Residential Magazine

Preforeclosure sales set to dominate distressed-home market

By Daren Blomquist

The stage is set for preforeclosure sales to emerge as a dominant foreclosure-prevention strategy in the wake of the COVID-19 health crisis.

Even before the pandemic, preforeclosure sales (sales of homes in any stage of the foreclosure process prior to being auctioned) were a rapidly growing share of all distressed-property dispositions. In 2019, one-third of all distressed sales were preforeclosure sales, up from 30% in 2018 and up from a low point of 12% in 2008 during the Great Recession, according to an analysis of public record data from Attom Data Solutions.

Meanwhile, both foreclosure-auction sales and real estate-owned (REO) properties are shrinking as a share of distressed dispositions. Foreclosure-auction sales — properties sold to third-party buyers at auction — represented 16% of all distressed dispositions in the U.S. in 2019, down slightly from a plateau of 17% from 2016 through 2018, according to Attom Data. 

The declining share of distressed dispositions has been much more dramatic for REOs. Lenders have discovered that selling earlier in the process is better for borrowers as well as for their own bottom lines. In 2019, 51% of all distressed dispositions were REO, down from 53% in 2018 and well below a peak of 76% in 2008.

The rising share of preforeclosure sales is due to a relatively steady flow of these dispositions over the past five years, even as the actual number of foreclosure-auction sales and REOs declined sharply.’s analysis found 121,263 preforeclosure sales in 2019, down only 5% from 2015. Over this same period, foreclosure-auction and REO sales plummeted by 47% and 54%, respectively.

Rising home equity has helped to bolster preforeclosure sales in recent years, giving more distressed homeowners a lifeline to avoid foreclosure and even walk away with some cash in hand. The analysis shows that 29% of all preforeclosure sales in 2019 were for properties with no accessible equity — meaning they had a combined loan-to-value ratio above 75%. This 29% share, which represents likely short sales, was down from 34% in 2018 and is much lower than the 99% share from 2007 through 2011.

After a short-lived slowdown following the start of the pandemic, U.S. home-price appreciation has accelerated in a supply-constrained market, giving even more distressed homeowners access to an equity lifeline. Not all public record data for 2020 was available as of this past January, but the share of preforeclosure sales with no accessible equity (short sales) was on pace to drop to 23% for the year, a new record low.

Rising equity, combined with a nationwide foreclosure moratorium on government-backed mortgages, resulted in a skyrocketing share of preforeclosure sales in 2020. Available data shows that preforeclosure sales were on track to account for 49% of all distressed dispositions for the year. Meanwhile, foreclosure-auction and REO sales were set to shrink further — to 14% and 37%, respectively — as shares of all distressed dispositions.

Aligning with this trend toward preforeclosure sales,’s program for these transactions has seen surging interest in recent months. Mortgage servicers are seeking compassionate and responsible foreclosure alternatives for the growing number of distressed homeowners impacted by the pandemic. helped to close more than 4,000 short sales in the aftermath of the Great Recession. The platform allows servicers to post a preforeclosure property for auction while also placing it for sale through a Multiple Listing Service (MLS). Data from the last six months of 2020 shows that nearly 60% of the time, produced higher offers for these dispositions compared to an MLS. On average, the winning offers through were more than $28,000 (or 15%) higher than those received by an MLS. 

Innovative and transparent preforeclosure sales solutions should help tip the scales toward these types of dispositions, even in cases where a homeowner does not have equity. These solutions — along with a favorable home equity environment and a general desire to prevent another foreclosure wave akin to 2008 from blindsiding the housing market — point to preforeclosure sales dominating the post-pandemic distressed-home landscape. ●


  • Daren Blomquist

    Daren Blomquist is vice president of market economics at In this role, Blomquist analyzes and forecasts complex macroeconomic and microeconomic data trends to provide value to both buyers and sellers using the platform. Blomquist has been cited by thousands of media outlets nationwide, including major news networks, The Wall Street Journal, The New York Times and USA Today. Prior to, Blomquist worked at Attom Data Solutions.

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