales and foreclosures somewhat less common than they had been, but several factors have led to a marked uptick of late.

Some experts believe that the recent rise in short sales is partially attributable to anticipation of the December 31, 2012 expiration of the Mortgage Forgiveness Debt Relief Act. The Act gave sellers the temporary ability to avoid being taxed on any outstanding mortgage debt forgiven by their lenders via short sales. For many sellers, this legislation produced very significant savings. Proposals to extend the legislation for an additional year have been introduced, but their fate remains uncertain.

Further contributing to the recent rise in short sales is the fact that lenders have taken pains to simplify the process itself, which was often known for being cumbersome, unpredictable and slow. Short sales involve substantially more documentation and negotiation than traditional transactions, but streamlined procedures and technological innovations introduced by lenders have succeeded in making such deals more appealing and less intimidating.

Finally, many real estate investors have begun to turn their attentions to short sales as a way to amass portfolios of single-family properties that can be turned into rental homes. Hedge funds and large equity firms are among the investors taking full advantage of the current market, frequently purchasing multiple short sale properties at once. Realtors in the Charlotte area report that many properties have interested purchasers even before they have been made publicly available. This, combined with the aforementioned conditions favorable to short sale transactions has been responsible for the noticeable rise in such deals observed throughout 2012.