Big banks are having trouble restarting the foreclosure process after this fall's "robo-signing" scandal, and the once booming market for foreclosed homes has been hit hard as a result.
According to ForeclosureRadar, the number of properties coming to auction in hard-hit western states -- Arizona, California and Nevada -- has dropped more than 30%.
In San Diego, according to broker Scott Cheng of Cheng Realty, 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."
Cheng used to be able to find about three or four suitable homes a month for investors looking for a bargain. Now, he hasn't done one of these deals since August.
"The ones who are really upset are the investors, who buy on the courthouse steps," said Kevin Berman, a broker with Bankers Realty Services in Fort Lauderdale, Fla. "There used to be sometimes 700 sales a day. Now there are like, seven."
In September, several banks -- including Ally, Bank of America, and JPMorgan Chase -- acknowledged problems with their foreclosure procedures. Employees had been signing as many as several hundred documents a day in which they sometimes attested to facts that they had no personal knowledge of, calling into question the legitimacy of the foreclosures.
The banks initiated foreclosure moratoriums, promised a full review of all cases, and to resume foreclosures quickly. But the review process has been slow-going.
Investors had been doing brisk business, buying distressed properties on the cheap, sprucing them up and flipping them. But now they are being far more cautious.
"Their concern is that homeowners will be more aggressive in fighting foreclosures even after the auction sale," said Sean O'Toole, CEO of ForeclosureRadar.
For vulture investors, speed is essential -- they do not want to tie up investments for months while attorneys argue.
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