16A — January 22 - February 18, 2021 — 2021 Forecast — M id A tlantic Real Estate Journal


2021 F orecast

By Eric Sutter, Motleys Asset Disposition Group Foreclosures in 2021


020 was a year full of challenges brought on by COVID-19 and the

demic still surging and forgive- ness programs expiring, many people are wondering if a flood of foreclosures is coming next and how that will impact both borrowers and lenders. When the outbreak of the pandemic began, Freddie Mac (FHLMC), and Fannie Mae (FNMA) (collectively referred to here as Enterprises ) imposed a nation-wide moratorium on foreclosures for their federally backed, single-family mortgag- es. Because of this, foreclosure numbers were down signifi- cantly in 2020. The number was down 15% from the prior

quarter and down an astonish- ing 81% from the year prior. ( Attomdata.com ) Even without the foreclosure moratorium, most borrowers who faced financial trouble were given the option of modi- fying their current loan. By modifying loans and adding payments to the back end of the term, borrowers were able to avoid defaulting. With the Enterprises’ foreclosure mora- torium in effect through at least January 31, 2021, and pre- dicted by most to be extended, the fate of many borrowers is currently unknown.

Lenders need not look too far in the past to remember what it is like to have an over- loaded REO and special as- sets department. In an article written in 2009, Pew Research compared 2006 to 2008 fore- closure filings, “The number of homes in the United States with at least one foreclosure filing increased from 717,522 in 2006 (0.6% of all housing units) to 2,330,483 in 2008 (1.8% of all housing units).” ( https://www.pewresearch. org/hispanic/2009/05/12/v- foreclosures-in-the-u-s-in-2008 ) An overloaded REO depart-

ment can be devastating to lenders. The cost of additional staff to manage properties, property maintenance, taxes, insurance, and the severe cost of the capital that is tied up in these properties are all important factors on why lend- ers want to avoid owning fore- closed real estate. Because of this, Special Assets and REO departments nationwide are looking at ways to successfully sell more properties at the Trustee Sale, thereby freeing up needed capital and lower- ing operating costs. Once the federal protections expire and moratoriums are lifted, banks will be able to move forward with their fore- closure actions on defaulted loans. Many loans were trou- bled before the outbreak of the pandemic, and there are thou- sands of foreclosure assign- ments nation-wide that were in the middle of action when the moratorium was announced. These foreclosures will likely be the first to get reinitiated when the moratorium is lifted. Rather than using attorneys to hold the Trustee Sale, lend- ers will likely look to marketing and auction professionals to bring better results. Most lend- ers end up taking between 70- 80% of the properties they fore- close on back into their REO de- partment, making a successful third-party sale the exception. ( https://www.housingwire. com/articles/39109-third-par- ty-sales-at-foreclosure-auctions- now-higher-than-ever/ ) One such company, Fortis Trustees, a foreclosure trustee service providing marketing expertise and auctions (www. fortistrustees.com) sells 80% of the properties they foreclose on at the Trustee Auction to third-party buyers. Results like these save lenders time and money, limit their liability, and free precious capital, allow- ing bankers to do what they do best: banking. The global COVID pandemic has had a devastating effect that will likely lead to a sharp uptick of foreclosures in 2021. Lenders are putting their heads together in an effort to save money and handle their foreclosures more efficiently. Although we will likely see more foreclosure activity, with the help of marketing and auc- tioneering professionals, we will also see a higher percent- age of properties sold to third- parties. MAREJ

global pan- demi c that s w e p t t h e wor l d . The pandemic hit hard across virtually ev- e ry s e c t o r , and with it came changes

Eric Sutter

to the landscape of foreclosures. Because of moratoriums and various forgiveness programs, foreclosures all but came to a halt in 2020. With the pan-


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