Foreclosure starts resume rise, inching closer to pre-pandemic levels

Initial foreclosure actions in August inched closer to pre-pandemic norms while completions remained far lower than they were prior to COVID-19’s arrival in the United States, according to Attom Data Solutions.

Starts rose to 23,952 during the month, recovering from a seasonal dip to 21,428 in July, and nearly tripling the 8,348 seen a year earlier. That’s close to the low end of the range seen just prior to the pandemic. In August 2019, foreclosure starts totaled 27,886.

“August numbers were the highest we’ve seen since the pandemic in terms of foreclosure starts,” said Rick Sharga, executive vice president of market intelligence at Attom.

The latest increase in initial actions confirms expectations that foreclosure activity is gaining new momentum and starts could normalize relative to the pre-pandemic period in 2023.

“It kind of feels like August might be an inflection point and an indicator that we are going to be getting back to normal levels of foreclosure starts sooner than we might have anticipated,” Sharga said in an interview.

Monthly foreclosure start rates are still far below long-term averages. During the Great Recession they surpassed 200,000, he noted.

“We’re not looking at 2008 level foreclosure activity, we’re looking at activity getting back to 2019 levels, which was still relatively low, historically speaking,” Sharga said.

The number of properties repossessed through completed foreclosures also rose in August but at 3,938, it remained far below 2019 levels that were in the low five-digit range. In July, foreclosure completions totaled 3,068. A year ago, they totaled 2,474.

That’s largely because even in a cooling housing market with higher mortgage rates, enough equity remains from the extraordinary residential real-estate boom seen in the past two years to give distressed borrowers alternatives to foreclosure.

“Our data shows that about 90% of borrowers in foreclosure currently have positive equity and a large percentage have enough equity that they ought to be able to pay for fines, fees and the costs of sales and marketing for their property, and still walk away with cash,” Sharga said.

Real-estate owned properties, which banks foreclosed on or repurchased, were most numerous in the following states during August: Illinois (493), New York (337), Michigan (326), Pennsylvania (260) and California (189).

One out of 4,072 housing units had a foreclosure filing in August, but in some states they’re far more prevalent. In Illinois, for example, one of every 1,926 units had a foreclosure filing. Attom includes various types of default notices, scheduled auctions or bank repossessions in this category, and it takes steps to minimize double-counting of these documents in its numbers. Specific notices included in filings could be related to default, trustee or foreclosure sales, lis pendens (a pending legal action) or REO (real-estate owned) .

Among states with a minimum of 100 foreclosure starts, the largest jumps in August were seen in Oklahoma (80%), Tennessee (74%), Virginia (64%), Arkansas (53%) and Washington (50%).

“There will probably continue to be volatility in these numbers as we move through the rest of 2022 because each state is taking different times to sort of restart the foreclosure processes, so you do have these sudden bursts of activity, and some states where that happened earlier than others,” Sharga said.

Locally, Cook County, Illinois, has the highest number of foreclosure starts during the month at 798, followed by Los Angeles County, California (740); Harris County, Texas (465); Suffolk County, New York (297); and Riverside County, California (280).

Attom collects data from more than 3,000 counties in the United States which account for more than 99% of the country’s population.