After a series of yo-yoing between expirations and extensions, the federal eviction moratorium and the foreclosure moratorium on all federally-backed mortgages established by the CARES Act and the Centers for Disease Control and Prevention (CDC) ended July 31. With this most recent one-month extension, the CDC explicitly said “this is intended to be the final extension of the moratorium.”
At that point in time, it’s unclear exactly what will happen with homeowners and properties across the country, but things will likely be dependent on geographical location and loan provider.
How many new properties may come to market is unclear
Wells Fargo, for instance, has said that it will not begin foreclosures again until 2022, and has also put a pause on evictions through the end of the year.
Bank of America and Chase, however, will only continue their foreclosure suspension through the end of June, in line with federal government guidance. During a Senate hearing on the Annual Oversight of Wall Street Firms at the end of May, Chase CEO Jamie Dimon added that about 90 percent of the bank’s customers had already exited forbearance programs.
On the evictions side, several state governments have continued to keep eviction moratoriums that extend beyond the federal deadlines over the last nearly year and a half of the pandemic. But at this point, most are either in line with the CDC’s expiration date or through the end of that specific state’s state of emergency, which is variable and may change frequently.
States with stronger protections currently in place include Washington, D.C., which has suspended all evictions filings and hearings through the end of federal orders, and Minnesota, which has also suspended hearings and sealed eviction records while the state remains in a public health emergency. Other states like Georgia and Ohio have no statewide orders in place at all, and have allowed filings and hearings to continue.
What is known, however, is that over 2 million homeowners are currently behind on their mortgages, and a higher proportion of those homeowners are households of color, according to a housing report released by Harvard University. Because many of those homeowners are still struggling with the fallout of job and income losses, they may not be able to resume payments come August.
“Because these borrowers are especially likely to have suffered sustained income losses, it may be difficult for them to make up for their missed mortgage payments as well as property taxes and homeowner insurance premiums,” Harvard’s report reads. “Lenders often resolve delinquencies by adding the accumulated debt to the mortgage and extending the loan term to cover the costs, but this solution presumes that borrowers can again make full monthly payments.”
Likewise, at least 6 million renter households are behind on rent and at risk of eviction, according to the U.S. Census Bureau, which the National Low Income Housing Coalition warned has the potential to bring a historic wave of evictions this summer and fall.
“These tenants or occupants have been running behind on their payment obligations, which may be deferred for a time being, but it’s still going to accrue,” Saurabh Shah, co-founder of residential real estate crowdfunding platform InstaLend, told Inman.
“There is going to be a time when the maturity clock sets in on the accrued obligation that they have to pay, and it’s highly likely that they won’t be able to catch up with that. So any restructuring of the loan is still not going to be helpful when you consider all the payments that are still outstanding.”
All that is to say, it’s hard to predict just how many homes may be vacated as a result of the moratoriums expiring. Some experts predict there likely won’t be a huge flood of properties that come onto the market, but the market will get a modest boost of inventory — and real estate agents who have been desperate for inventory will want to be ready when that time comes.
How agents can best take advantage of the new inventory
So, how exactly can agents capitalize on any new properties coming to market? Here’s what some industry experts recommend.
Know your resources
Creating alerts for newly foreclosed properties on listing sites is one simple thing agents can do. But there are also websites specifically targeted towards advertising bank owned or foreclosed properties, like foreclosurelistings.com and bankownedproperties.org, which agents will also want to add to their list.
Shah also told Inman about a website, attorneydrive.com, which serves as a foreclosure management site for real estate attorneys and lenders. Shah noted that the foreclosed properties aren’t publicly available through the website, but real estate agents could use the website to potentially connect with lenders who use it, in order to gain insight on properties that may be foreclosed upon soon.
RealtyTrac, an Attom Data Solutions-owned online marketplace for foreclosure and distressed properties, also recently revamped its website, which now includes over 90 percent of foreclosure properties across the U.S. in one place for investors and agents to view. Website users can locate properties by zip codes and access a number of interactive resources in tandem with viewing properties, like investment analysis tools. Users do ultimately have to pay a monthly fee of $19.95, but there is a free trial period available.
Similarly, building relationships with asset managers at local banks is a great way to ultimately gain insight into upcoming foreclosure properties.
“If you find a way to get your foot in the door and you build some relationships with some asset managers and you’ll get more foreclosure assignments,” Eric Eikhof, a broker at Fulton Realty, told Inman.
“But I think one of the best things you can do if you’re newer to it is find some of the smaller, local lenders and community banks. I think those would be the quicker relationships that you might be able to build and help some of those banks with any foreclosures that they might have coming up.”
Agents might then consider doing some direct marketing to homes going into foreclosure to see if the owner is interested in selling.
“[Some agents] will get a list of homes that are going into foreclosure and then they’ll market to those and try to maybe purchase them with a short sale or just purchase them directly from someone who’s in distress,” Eickhof added.
One of the first steps any investor should take in the weeks leading up to the moratorium expirations is to get preapproved for a loan (if they don’t plan to pay for a property in all cash), which will save them time later once they find a property.
“Every lender is willing to be aggressive in their lending policies [right now], so it’s probably a very good time for investors to get themselves preapproved, go through diligence on a [regular] basis, and then once they find a property worth considering, they can always bring that property to a lender and only get [that] property underwritten,” Shah said. “That will cut short the underwriting period in half, and also they don’t expose themselves to any market fluctuations should any of those guidelines change in the coming months.”
Research market values
Demand has spurred a dramatic rise in home prices in many markets across the country, making a home’s appraised value harder and harder to predict. For that reason, investors looking to purchase newly freed-up properties after the moratoriums expire should start researching home prices and recent sales in markets they’re interested in straight away.
It can be easy for an eager buyer to get caught up in the market’s frenzy, which can lead to quickly escalating offers, especially in multiple offer situations. But, Shah says agents need to help educate their investor clients on assessing property value so that investors don’t end up in a situation where they’ve overpaid for a property.
“What’s been happening today is, because the values have only been going higher, there’s no preceding good comps on the fair market value of a property,” Shah told Inman. “Something that was worth $90,000 maybe a couple months ago is worth $120,000 today. That’s because buyers are willing to pay the premium, but the appraiser may not be able to find relevant comps at $120,000 for the same property.
“So I think it’s very important for agents to educate their clients on how to assess fair market value and make offers which are in line with how an appraiser would look at the property. Because the lender always goes with an appraiser’s report — lenders never visit the properties themselves.”
Assess buy and hold versus flipping options
Many investors looking into buying these vacated properties may be doing so with the idea to flip the property after purchase. However, agents may want to advise their clients to consider otherwise, depending on their market and how it continues to change.
“What we’ve seen is in markets where there’s uncertainty, the experienced and savvy investors don’t try to tame the market — they don’t buy a property with the sole intent of flipping it,” Shah said. “They are prepared to hold it as a rental after fixing it up, should the macroeconomic metrics not be favorable in a few months. So, it’s important for agents to educate their clients on underwriting a new buy from both a flipping perspective, but also a buy and hold.
“Should there be a scenario where once they’re finished fixing up the property and the prices have dropped or crashed, they should be comfortable renting it out, refinancing the existing loan and just holding it as a rental because the cash flow usually will be really high.”
Make sure clients understand the risks
One of the most important things for investors to understand about foreclosed homes is that secrets may be hiding behind the woodwork. Agents who end up helping their clients invest in foreclosed inventory should be sure that they understand the risks involved, and that an inspection is probably not something to forgo.
“The big thing is, there’s generally very limited disclosures,” Eickhof said. “So the bank is not going to tell you much about the home or the history of the home, mostly because they don’t know, but it’s kind of a ‘buyers beware’ type thing. I think some people have forgotten this because we’ve had such little foreclosure inventory for so long, but in a market where people are forgoing inspections, I think it’s super critical and important to get inspections on foreclosure homes.”
In addition to the lack of disclosures, investors will want to keep in mind that many owners of foreclosed properties were likely not in a financial position to do routine maintenance and upgrades. So, there may be a lot more wear and tear than on other properties.
Eickhof added that banks are unlikely to care about inspection waivers compared to the typical homeowner seller in today’s hot market who may be more tempted by an offer that waives an inspection over the highest dollar value bid.
“I don’t find that banks accept no-inspection offers over inspection offers at a much higher rate,” he said. “They’re usually just looking for the highest number these days. So it doesn’t matter if you have a lower down payment or not, generally whatever nets out the highest is what they’re going for.”
Email Lillian Dickerson