A Wave of Foreclosures in 2022? Are Overburdened Courts Inevitable?
The United States is currently experiencing a massive jump in total foreclosure starts, with firm ATTOM Data Solutions reporting 23,024 foreclosure filings in January 2022 — a 700% YoY increase. This is a troubling sign for many in the property markets; a potential harbinger of doom in a sector still scarred from the devastation of the 2008 crash.
Foreclosures are up big in 2022. In April, ATTOM Data Solutions reported that U.S. Foreclosure Activity Set Post Pandemic Highs in the First Quarter of 2022. ATTOM, RealtyTrac’s parent company, licenses data from the nation’s largest online marketplace tracking foreclosures and distressed properties. Their Q1 2022 U.S. Foreclosure Market Report showed foreclosures up a whopping 39% from last quarter, and up a stunning 132% from a year ago.
In March alone, 33,333 U.S. properties were subject to foreclosure filings, representing a 29% increase from the previous month, and a 181% increase from last year. Thus, March 2022 marked the 11th consecutive month with consistent YoY growth in U.S. foreclosure activity. Notably, foreclosure starts increased in every state in the union, with a total of 50,759 properties entering the foreclosure process in Q1 2022; a figure 67% higher than the previous quarter, and up 188% from the year before.
The ongoing foreclosure crisis is not exactly an unexpected development. During the COVID-19 pandemic, foreclosure moratoria —the result of federal, state, city, and county efforts to keep people in their homes during the height of the pandemic – stalled or even halted foreclosure processes nationwide. The Federal Government imposed requirements on lenders like the COVID hardship forbearance, which applied to all GSE (federally-backed and federally-sponsored) loans. Lenders also had to navigate and adhere to the patchwork of other rules, regulations, and legislation designed to aid borrowers and prevent COVID-related foreclosures.
While this proved a lifesaver for many Americans who found themselves out of a job through no fault of their own, it also created massive headaches for landlords and lenders. Tenants couldn’t be evicted for non-payment borrowers didn’t have to make payments; and the entire flow and balance of the real estate market was called into question.
Now that the darkest days of the pandemic appear to have passed, we are seeing eviction rates rise as the no-eviction orders are lifted. Lenders are also getting some relief, as the federal mortgage eviction moratorium was allowed to expire on July 31, 2021. These developments are largely responsible for the significant the rise in evictions occurring in 2022.
Is the rise in foreclosures going to overwhelm the court system?
Coming out of the pandemic, the U.S. is facing an overwhelmed court system, which was ill-prepared for the challenges posed by such a lengthy national health emergency. Legal aid groups point to an enormous need for qualified legal representation for a whole host of individuals, with limited resources and staffing already strained from the effects of the pandemic. If the 2008 financial crisis is any indicator of what is to come, it may also offer some lessons on how to mitigate some of the issues courts are facing, particularly in the area of foreclosure.
So far, the courts appear to be adapting better than they did in 2008; perhaps as a result of lessons learned from the aftermath of the financial crisis, and the understanding that eviction and foreclosure moratoria would be short-term solutions and that courts would eventually need to re-open and deal with a heavy caseload. However, foreclosure processes are still moving and recovering slowly in most states, and we are not completely out of the woods yet. Only time will tell what the long-term effects of the pandemic will be on the court system; indeed, we may still see significant problems down the line.
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