Foreclosures Hitting LA Fire Zones as Mortgages Go Underwater
Min 1
ABC News Data Team analysis found at least 121 mortgage foreclosures in the Eaton Fire burn scar from January through September 2025, with 91 foreclosures recorded in the Palisades Fire zone during the same period as home values steadily dropped in both communities. The average home sale in the Palisades Fire burn scar dropped from $3.6 million pre-fire to $2.4 million by October 2025, a 33% decrease, while the Eaton Fire zone saw average sales plunge from $1.8 million to $684,000, a 62% drop according to county records. Before the January 2025 wildfires, home values had been increasing in both areas, but the combination of destroyed structures, insurance struggles, and rebuild uncertainty triggered the foreclosure wave as borrowers found themselves underwater on mortgages secured by properties now worth half their loan balances. Janna Kohl, a longtime Pacific Palisades resident, estimates that 75% of her neighbors are dealing with insurance struggles, and Douglas Elliman agent Cory Weiss called it the most emotionally trying year in over 25 years as a broker, with people coming to him in shock unable to process the destruction.
Min 2
The distressed opportunity emerges from understanding that foreclosures create forced sales at discounts to already-depressed market values, with lenders motivated to clear non-performing loans rather than hold fire-damaged properties through multi-year rebuild timelines. Kohl noted that next-door neighbors in their late 70s and early 80s who lived in their house for 60 years as pillars of the community aren't coming back, and this demographic pattern means many foreclosures involve older homeowners who lack financial capacity or desire to navigate rebuilding. Insurance costs jumped 33% above inflation with Pacific Palisades' average annual premiums rising from $5,025 to $6,689, and major insurers pulled out of high-risk areas forcing homeowners into California's FAIR Plan which received approval for a 35.8% rate increase according to industry data. Motivated sellers facing foreclosure proceedings will accept lowball offers on lots rather than fight banks through bankruptcy, creating acquisition opportunities for cash buyers who can close quickly without financing contingencies that plague traditional lot sales in fire zones.
Min 3
A foreclosed Altadena lot purchased at $400,000 in foreclosure auction compared to the $643,423 market average represents $243,423 in immediate equity, and operators buying multiple foreclosed lots at 30% to 40% discounts to market build portfolios with embedded value before any construction begins. The 121 Eaton foreclosures and 91 Palisades foreclosures through September 2025 represent just the initial wave, with more properties likely entering foreclosure in 2026 as insurance policy renewals come due at 35% to 50% higher premiums and rebuilding delays stretch into second and third years. Banks holding mortgages on destroyed properties face losses whether they foreclose or work out loan modifications, and lenders increasingly prefer selling notes at discounts to distressed debt buyers rather than managing lengthy foreclosure processes on fire-damaged properties. Operators who cultivate relationships with banks' special assets departments gain access to off-market distressed inventory before properties hit public auction, capturing the deepest discounts where banks accept 50 cents to 70 cents on the dollar to clear non-performing loans.
Min 4
Small operators gain competitive advantage because foreclosure purchases require all-cash transactions or hard money financing that institutions structured for traditional mortgages cannot access quickly, and the emotional toll Weiss described means many owners welcome cash offers that allow them to move on rather than fight through bankruptcy. The 62% value drop in Eaton Fire zone from $1.8 million to $684,000 means mortgages originated at 80% LTV on $1.8 million properties ($1.44 million loans) now secure properties worth $684,000, creating $756,000 in negative equity per property that triggers strategic defaults. Kohl mentioned that infrastructure isn't there with roads still incomplete in her neighborhood, discouraging even financially-capable owners from rebuilding, and this creates opportunity for operators who buy foreclosed lots, hold through infrastructure completion in 2026 to 2027, then sell to next wave of buyers when rebuild momentum accelerates. Operators with cash reserves to weather 18 to 24-month hold periods can assemble portfolios of 10 to 20 foreclosed lots at deep discounts, then either build spec homes or wholesale to builders once permitting improves and construction backlogs clear.
Min 5
The democratization angle centers on fire-zone foreclosures creating deeply discounted inventory that only cash buyers can access, leveling the playing field between small operators and institutions that rely on traditional financing structures. The pattern Kohl described of older neighbors not returning suggests demographic skew toward foreclosures involving retirees on fixed incomes who can't afford insurance increases or construction costs, and these motivated sellers accept lower prices for certainty of closing. LA County's 14% permit approval rate and 79-day average processing time means foreclosed lot buyers face same rebuild challenges as regular purchasers, but the 30% to 40% acquisition discount to market provides buffer against delays and cost overruns that make projects pencil where market-rate purchases don't. Operators who buy foreclosed lots in Q1 and Q2 2026 as the next wave hits position ahead of 2027 when insurance markets stabilize, Zone Zero regulations finalize, and infrastructure completion triggers rebuild acceleration that returns pricing power to sellers.
Takeaway
ABC News found 121 foreclosures in Eaton burn scar and 91 in Palisades through September 2025 as property values dropped 33% in Palisades and 62% in Altadena, with 75% of residents facing insurance struggles that trigger strategic defaults on underwater mortgages. The foreclosure wave creates forced sales at 30% to 40% discounts to already-depressed market values as lenders clear non-performing loans rather than hold fire-damaged properties through multi-year rebuild timelines. Small operators with all-cash capabilities can buy foreclosed lots before public auction by cultivating relationships with banks' special assets departments, capturing deeper discounts where lenders accept 50 to 70 cents on the dollar. The window to buy distressed inventory at maximum discounts lasts through Q2 2026 before insurance stabilization and infrastructure completion in late 2026 and 2027 trigger rebuild acceleration that returns pricing leverage to sellers.
