Completed foreclosed property auctions in September reached their highest level since the pandemic began as zombie properties, which are not covered by any moratorium, came back on to the sales market, Auction.com said.

“Foreclosure supply is slowly returning to the market as servicers refine their vacant or abandoned procedures and as states gradually open up,” Ali Haralson, chief business development officer at Auction.com, said in a press release. “These vacant or abandoned properties, which are exempt from the national foreclosure moratoria on government-backed mortgages, benefit neighborhoods when they are returned to occupancy.”

September had a 24% increase in completed foreclosure auctions compared with August. However, that was 78% below the year-ago level.

“The increase is due to more properties that were already in the foreclosure process prepandemic becoming vacant and abandoned, which means they can then go to the foreclosure auction on the courthouse steps,” Daren Blomquist, vice president of market economics, added in a follow-up note. “A side effect of the foreclosure moratoria is that the longer properties sit in foreclosure limbo, the greater the likelihood that they will become vacant or abandoned.”

At the same time, demand for distressed properties — both at foreclosure auction and in an online auction of bank-owned properties (properties taken back after a failed courthouse sale as real estate owned) — hit new multiyear highs during the third quarter.

The foreclosure sales rate, properties that were sold to a third party rather than becoming REO, reached a seven-year high of 55.6% in September, according to buyer demand data from the Auction.com marketplace.

The average price per square foot for these sales, however, dipped in the third quarter, likely because of the shift to auctioning vacant or abandoned properties that are often largely in a state of disrepair.

Still the ratio of average price paid at sale relative to the estimated full market value increased to a 6.5-year high in September.

The average number of bids per REO property sold via an online auction increased to 12% in September; that is the highest average bids per REO sold since September 2012, which is the earliest data available.

The increased competition helped to push the average price per square foot to an all-time high of $87 in July; it also drove the ratio of average price relative to seller reserve to a new all-time high of 104.5% in September.

On the other hand, there is also a “growing backlog” of mortgages that are already in the foreclosure process, or are delinquent and not in a forbearance program, according to Auction.com’s data and other industry sources.

That foreclosure backlog is projected to consist of 1.1 million properties by the end of the first quarter of 2021, Blomquist said.

“That means we would expect the foreclosure process to start or restart on the mortgages secured by those properties once applicable moratoria are lifted and courts begin to resume foreclosure cases in judicial states,” Blomquist said in the press release. “Given the patchwork of state approaches, the return of this backlogged volume will likely be spread over months, if not years.”

On a quarter-to-quarter basis, the foreclosure inflow on Veterans Affairs mortgages was up 84% and on Federal Housing Administration loans, it was up 30%.

But Blomquist noted in his follow-up comments that both categories were coming off of record lows in the second quarter. Also, VA loans make up a smaller number of foreclosed loans, which explained the larger percentage increase.

The foreclosure inflow for loans of all types was down 7% compared with the second quarter, with conforming mortgages down by 3% and private label and portfolio loans down by 9%.