Foreclosure bans have been in place for over a year at this point, and a Biden executive order extended the CDC’s measure until at least July. Despite all these efforts, though, foreclosures continue to rise.
According to a report from ATTOM Data Solutions, foreclosures were up 9% in the first quarter of the year and 5% just in March.
To be fair, foreclosures are still down considerably over the year, but near-term? It was the second straight month of increasing foreclosure activity. Foreclosure starts are also up 3% for the quarter and 36% in some states, indicating more foreclosure increases are in the cards.
It begs the question: How are foreclosures happening with moratoriums in place? And does this mean more properties might be on the horizon for bargain-hunting investors? Let’s take a look.
Foreclosures despite bans
While it’s true most homeowners can’t be foreclosed on right now, the protections really depend on what type of loan the property is financed with. Those with FHA, USDA, or VA loans are protected by Biden’s executive order, and those with conventional Fannie Mae- or Freddie Mac-backed loans have the Federal Housing Finance Agency’s measure, which bans foreclosure through the summer.
But those aren’t your only loan options by any means, and for property owners with financing outside of these categories, foreclosures are still very much in the picture. According to the National Housing Law Project, that’s about 30% of all single-family homes.
There are also commercial and investment properties to consider, too. These are typically financed outside of these protected loan programs and are vulnerable, too.
Here’s how Rick Sharga, executive vice president of foreclosure sale platform RealtyTrac, explained it:
"The government's moratorium bans foreclosures on government-backed loans for homeowners, and borrowers in the forbearance program are also protected from foreclosure actions. But loans on commercial properties, investment properties, and properties that are vacant and abandoned do not always have the same protections."
According to Sharga, those vacant and abandoned properties may account for a good share of the current foreclosures we’re seeing. After all, the various foreclosure protections are designed to keep Americans in their homes and out of crowded shared-housing spaces. If a property is abandoned and vacant, those same risks don’t exist, and servicers are more apt to take action.
Does it mean more supply is coming for investors?
It’s no secret that foreclosures are a popular option for real estate investors -- especially those interested in fix-and-flips. But if you’re in this boat, it’s not time to celebrate just yet.
Though foreclosures are up monthly and quarterly, they’re still down 75% compared to a year ago, and that’s a big shortage to overcome.
On top of this, foreclosure timelines have slowed down significantly. According to ATTOM’s data, foreclosures are taking a whopping 38% longer than they were in early 2020. The average foreclosure now takes about 930 days from start to finish -- 257 days longer than last year.
It’s a good reminder that those foreclosure starts we’re seeing won’t equate to an immediate supply infusion. (At least in most places. Some states take just 48 days!)
The bottom line
Foreclosures are indeed rising, even despite bans and moratoriums. Still, it doesn’t mean an influx of properties is ready and waiting.
In many areas, it may be a while before these foreclosed homes hit the market, so make plans for alternative investments while you wait. Real estate investment trusts (REITs), real estate stocks, crowdfunded deals, or any of these other investing vehicles can all be great options.