In the heady days following the 2008 real estate collapse, entire seminars were devoted to short sales. Investors walked out with binders filled with scripts on how to talk to a bank’s loss mitigation department and what to photograph to convince them that their property was a financial money pit, increasing the chances that they would let them buy it for pennies on the dollar.
We might not be back there yet, but the upward spiral of property taxes and insurance costs and the downward trend of house prices have left banks with toxic assets they’re in a rush to get rid of—offering investors the chance to pick some low-hanging real estate fruit.
Short Sales Are a “Growing Corner of the Market”
Foreclosures are currently outnumbering short sales 2-to-1, according to a new Realtor.com report. While short sales remain at historically low numbers, they are creeping up, hinting at worse to come should real estate holding costs continue to do likewise.
According to the report, nearly 30,000 short sales took place in the U.S. in 2025, accounting for 28% of distressed home sales and just 0.6% of all home sales—a far cry from 2012, when they made up 9% of all sales.
Explained Realtor.com economist intern Glen Morgenstern in the Realtor.com article: “Then the market recovered. Homeowners rebuilt equity, short sales faded along with foreclosures, and the crisis-era programs wound down. Today, short sales are a small corner of the market but a growing one.”
The Heaviest Short Sale Concentrations Are Where Taxes and Insurance Have Spiked
The pace of short sales has been increasing—up 4% from 2023-2024, nearly 10% from 2025-2026, and now a 16% increase so far in 2026. This is partly due, Morgenstern says, to pandemic-era protections being phased out. The heaviest concentrations are located in areas where expenses such as taxes, insurance, and HOA dues have skyrocketed, causing foreclosures and thus short sales to spike.
“They’re having payment shocks from taxes and insurance…along with potential job distress,” Marina Walsh, an economist at the Mortgage Bankers Association, told the Wall Street Journal, adding that this “layering effect” is creating distress, especially for recent buyers.
Where Short Sales Are Clustering
Realtor.com’s July 2026 analysis identifies Lakeland, Florida—which has 3.5 short sales for every foreclosure—as the leading short sale market in the country, with 6.7% of local listings categorized as short sales in May. Next came:
- Colorado Springs, Colorado (5.8% of listings)
- Putnam, Connecticut (5.6%)
- Pueblo, Colorado (5.2%)
- Vallejo, California (4.5%)
Many of these areas have certain things in common. Homeowners bought at the top of the market just after the pandemic. Inventory has since increased along with taxes and insurance costs, while sales prices have flattened or dropped. It has left buyers underwater, owing more than their house is worth.
A Financial Chokehold
Local real estate agents blame the frenzied low-rate bidding war buying climate that followed the pandemic. Many of those buyers have sub-3% interest rates that they are reluctant to give up, but the additional holding costs have put them in a financial chokehold.
In contrast, interest rates at 6.5% mean new buyers are thin on the ground as inventory increases. This has been particularly acute in Florida, where home insurance costs jumped by 75% between 2021 and 2025—almost double the national increase following several high-profile storms—putting homeowners in Lakeland under severe pressure, despite their mortgage payments remaining fixed.
Carolyn Kousky, executive director of the Coalition for an Insurable Future and a contributing economist at the Environmental Defense Fund, told the Miami Herald:
“Coming out of COVID, we had that period of high inflation, we had labor market and supply chain disruptions. All of that made it more expensive to build, and when construction is more expensive, insurers have to pay more claims, and then that means they need higher premiums to compensate for that.”
Buyer Fatigue Exacerbates Homeowners’ Problems
On the buy side, the uptick in holding costs and interest rates has caused a drop-off in sales, further exacerbating underwater property owners. Redfin reports that pending home sales fell 2.2% week over week in the four weeks ending July 12.
“First-time buyers are having a tough time breaking into the market,” said Christine Kooiker, a Redfin Premier agent in Grand Rapids, Michigan. “High mortgage rates mean that even homes in the most affordable price point—under $350,000 in the Grand Rapids area—are a stretch for a lot of buyers, and they’re hard to find and competitive.”
The Short-Sale Strategy for Mom-and-Pop Landlords
For real estate investors, the combination of high costs for owners, elevated rates, and buyer hesitancy has created an environment where all-cash buyers may be able to approach banks and make lowball offers on their distressed inventory.
Although short sales are paperwork-heavy, for a seller, they remain less damaging to their credit than a foreclosure. Investors who can identify homeowners in trouble—either through mailings, skip tracing, PropStream, BatchLeads and text services, bandit signs or REI clubs—might be able to work out a deal to allow them to stay in their home. At the same time, they can negotiate with the bank’s loss mitigation department, giving the owners valuable time to find another home.
For small investors, the short sale playbook has changed little over the last two decades: Offer the bank’s loss mitigation department a win-win scenario. It’s the opportunity for a bank not to have to deal with repairs and the cost of taxes, insurance, and overseeing a vacant property when the current occupants leave. The longer a vacant house sits on the market, the greater the risk of damage and squatters.
Recapping the Process
Specialized agents often handle REO sales, but a robust marketing campaign can identify homeowners in jeopardy before they even get to the pre-foreclosure stage. An investor usually identifies a short sale through one of the following:
- Public records & pre-foreclosure (notice of default, or NOD, or a lis pendens) in public records
- The MLS and RE agents
- Driving for dollars
- Direct-to-seller marketing
Once a potential short sale has been identified, a lien check should be undertaken before submitting an offer to a lender, which customarily includes a seller hardship letter along with the reasons why a short sale would be in the lender’s best interests (outlining expenses and repairs needed).
Final Thoughts: Beware of Scammers
Securing a short sale can be a process, taking several months and a lot of paperwork. This is why many investors choose to outsource negotiations.
If you are considering this, be very wary. If a third-party negotiator charges an upfront fee or an “off-the-settlement-statement agreement” or is not licensed, do your research, get testimonials, confirm business addresses and phone numbers, and be prepared to walk away at the merest hint of a red flag.
