Foreclosure Starts Surge 19%: The Counties Seeing the Highest Housing Market Distress in 2026
Photo by Robert Bye on Unsplash
- December 2025 saw 28,269 foreclosure starts — up 19% from November and 46% year-over-year, per ATTOM's December 2025 Foreclosure Market Report.
- Florida leads all states with one foreclosure filing per every 230 housing units; Lakeland, FL tops metro rankings at one per every 145 units.
- Lender repossessions (REOs) doubled year-over-year in December 2025, signaling banks are no longer waiting borrowers out.
- Total 2025 foreclosure activity is still 25% below pre-pandemic 2019 levels — this is a normalization, not a crisis.
What Happened
After years of artificially suppressed distress activity, the housing market is finally releasing the pressure that built up during the pandemic era. In December 2025, 28,269 U.S. properties entered the foreclosure process — a 19% jump month-over-month and a 46% spike compared to December 2024, according to ATTOM's December 2025 Foreclosure Market Report.
For the full year 2025, 367,460 U.S. properties had foreclosure filings — representing 0.26% of all housing units, up from 0.23% in 2024. That figure is 14% above 2024 levels and 3% above 2023, but here's the crucial context: total activity is still approximately 25% below where it stood in 2019, before the pandemic scrambled every housing market metric imaginable.
Even more striking is what happened at the finish line. Lenders completed repossessions — called REOs, short for "Real Estate Owned," meaning the bank officially takes back the property — on 5,953 homes in December 2025 alone. That's up 53% from November and a stunning 101% year-over-year. When lenders start following through on repossessions rather than offering further extensions, it signals a genuine shift in how servicers are managing delinquent loans.
Rob Barber, CEO at ATTOM, put it plainly: "Foreclosure activity increased in 2025, reflecting a continued normalization of the housing market following several years of historically low levels. While filings, starts, and repossessions all rose compared to 2024, foreclosure activity remains well below pre-pandemic norms and a fraction of what we saw during the last housing crisis." The numbers are rising — but the housing market is correcting, not collapsing.
Why It Matters for Home Buyers and Investors
Understanding where distress is concentrated opens the door to opportunities — but only if you know what you're looking at. Think of the pandemic foreclosure pause like a pressure valve being held shut. From 2020 through 2023, federal moratoriums (government-ordered stops on foreclosure proceedings) and forbearance programs (agreements letting homeowners pause mortgage payments without penalty) kept millions of struggling borrowers in their homes. That was appropriate during a crisis — but it also meant distress that would normally have filtered through the system got bottled up. Now the valve is opening.
For anyone considering home buying, this creates a real tension. On one hand, more distressed properties entering the market — especially in hard-hit regions — can create opportunities to purchase below market value. On the other, it signals that some homeowners who stretched financially during the 2021–2022 buying frenzy (when mortgage rates were near 3%) are now struggling under mortgage rates that have remained persistently above 6.5–7%, layered on top of rising insurance costs and HOA fees.
Florida is the clearest case study in how multiple pressures converge. The state posted the highest foreclosure rate in the nation in 2025 — one filing per every 230 housing units — driven by surging property insurance premiums, climbing HOA fees, and softening buyer demand in markets that saw explosive price growth just a few years ago. At the metro level, Lakeland, FL topped the charts with one foreclosure filing per every 145 housing units, more than double the national average. Cape Coral, Jacksonville, and Orlando followed close behind, all posting rates well above the 0.26% national figure.
The distress isn't limited to Florida. Dorchester, Kershaw, and Berkeley Counties in South Carolina and Clark and Lyon Counties in Nevada are also flashing elevated signals. At the state level, Delaware (0.42% foreclosure rate), South Carolina (0.41%), and Illinois (0.40%) rounded out the four highest-rate states alongside Florida.
For property investment strategies, these distressed pockets represent a classic double-edged sword. REO properties (bank-owned homes sold after completed foreclosure) often trade at 10–30% discounts to market value, creating potential entry points for buyers with solid financing or cash. But areas with high foreclosure concentrations can also face downward pressure on neighboring home values — which matters for anyone already holding property nearby.
One segment to watch closely heading into 2026: FHA borrowers — homeowners who used Federal Housing Administration loans, which are tailored for buyers with lower credit scores or smaller down payments. Donna Schmidt, President and CEO of DLS Servicing, warned that "the new FHA loss-mitigation waterfall could prove challenging for borrowers and servicers alike," flagging this group as particularly vulnerable. The FHA updated its loss-mitigation rules (the required step-by-step sequence servicers must follow before initiating foreclosure) in 2025, and early industry feedback suggests the new process may actually accelerate timelines to repossession rather than slow them. For home buying decisions in FHA-heavy markets, that's a detail worth tracking closely.
The AI Angle
This is exactly where AI real estate tools are proving their worth. Parsing county-level foreclosure data, tracking mortgage rates across dozens of markets, and spotting distress trends in real time is simply beyond what any individual buyer or investor can do manually — but it's well within what modern machine learning platforms handle as a baseline function.
Platforms like PropStream and HouseCanary use machine learning (algorithms that identify patterns across massive datasets) to score properties by distress probability, helping investors and buyers prioritize which neighborhoods to research before committing time on the ground. ATTOM's data API — the same source behind the December 2025 figures cited in this post — feeds into a growing ecosystem of AI real estate tools that can flag zip codes with rising distress signals weeks before they make local headlines.
On the financing side, AI-powered mortgage rate trackers from fintechs like Better and Rocket Mortgage send real-time alerts tied to market shifts, helping buyers time their rate locks more strategically in a volatile rate environment. None of these tools replace a qualified local agent or real estate attorney — but they dramatically sharpen the research phase, especially in a market where housing market distress is rising unevenly county by county.
What Should You Do? 3 Action Steps
Before making any offer — whether for home buying or property investment — look up your target county's foreclosure rate using ATTOM's public data portal or a site like RealtyTrac. If your county is posting rates above the 0.26% national average, factor that into your pricing model and resale timeline assumptions. High-distress areas can offer entry-point discounts but may also face slower appreciation until the inventory clears.
With mortgage rates still hovering above 6.5–7%, your rate lock timing can meaningfully affect your monthly payment over the life of a loan. Use an AI-powered rate tracker to set alerts for dips, and ask your lender about rate buydowns (paying upfront points to permanently lower your interest rate) if you plan to hold the property long-term. Consult a licensed mortgage advisor before acting on any rate strategy.
Given the new FHA loss-mitigation rule changes flagged by industry experts heading into 2026, early outreach to your loan servicer (the company that processes your monthly mortgage payments) is critical. Servicers typically have more workout options available — like loan modifications or repayment plans — for borrowers who call before they miss multiple payments. Waiting until you're 60 or 90 days behind dramatically narrows your options under the new waterfall rules.
Frequently Asked Questions
Is now a good time to buy a foreclosed home in Florida in 2026?
Florida's foreclosure rate is the highest in the country — one filing per every 230 housing units — which does create more distressed buying opportunities than most states. However, Florida buyers also face some of the nation's highest property insurance premiums, which can erode the savings from a discounted purchase price faster than you'd expect. If you're considering home buying in markets like Lakeland (one foreclosure per 145 units) or Cape Coral, factor in full insurance costs and any HOA fees before calculating your all-in monthly payment. A discounted purchase price is only a deal if the carrying costs don't cancel out the savings.
Will rising foreclosure starts cause home prices to drop nationally in 2026?
Probably not at the national level. Total foreclosure activity in 2025 was still roughly 25% below 2019 pre-pandemic levels, meaning distressed supply remains limited relative to overall housing demand. The housing market as a whole is normalizing, not cratering. However, in specific high-distress counties — particularly in Florida, Nevada, and South Carolina — localized price softening is more plausible, especially if REO inventory (bank-owned homes) builds up faster than the local market can absorb it. Watch county-level data, not just national headlines, for the most accurate picture of your specific market.
What are the best AI real estate tools for finding distressed properties in 2026?
Several platforms stand out for distressed property research. PropStream aggregates pre-foreclosure, foreclosure auction, and REO data with AI-driven filtering by geography, equity position, and loan type. HouseCanary offers predictive property valuations and distress-probability scoring. ATTOM's data API is the gold standard for raw foreclosure statistics used by analysts and investors alike. For tracking mortgage rates and timing rate locks, Better.com and Rocket Mortgage both offer AI real estate tools with rate alert functionality. None of these replace professional legal or financial advice, but they're excellent starting points for narrowing your research to the right markets.
How do the new FHA loan rule changes in 2025 affect the foreclosure outlook for 2026?
The FHA introduced an updated loss-mitigation waterfall in 2025 — essentially a new required sequence of steps that loan servicers must follow before they can initiate foreclosure on an FHA-backed mortgage. Donna Schmidt of DLS Servicing has publicly warned that these changes "could prove challenging for borrowers and servicers alike." The concern among industry experts is that the new rules, while designed to protect borrowers, may in practice accelerate timelines to repossession for FHA borrowers who fall behind and don't engage early. If you have an FHA loan and are experiencing financial strain, contact your servicer proactively — don't wait for a missed payment notice.
Which U.S. counties have the highest foreclosure rates right now, and should I avoid investing there?
Based on December 2025 ATTOM data, the highest-distress metro areas include Lakeland, FL (one filing per 145 housing units), Cape Coral, FL, Jacksonville, FL, and Orlando, FL — all more than double the national average. At the county level, Dorchester, Kershaw, and Berkeley Counties in South Carolina and Clark and Lyon Counties in Nevada also rank among the most distressed. Whether to avoid these areas for property investment depends on your strategy. Distressed markets can offer below-market entry points for experienced investors, but they also carry more resale risk if inventory continues to build. Beginners in home buying should be especially cautious in areas where foreclosure rates are running above 0.40–0.42%, as those markets can be slower to recover.
Disclaimer: This article is for informational purposes only and does not constitute financial or real estate advice. Always consult a licensed real estate professional, mortgage advisor, or attorney before making any property or investment decisions.
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