November 29, 2010 (Jeff Alan)

In September when the big banks acknowledged problems with their foreclosure procedures, later to become known as the “robo-signing” scandal, they initiated foreclosure moratoriums, promised a full review of all cases, and to resume foreclosures quickly. Now more than two months later, the banks are struggling to restart their foreclosure processes and as a result, the once booming market for foreclosed homes has been hit hard.

According to ForeclosureRadar, the number of properties coming to auction in hard-hit western states — Arizona, California and Nevada — has dropped more than 30%.

Not only has the number of foreclosures that are coming to market been drying up, but investors who had been buying up a large portion of the homes that come to auction, are being far more cautious. Investors buy the properties on the cheap, fix them up and then flip them for a profit. For these types of investors, speed is essential, but with the robo-signing scandal possibly clouding property titles, it could possibly tie-up their investment for months and delays their ability to resell the property.

“Their concern is that homeowners will be more aggressive in fighting foreclosures even after the auction sale,” said Sean O’Toole, CEO of ForeclosureRadar.

According to broker Scott Cheng of Cheng Realty in San Diego who puts investors together with foreclosed properties, the number of auctions scheduled has fallen from 500 a day, to 300. “That part of my business has dried up,” Cheng said. “A lot of my investors have stopped looking.”

Kevin Berman, a broker with Bankers Realty Services in Fort Lauderdale, Florida said, “The ones who are really upset are the investors, who buy on the courthouse steps. There used to be sometimes 700 sales a day. Now there are like, seven.”

Some experts believe the legal issues involved in robo-signing will ultimately be settled in favor of the banks. Duane LeGate, CEO of Georgia-based House Buyer Network said, “The fear that has been created is based more in hype than in law.”

Regardless of the outcome, the longer that the foreclosure crisis lingers, the longer it will take for the housing market to recover.

Tags: foreclosure sales, robo-signing, housing market, foreclosure auctions, investors, property titles, investments