Buyers now steering clear of foreclosed homes

A new report says that the recent foreclosure documentation controversy has had the effect of driving many potential buyers away from Houston foreclosures, and either driven them towards non-distressed properties or out of the housing market altogether.

According to the Campbell Surveys/Inside Mortgage Finance survey, 14 percent of potential owner-occupant buyers, along with 6 percent of housing investors said that they didn't even want to look at foreclosed homes. That trend also carried over to short sales, with 30 percent of owner-occupants and 20 percent of investors declining to view those kinds of properties.

"With the foreclosure 'fraud' issue still out there, buyers are skeptical to purchase a REO. Until the fraud mess gets cleared up, most of our clients are second guessing their interest in REO properties," said one Florida real estate agent polled.

In addition, the controversy also derailed a number of pending sales, with 24 percent of planned closings last month being either canceled or postponed due to short sale issues, while title issues with bank-owned properties held up another 12 percent.

However, many of those sales may soon get back on track. Fannie Mae and Freddie Mac recently told real estate agents that they could resume foreclosure sales on properties owned by the two mortgage giants.