Foreclosures Are Rising — But Where Are the Opportunities for Distressed Asset Investors?

Foreclosures Are Rising — But Where Are the Opportunities for Distressed Asset Investors?

Hook: Investors, funds and active managers are frustrated by fragmented signals: foreclosure filings are rising after years of unusually low levels, but opportunities are scattered by state, property type and regulatory nuance. You need a data-driven playbook that turns ATTOM’s late‑2025 signals into actionable, risk‑adjusted acquisitions in 2026.

Executive summary — What ATTOM’s 2025 data means for investors

ATTOM’s Year‑End 2025 U.S. Foreclosure Market Report flagged a clear inflection: foreclosure filings increased 14% in 2025 to 367,460 properties, with December reporting 44,990 filings — a monthly jump of 26% and a year‑over‑year increase of 57%. That still leaves activity far below the 2010 crisis peak, but the direction matters: for the first time since the pandemic mortgage‑relief era, distressed pipelines are widening.

“Foreclosure activity increased in 2025, reflecting a continued normalization of the housing market following several years of historically low levels.” — Rob Barber, CEO, ATTOM

Key takeaways for 2026:

• Volume is rising but not back to crisis levels: filings were 0.26% of U.S. housing units in 2025 — modest in absolute terms but meaningful for targeted strategies.
• Concentration matters: increases are concentrated in specific states, counties and property types (not broad‑based homeowner distress).
• Policy and tax rules shape timing: state reforms (e.g., Ohio’s 2025 proposals to shield seniors from tax foreclosures) can delay or redirect flows.

Where foreclosures are rising fastest — regional and state signals

ATTOM’s national numbers mask local hotspots. For investors, the question is not whether foreclosures are up, but where the recoveries will produce properties that match your strategy. Based on ATTOM’s late‑2025 reporting and county‑level releases, the strongest upticks were concentrated in several clusters:

Rust Belt and Midwest — Ohio, Michigan, Illinois

Midwestern states showed some of the largest percentage increases in filings. Ohio was singled out in 2025 as a top‑ten state for foreclosure rate per housing unit, prompting legislative response on property‑tax‑related foreclosures. These markets typically feature:

• Lower median home prices (higher cap rate potential for buy‑and‑hold)
• Higher concentrations of older owner‑occupied homes (greater exposure to property tax arrears)
• Counties with large pockets of FHA loans and fixed‑income retirees who face tax and income strains

Sun Belt and Southeast — Georgia, Florida, parts of Texas

Sun Belt metros saw meaningful increases in filings in late 2025, driven by a mix of investor activity, property tax reassessments, and localized affordability shocks. These markets often offer:

• Strong rental demand in specific submarkets (job growth, migration)
• Shorter eviction and REO timelines in some jurisdictions
• Greater variability by county — county‑level ATTOM data is essential

Western metros — pockets of activity linked to interest‑rate sensitivity

The West did not show uniform distress, but select counties with high mortgage resets, rapidly rising property taxes, or post‑disaster losses (flood/fire) registered upticks. Expect targeted opportunities where local employment fundamentals remain intact.

Interpreting the state signals

State ranking is only a starting point. Investors must drill to the county and ZIP level: a state can appear benign while a handful of counties concentrate most filings. ATTOM’s county‑level series and monthly snapshots are the best first filter for a target list.

Property types and borrower profiles showing the biggest upticks

Not all distressed assets are equal. ATTOM and industry reporting in 2025 highlighted categories with disproportionate increases:

• Lower‑value single‑family homes: These make up the bulk of filings and offer scalable buy‑and‑hold or BRRRR (buy‑rehab‑rent‑refinance‑repeat) plays.
• FHA‑backed loans and high‑LTV borrowers: FHA borrower stress rose in 2025; these loans often end up in foreclosure paths that take longer and involve administrative windows investors can exploit.
• Owner‑occupied homes with property tax arrearages: Common in older homeowner markets (e.g., certain Ohio counties) and subject to local policy interventions that can affect timeline and price.
• Small multifamily and two‑to‑four unit buildings: When investor owners default, these assets can be acquired, stabilized and converted into core cash‑flowing units with economies of scale.

Targeted acquisition strategies — tactical playbook for 2026

Below are specific, actionable strategies organized by investor profile and target asset type. Each includes entry tactics, underwriting points and exit plays.

1) Private investors & small funds — Single‑family buy‑and‑hold (BRRRR focus)

• Where to hunt: Counties where ATTOM shows double‑digit year‑over‑year increases in filings but stable rent growth (Midwest value markets; select Sun Belt suburbs).
• Acquisition channels: courthouse auctions, trustee sales, MLS REO feed, MLS foreclosure listings, and direct purchase through servicer REO lists.
• Underwriting essentials: conservative rent projections (stress test at −15% occupancy), capex reserve lines, title gap and HOA lien checks, and an exact eviction timeline by county.
• Exit plan: stabilize as rental for 12–24 months and refinance to pull out capital; or sell to local investors with 1–2% broker fee if market arbitrage exists.

2) Opportunistic funds — Bulk NPL/REO buys and structured workouts

• Where to play: portfolios from regional banks and nonbank servicers active in Midwest and Southeast.
• Strategy: acquire pools of nonperforming loans (NPLs) at scale, pair with local asset managers for streamlined litigation and rehab, and use hybrid exit — resale of performing loans and disposition of REO.
• Value creation levers: centralized rehab teams, standardized escrow controls, and leveraged servicing agreements to reduce time to resolution.

3) Distressed multifamily and small portfolio buyers

• Target: 2–20 unit assets in gentrifying neighborhoods where demand outpaces supply.
• Acquisition edge: seller finance or short‑term bridge financing to close quickly; convert to professional management and re‑price rents to market over 6–12 months.
• Underwriting focus: pro‑forma NOI that factors in capex and tenant turnover; verify unit legal status (infill, ADU rules).

4) Short‑term flips for local operators (higher risk, faster returns)

• Where: counties with short foreclosure pipelines and strong resale markets.
• Key cautions: holding period assumptions, rising interest rates affecting buyer demand, and escalating rehab costs.

Due diligence checklist for distressed acquisitions

Use ATTOM as the first filter, then apply the following operational checklist before closing:

1. Title & lien sweep: identify tax liens, HOA and municipal encumbrances. Property‑tax foreclosures often include multiple lien claimants.
2. Eviction & foreclosure timeline: calculate expected cure windows, redemption periods and sheriff sale schedules by county.
3. Insurance & environmental: check flood maps, wildfire exposure and previous claim history; require updated COIs before transfer.
4. Rehab scope & costs: get local contractors to pre‑bid typical rehab packages (cosmetic, moderate, full) to create standardized reserves.
5. Rent comps & demand: verify rent comps with at least three local comparable properties and apply vacancy stress tests.
6. Servicer & seller intel: when buying NPLs, understand servicer workflows, timelines and historical cure rates for the asset pool.

Financing, leverage and structuring tips for 2026

Credit availability changed in 2024–2025, and 2026 continues to favor nimble capital providers. Consider these structures:

• Bridge loans with interest reserves for quick closures and rehab draws.
• Warehouse facilities for funds aggregating NPLs—short‑term funding to buy pools pending disposition.
• Joint ventures with local operators who can reduce operational execution risk—align incentives with profit share after exit hurdles.
• Seller financing or note acquisitions to buy performing portions of distressed portfolios at a discount.

Risk assessment and regulatory watchlist (must‑track items for 2026)

Regulatory dynamics materially affect distressed timelines and cost. Investors should monitor:

• State property‑tax foreclosure reforms — e.g., Ohio’s HB443 in late 2025, which aims to protect seniors from tax foreclosures and could lengthen workflows or reduce available inventory in targeted counties.
• Servicer enforcement practices — variations in how quickly servicers process defaults and decide to pursue foreclosure versus modification can create windows for negotiated workouts.
• Local eviction rules and tenant protections — new ordinances introduced during 2024–2025 remain in effect in some cities and extend timelines.
• Tax changes and reassessments — retroactive tax hikes or reassessments can spike tax lien activity.

Practical compliance step

Maintain a regulatory matrix keyed to every target county: statute of limitations, redemption periods, mandatory mediation rules, and eviction moratoria status. Update monthly.

Operational play: how to use ATTOM data as your first filter

ATTOM provides publicly recorded foreclosure filings at county granularity. Here’s a repeatable screening process:

1. Pull the latest ATTOM county report and isolate counties with year‑over‑year filing increases > 25%.
2. Cross‑reference with median sales price drops and rent growth acceleration to find counties where price/rent gaps favor acquisition.
3. Eliminate counties with protective legislation (e.g., recently enacted senior tax protections) that likely delay inventories.
4. Run a supply/demand check: vacancy rates, job growth, and new permits. Prioritize counties with positive employment or constrained new supply.

Case study: Hypothetical fund playbook in an Ohio county (realistic scenario)

Scenario: ATTOM shows foreclosure filings in County X (Ohio) rose 42% in 2025, concentrated in three ZIP codes. Median price is $150,000; average rehab is $25,000; average rent for comparable homes is $1,400/month.

Fund action:

• Acquire a 150‑property pool of NPLs at 35% of unpaid principal balance from a regional bank.
• Deploy a local partner to convert 60% of the pool into REO and expedite rehab; re‑rent 80% within 90 days.
• Hold stabilized properties for 24 months to achieve target IRR of 12–16%—or sell a tranche to regional landlords at 1.05–1.15x GRM.

Why it works: conservative underwriting, local execution, and scale lowered per‑unit rehab and marketing costs. The fund also negotiated an escrow for tax exposure and set aside a litigation reserve to cover expected redemption claims.

Red flags that warrant walking away

• High incidence of unresolved environmental or structural defects where remediation exceeds 25% of post‑rehab value.
• Counties with extended redemption periods and weak servicer cooperation—these prolong hold times and raise legal costs.
• Markets with declining population and job loss trends (sustained negative migration).

Actionable checklist — First 90 days for an acquisition team

1. Subscribe to ATTOM monthly county feeds and flag top 50 counties by YOY filing increase.
2. Deploy market analysts to build local rulebooks and eviction timelines.
3. Lock bridge financing for fast close and pre‑qualify two rehab contractors per county.
4. Negotiate servicing terms or NPL transfer agreements with a clear cure/remediation timeline.
5. Build a disposition playbook: hold (rental), wholesale, rehab‑flip, sell performing note.

Final recommendations — timing, scale and patience

ATTOM’s 2025 data indicates a return of distressed volume, but the market remains segmented and governed by local rules. The most successful 2026 strategies will share these traits:

• Data discipline: use ATTOM county feeds as your lead indicator, then layer local economic and regulatory data.
• Operational scale: build or partner for local execution to reduce per‑unit costs.
• Flexible capital: deploy structures that allow you to buy fast and hold long if resolution takes more time than expected.
• Regulatory vigilance: track state and county changes (tax foreclosure reform, tenant protections) that alter timelines and prices.

Bottom line: 2026 is not time for scattergun bidding—it's a window for disciplined, data‑driven buyers who can marry ATTOM’s supply signals with local execution capabilities. The assets exist; success depends on selection, underwriting and the ability to move at scale.

Call to action

If you manage capital for distressed real estate, start your 90‑day acquisition plan now. Subscribe to our weekly ATTOM county brief, download our Foreclosure Targeting Checklist, and schedule a 30‑minute strategy call to map these insights to your risk profile and capital stack.

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