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69 foreclosure, it will invariably blight the community," Gordon said. "Having something sit there pre-foreclosure and post-occupancy makes no sense to me." As more mortgage servicers implement the strategy of foreclosure sales on vacant or abandoned property, the rate of vacant "zombie" foreclosures has leveled off, according to ATTOM Data Solutions. e zombie foreclosure rate jumped 24% to a three- year high in the third quarter of 2020, in the immediate aftermath of the pandemic declaration. However, the rate has since leveled off at 3.8% in both Q4 2020 and Q1 2021 as vacant property foreclosures ramped back up. FINDING HIDDEN HOMEOWNER EQUITY Leveraging the full power of strong buyer demand to uncover hidden home equity for distressed homeowners is a second disposition strategy that will help speed the healing of the post-pandemic housing market. Many servicers have implemented tactics that execute this strategy in recent years, but with a different objective in mind: lower loss severity on defaulted mortgages. Lower loss severity is often achieved when exposing distressed properties to a broad marketplace of buyers earlier in the disposition process—namely, at the courthouse foreclosure auction or in a "day one" online REO auction shortly after the foreclosure sale. ese tactics improve price execution while eliminating or reducing holding costs. An Auction.com analysis of more than 70,000 properties brought to foreclosure auction on its platform in the four quarters ending in Q1 2020 show that selling to third- party buyers at the foreclosure auction improves price execution relative to the lender's credit bid by 17 points when compared to selling as real estate owned (REO) on the multiple listing service (MLS). e third-party foreclosure sale also saves servicers an average of 268 days in REO holding costs. It turns out the same tactics used to reduce loss severity for servicers can also benefit distressed homeowners, specifically in the context of the courthouse foreclosure auction. At the very least, better price execution reduces the amount of deficiency between the foreclosure sales price and unpaid loan balance. is lessens the potential deficiency judgment that distressed homeowners may be on the hook for. At best, improved price execution at foreclosure sale results in surplus funds above the unpaid loan balance owed to the foreclosing lender. ese surplus funds first go to pay off any junior lien holders, with any excess beyond that going to the distressed homeowner. In this scenario, the distressed homeowner not only avoids any threat of a deficiency judgment but also walks away from the foreclosure with cash to show for the home equity uncovered in a transparent and competitive auction environment. SKYROCKETING SURPLUS FUNDS In 2020, 44% of properties sold to third- party buyers at foreclosure auction via the Auction.com platform resulted in surplus funds—where the winning bid was higher than the total debt owed to the foreclosing lender. Total surplus funds generated by these sales were $107.2 million, an average of $34,310 per sale. Over the last five years, more than $1.2 billion in surplus funds have been generated by third-party foreclosure sales closed through the Auction.com platform. Surplus fund sales in 2020 were down from 2019, when surplus fund sales represented 46% of all third-party foreclosure sales and 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Uncovering Hidden Homeowner Equity at Foreclosure Sale 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Surplus Funds Generated ($ Millions) Pct of Specified Bids with Surplus Funds $89 $62 $68 $134 $223 $272 $309 $324 $107 Earlier Disposition Results in Lower Loss Severity Foreclosure Sales to Third-Party Buyers Online REO Auctions Traditional REO Sales (MLS) Price Execution to Foreclosure Credit Bid Estimated Net Proceeds Days in REO Inventory 99.2% 77% 268 129 0 89.3% 84.3% 116.1% 111.1%

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