Foreclosure sales are down in New Jersey, but short sales are up, according to a report by RealtyTrac, an online marketplace for foreclosure properties.

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A total of 193,059 U.S. properties are some stage of foreclosure were sold during the third quarter, an increase of 21 percent from the previous quarter, but still down 3 percent from the third quarter of 2011.

The report also shows that foreclosure-related sales accounted for 19 percent of all U.S. residential sales during the third quarter - down from 20 percent in the previous quarter but the same level as in the third quarter of 2011.

Counter to the trend in recent years, sales of properties in some stage of foreclosure (pre-foreclosure sales) outnumbered sales of foreclosed, bank-owned properties in the third quarter. A total of 98,125 pre-foreclosure sales occurred during the quarter compared to a total of 94,934 REO sales.

But, there is good news in New Jersey.

"Foreclosures are down 17 percent from last year," said Daren Blomquist, vice president of RealtyTrac. "The concern now is in the increase in short sales in New Jersey, which have jumped 46 percent. There is a long way to go in terms of a housing recovery homeowners are losing their homes either by foreclosures or the short sale process and its going to take some time to climb out of that trend," he added.

Other high-level findings from the report:

Pre-foreclosure sales increased 22 percent from the previous quarter and were also up 22 percent from the third quarter of 2011, while the average sales price decreased 3 percent from the previous quarter and was down 5 percent from a year ago.

REO sales increased 19 percent from the previous quarter but were still down 20 percent from the third quarter of 2011. The average REO sales price decreased 7 percent from the previous quarter but was still up 7 percent from the third quarter of 2011.

Homes in foreclosure or bank owned sold at an average price that was 32 percent below the average price of a home not in foreclosure, up from a 29 percent discount in the second quarter and a 31 percent discount in the third quarter of 2011.

Short sales of properties not in the foreclosure process increased 15 percent from the previous quarter and were up 17 percent from the third quarter of 2011. These non-foreclosure short sales accounted for an estimated 22 percent of all residential sales, bringing the total distressed sale share to an estimated 41 percent for the quarter.

Non-foreclosure short sales prices in the third quarter fell short of the total amount of loans outstanding by an average of $82,312 per short sale. For all short sales, including non-foreclosure and in-foreclosure properties, the sales price was short of combined loan amounts by average of $94,896 per short sale.

"The shift toward earlier disposition of distressed properties continued in the third quarter as both lenders and at-risk homeowners are realizing that short sales are often a better alternative than foreclosure," said Blomquist. "However, the scheduled expiration of the Mortgage Forgiveness Debt Relief Act at the end of this year could stifle this trend toward short sales. If that law expires as scheduled, homeowners who agree to a short sale could see their income tax jump significantly because the portion of the unpaid loan balance not covered by the short sale proceeds will be considered taxable income in many cases.

"The prospect of being taxed on potentially tens or hundreds of thousands of dollars in additional income may motivate more distressed homeowners to forgo a short sale and allow the home to be foreclosed," continued Blomquist. "Additionally, if the mortgage interest deduction is eliminated due to the fiscal cliff quagmire, it would give many underwater and otherwise distressed homeowners one less reason to hang on to their homes."

Georgia, Arizona and California posted the highest percentage of foreclosure sales.

Blomquist says New Jersey and other states affected by the superstorm could take longer to recover than other states.

"Unfortunately the three states dealing with the biggest rebound in deferred foreclosure activity - New Jersey, New York and Connecticut - also had to deal with the devastation to homes inflicted by super storm Sandy. The foreclosure moratoriums being put into effect as a result of the storm will likely extend the already-lengthy time to foreclose in these states, further prolonging a fundamentally sound housing recovery."

The full report is available online.