Owning a home is the American dream. But as the distressingly high foreclosure statistics taught us back in 2008, that dream can be taken away in the blink of an eye. Going through a foreclosure has a devastating effect on your health. Not to mention the long-term effects on your overall credit score. With such far-reaching consequences, we should be better prepared to deal with foreclosures. Sadly, when asked, six in ten homeowners said they wished they’d understood the terms of their mortgage better.
We’re here to remedy that situation by providing the most essential information on foreclosures every homeowner should know.
To find out what these are, and more, just keep on reading.
Top 10 Key Foreclosure Statistics & Facts
- There are two types of foreclosures: judicial and nonjudicial.
- From start to finish, house foreclosures can take a year or longer.
- The main reason for house foreclosures is borrowers falling behind on their mortgage payments.
- There were foreclosure filings reported on 493,066 US properties in 2019.
- As of February 2020, there were 48,004 US properties with foreclosure filings.
- Depending on your previous credit score and other factors, a foreclosure on your credit report can drop your credit score anywhere from 85 to 160 points.
- The home mortgage debt of households and NGOs reached around $10.52 trillion by Q3 2019.
- New Jersey had the worst rates of foreclosed homes in February 2020.
- Foreclosures stay on a borrower’s credit record for years.
- Most states allow lenders to pursue borrowers for a deficiency judgment.
A Few Basic Foreclosure Facts
1. There are two types of foreclosures: judicial and nonjudicial.
(Nolo)
In judicial foreclosures, state laws require legal action to be taken prior to the foreclosure process. Therefore, lenders must provide proof of delayed loan payments.
In the case of a nonjudicial foreclosure, lenders can default directly to the borrower without the involvement of the court.
2. From start to finish, house foreclosures can take a year or longer.
(PR Newswire) (NBF)
Nevertheless, the length of the foreclosure procedure depends on state laws. Based on foreclosure statistics in Q3 2018, Indiana (a judicial state) had the longest average foreclosure timelines for homes with 1,633 days, whereas Virginia (where both judicial and nonjudicial foreclosures are available) had the lowest with 201 days.
Homes foreclosed in Q3 2019 spent an average of 841 days in the foreclosure process, up from 713 days in Q3 2018, and an increase from 716 days recorded the previous quarter.
3. Foreclosure and eviction practices by state vary greatly, but they generally depend on whether the process is judicial or nonjudicial.
(SFGATE)
For instance, homeowners in Washington have 20 days to vacate the property after a foreclosure.
In California foreclosures, on the other hand, the new owner has the right to issue a three-day notice to the former owner. In a judicial mortgage foreclosure, the homeowner can’t be evicted for up to one year (until the redemption period expires).
4. The statute of limitations on a foreclosure typically lasts between three and six years, depending on the foreclosure statute of limitations by state.
(Justia)
The statute of limitations refers to the time in which a lender can pursue a foreclosure procedure once the borrower stops making mortgage payments.
The length of the statute of limitations, as well as determining when the clock actually starts running, varies as some states have specific statutes of limitations on foreclosures. In contrast, other states adhere to the statute of limitations for written contracts.
Reasons for Foreclosure Statistics
5. The main reason for house foreclosures is borrowers falling behind on their mortgage payments.
(Citywide Home Loans) (Nolo)
If borrowers are at least 120 days behind on their mortgage payments, the lender can legally start the foreclosure process.
Some of the leading causes of delayed or halted payments include a death in the family, rising medical bills, or leading a lifestyle that is beyond one’s means.
6. Other reasons for foreclosure include negative equity and adjustable mortgage loans, foreclosure statistics show.
(Citywide Home Loans) (AJC) (The Washington Post)
Negative equity, or colloquially referred to as “being underwater,” happens when the price of the home falls, resulting in the homeowner owing more in mortgage than what the home is worth. Even though just 12% of homes had negative equity, they accounted for 47% of all foreclosures in the second half of 2008.
Adjustable mortgage loans, which were one of the main reasons for the high historical foreclosure rates during the housing crisis, are once again on the rise. In December 2018, 9.2% of all new mortgage loans had an adjustable rate.
7. Subprime mortgages were responsible for 42% of foreclosure starts in 2007.
(CNN) (Investopedia)
The widespread use of subprime mortgages, generally issued by high-risk borrowers, was one of the main reasons for the 2008 housing market crash. This is also the year of the big stock market crash.
On top of that, subprime loans have higher delinquency rates, which in turn leads to higher rates of foreclosed properties.
How Common Are Foreclosures?
8. The number of foreclosed homes has been steadily declining since 2010.
(Bankrate)
Foreclosure filings on US property peaked in 2010 when the rate of foreclosed properties was as high as 2.23%, i.e., there were about 1 in 47 properties with mortgage foreclosure filings ten years ago.
9. There were foreclosure filings reported on 493,066 US properties in 2019.
(ATTOM Data Solutions)
Foreclosure rates in 2019 were down by 21% from the previous year, and down by a whopping 83% from the 2010 peak.
10. In February 2020, there were 48,004 US properties with foreclosure filings.
(ATTOM Data Solutions)
This is the lowest number of total house foreclosures recorded since 2005.
Numbers were also projected to decline even more over the upcoming period mostly due to banks, prompted by the coronavirus outbreak, issuing a moratorium on all foreclosures and evictions, foreclosure statistics for 2020 predicted.
11. The number of “zombie” homes is up, though.
(The Washington Post)
“Zombie” foreclosures refers to homes that are vacant while the foreclosure process is going on. There were about 8,700 empty foreclosed homes in the US in the first quarter of 2020, up by 3.1% compared to Q4 2019.
12. Lenders repossessed 10,469 properties in February 2020.
(ATTOM Data Solutions) (ATTOM Data Solutions)
The number of foreclosed properties is slightly up (by 1%) from the 10,363 repossessed homes in January this year. Yet, compared to foreclosure statistics from 2019, rates are down by 8%.
13. The home mortgage debt of households and NGOs reached around $10.52 trillion by Q3 2019.
(Statista) (Statista)
Mortgage debt is the largest form of debt among American consumers.
Yet, 41% of respondents in a 2018 survey said they spent less than an hour researching home loans and comparing lenders before applying for a mortgage, whereas only 19% spent more than 10 hours on the same task.
Foreclosure Rates by State
14. New Jersey had the worst rates of foreclosed homes in February 2020.
(ATTOM Data Solutions) (PR Newswire) (ATTOM Data Solutions)
With 1 foreclosed property per every 1,457 housing units, New Jersey surpassed Delaware as the state with the worst rates of foreclosing homes in the US.
Delaware was ranked as the state with the worst rates both in Q3 2019 (1 in every 1,170 housing units with a foreclosure filing in that quarter) and in January 2020 (with foreclosure rates of 1 in every 1,210 properties).
15. 14 states recorded yearly increases in the number of foreclosed homes between 2018 and 2019.
(ATTOM Data Solutions) (RealtyTrac) (RealtyTrac)
The number of foreclosure starts decreased nationwide, however in states such as Rhode Island and Mississippi, the percentage of foreclosure strats went up by 54% and 39%, respectively.
Despite the increase, both states have an average foreclosure rate of 0.2% in 2020, which is below the national average rate of 0.3%.
16. Foreclosure stats show South and North Dakota have some of the lowest numbers of foreclosed homes.
(ATTOM Data Solutions) (MarketWatch)
According to data from Q3 2019, South Dakota had the lowest number of foreclosed properties (1 in every 7,586), followed by North Dakota (1 in every 4,098) and West Virginia (1 in every 3,025). Vermont (1 in every 2,607) was ranked 46th after Montana (1 in every 2,863).
These states have had low foreclosure rates even after the 2008 crisis. A decade ago Vermont had the lowest rates (only 0.05%). North Dakota was ranked right after (0.13%) followed by West Virginia and South Dakota (0.17% and 0.21%, respectively).
These low rates are even more impressive in times when other states like Nevada saw 10% of the housing units in the state being involved in a foreclosure procedure.
17. Bakersfield (1 in every 948) and Riverside (1 in every 1,109) recorded the highest rates of foreclosed homes in February this year, California foreclosure statistics reveal.
(ATTOM Data Solutions)(ATTOM Data Solutions)(ATTOM Data Solutions)
Judging by how many homes in the US are foreclosed, Atlantic City, New Jersey is one of the metropolitan statistical areas with a population of at least 200,000 that has consistently ranked higher on the list.
It was the metro area with the highest number of foreclosures in 2018 and 2019 (1.33% of houses with foreclosure filings in 2019, down from 2.37% the year before), and it ranked second on the list in February 2020 (with 1 foreclosure in every 1,032 homes).
18. Florida saw an annual decrease in REOs in February 2020.
(ATTOM Data Solutions) (Pew Research Center)
The analysis of Florida foreclosure statistics for 2019 reveals a decline of 47% in terms of REOs, the highest of all US states. This is great news for the residents of this state as Florida, along with California, were the two states hit the hardest by the 2008 housing crisis.
The rates of foreclosure in 10 counties in Florida and 12 counties in California went over 5% in 2008, accounting for the majority of the 33 counties with such a high rate of foreclosed homes in 2008.
Financial Effects of a Mortgage Foreclosure
19. Depending on your previous credit score and other factors, a foreclosure on your credit report can drop your credit score anywhere from 85 to 160 points.
(Debt.org) (Nolo)
The higher your credit score, the more damage a mortgage foreclosure will cause.
For instance, borrowers with high credit scores can see a drop of at least a hundred points after a foreclosure or a short sale.
20. Homeowners who go through foreclosures take longer to rebuild their credit.
(Nolo)
A short sale, on the other hand, can result in the improvement of your FICO credit score in just two years.
21. Foreclosures stay on a borrower’s credit record for years.
(SFGATE)
How long does a foreclosure stay on your credit report? Under federal law, items such as house foreclosures are cleared from your credit report after seven years.
However, this is not always the case. Defaulting on other payments as well as errors in the foreclosure procedure or credit reports (which are not unheard of) can result in complications.
Keeping an eye on your personal finance is one of the best ways to prevent errors in your credit report.
22. Your credit score after the foreclosure procedure can be mended.
(SFGATE)
Now that you have the answer to the question: “how long does foreclosure stay on a credit report,” it’s time to mitigate the adverse effects house foreclosures have on credit scores.
Paying your bills on time and making regular payments on other loans, as well as not taking on any more debt, could improve FICO credit scores in just two years.
23. Most states allow lenders to pursue borrowers for a deficiency judgment.
(Nolo)
A deficiency judgment is a court order against a borrower when a foreclosure sale doesn’t cover the homeowner’s debt.
One way to get out of paying a deficiency judgment on foreclosure, data shows, is filing for bankruptcy, although this is not an option recommended by legal experts.
FAQs
Are foreclosures on the rise in 2019?
(ATTOM Data Solutions)
No. Actually, The USA foreclosure rate dropped to a 15-year low in 2019 — representing only 0.36% of all US housing units.
Going against the national trend, 14 states reported YOY increases in the number of foreclosure starts — most notably Rhode Island (up by 54%) and Mississippi (a rise of 39%).
How much does a foreclosure cost a lender?
(SFGATE)
Foreclosures are costly to lenders as well. According to the credit rating agency Standard & Poor’s, lender foreclosure costs make about 26% of mortgage loan amounts.
Estimates show that, as of 2008, defaulting on a borrower’s property costs lenders an average of $50,000.
Are there still a lot of foreclosures?
(ATTOM Data Solutions) (Forbes)
With COVID-19 spreading across the nation, many banks have suspended foreclosures in an effort to help American homeowners in these hard times.
After this period, though, analysts expect a rise in the rate of foreclosed homes as more borrowers start losing their jobs and missing mortgage payments.
Where to find foreclosed homes?
(Zillow)
If you are set on buying a foreclosed property, the best way to go would be to contact a real estate agent who specializes in foreclosures. You’ll need all the information you can get on the redemption period, the state of the home, and the right market value of the property.
If this isn’t an option for you, there are always listings on bank’s websites, auction houses, or you could simply drive through your town and check out foreclosure signs.
Final Remarks
As a homeowner, you can never be too sure of anything.
Don’t let declining foreclosure statistics lull you into a false sense of security. Consider all the factors before taking out a mortgage, check lenders, and the terms they offer and then double-check them again.
And most importantly, be aware of all the options at your disposal. That is the first step both towards avoiding a possible foreclosure and working through one. Hopefully, the latter will be nothing more than a worst-case scenario for most homeowners.
Sources:
- AJC
- ATTOM Data Solutions
- ATTOM Data Solutions
- ATTOM Data Solutions
- ATTOM Data Solutions
- ATTOM Data Solutions
- Bankrate
- Citywide Home Loans
- CNN
- Debt.org
- Forbes
- Investopedia
- Justia
- Lawyers.com
- MarketWatch
- NBF
- Nolo
- Nolo
- Nolo
- Pew Research Center
- PR Newswire
- RealtyTrac
- RealtyTrac
- SFGATE
- SFGATE
- SFGATE
- SFGATE
- Statista
- Statista
- The Washington Post
- The Washington Post
- Zillow
