4 Reasons Why Foreclosures Will Explode In January 2021

COVID-19 took the world by storm. It is far more than a global health crisis. The pandemic produced financial, legal, and employment challenges on a massive scale. We expect these struggles to continue well beyond 2020. 

In fact, from the standpoint of foreclosures, the ramifications may become even more significant in 2021. Though there were efforts to lessen foreclosures and individuals have worked hard to pay their bills, there are clear signs that the number of foreclosures will increase. Up to 500,000 people may lose their homes in 2021. Here are 4 reasons why foreclosures will explode in January 2021.

 

1. Government help is coming to an end

The impact of the pandemic on families was immediate, and government relief followed. Among other things, governments quickly sought to help families keep a roof over their heads. For instance, in the United States, the federal government created the Coronavirus Aid, Relief, and Economic Security (CARES) act.

A focal point of the act was a directive that most banks stop foreclosures. However, this relief was not permanent. Banks are now resuming foreclosures, and the process shows no signs of slowing down. 

Look for January 2021 to open with banks filing foreclosure actions in waves against homeowners because:

  • CARES and similar state and international programs of relief have largely ended;

  • There are no other mandates to pause foreclosures;

  • Past-due mortgage amounts are coming due; and

  • Many homeowners are still not able to pay the current or past due amounts. 

As helpful as CARES was, it was not a permanent solution. It was temporary help. Though some still need assistance to avoid foreclosure, it may not be there in January 2021. 

2. A recession is looming

Economists have been almost as busy as medical professionals in recent months. The sudden temporary closure of businesses, cashing in of retirement accounts and stocks, and recent college graduates and laid-off employees struggling to find work created the perfect financial storm. The world economies reacted with volatility. 

Financial experts have tried to keep up with the almost daily impact on the financial market. In addition, they worked hard to forecast the months to come. Unfortunately, the news is bleak. 

Look for the recession of 2021 to lead to mass foreclosures because:

  • There will be continued unemployment for many individuals;

  • Small businesses will struggle and some not survive; and

  • Unemployed homeowners will be left unable to pay their mortgages.

Recessions have always meant a rise in foreclosure rates. January of 2021 will continue this unwelcome precedent.

3. Family and personal struggles will grow

COVID Stress. Pandemic Anxiety. Quarantine Fatigue. These are not just catchphrases or media talking points. They are terms referring to the real stressors households face during this period. Studies show that the pandemic increased stress in families. Sadly, with that stress comes domestic upheaval and divorce. Divorce has long been related to foreclosure.

Look for pandemic stress to lead to foreclosures in January 2021 because:

  • The lingering effects of COVID-19 are increasing pressure on families and individuals;

  • Pandemic-related stress will lead to family dissolution; and

  • Rising divorce rates will correlate with a rise in foreclosure rates.

Also, holidays have always been volatile times, according to mental health professionals. The 2020 holiday season will be even more intense due to COVID-19, leading to divorces, depression, and other personal struggles. The aftermath will include 2021 foreclosures.

4. Rental property owners are struggling

Many property owners chose not to evict tenants out of kindness or had evictions paused by local courts and CARES. As time went on, however, the property owners faced their own struggles. Even when a person owns the property outright, they still must pay property taxes to avoid foreclosure. Private property owners need tenants to pay their back rent, so they can pay their bills. 

But while some renters are back on their feet, many are not. Small businesses continue to face challenges. The owners of small companies who lease property for their businesses are trying to recover from financial losses produced by months of forced closures. As a result, paying rent on their shops is a struggle.

The property owners of those businesses and apartments may not be able to collect money they are owed. Without this system of rental property producing income for owners flowing, property owners will take a large financial hit.

Look for owners of rental properties to face foreclosures because:

  • Tenants may not be able to pay their rent; 

  • Property owners may not be able to pay their property taxes; and 

  • Property owners may be unable to pay their mortgages without rental income.

Left with a continued loss of rental income, property owners will need legal assistance to evict defaulting tenants and fight foreclosure on their own property.

New Year’s Day brings anticipation. While we hope for the best in the new year, we must also plan for challenges. Sadly, the wave of foreclosures soon  to come may be one of the greatest challenges. January 2021 will indeed ring in a new year, but it will also bring with it foreclosures in large, heartbreaking numbers. The single positive is that perhaps home losses will not quite reach the housing devastation of the great depression. That is something to give hope. 

 

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