A halt in home foreclosures at the largest U.S. mortgage firms may sideline buyers worried about legal issues, further depressing sales at a time when distressed properties account for almost a quarter of all transactions, Bloomberg reported.

Revelations of mistakes in foreclosure proceedings are causing buyers to have misgivings about property titles, said Richard DeKaser, chief economist at Woodley Park Research in Washington, D.C. Confidence in the legality of repossessions will cut foreclosure sales more than a reduction of available properties because the market already is flooded with repossessed homes, he said.

Bank of America Corp., the largest U.S. lender, extended a freeze on foreclosures to all 50 states on Oct. 8 as concern spread among federal and state officials that homes are being seized based on faulty data. JPMorgan Chase & Co. and Ally Financial Inc.’s GMAC Mortgage unit stopped repossession cases in 23 states where courts supervise home seizures, amid allegations that employees submitted documents with unverified or false information to speed the process.

Foreclosure sales accounted for 24 percent of all home transactions during the second quarter, according to a Sept. 30 report by RealtyTrac Inc. They made up a greater share in the states hardest-hit by the housing crisis, accounting for 56 percent of purchases in Nevada, 47 percent in Arizona and 43 percent in California.

Mike Knapp, president and CEO of Iowa Realty Inc., said he has seen little evidence that the foreclosure freeze is affecting sales.

“We have had very little experience with it,” he said.

Some indicators show the U.S. real estate market turned a corner in August. The number of contracts to purchase previously owned homes increased 4.3 percent, the second monthly gain, according to an Oct. 4 report from the National Association of Realtors. Sales of previously owned homes rose to an annual pace of 4.13 million, up 7.6 percent from July’s record low, the association said last month. September sales likely won’t be affected by the legal problems associated with foreclosures, a company official told Bloomberg.

PNC Financial Services Group Inc. halted sales of foreclosed homes for a month to review documents in its mortgage servicing procedures, according to an Oct. 4 memo the bank sent to lawyers handling the lender’s foreclosures.
 
Litton Loan Servicing LP, a mortgage-servicing business owned by Goldman Sachs Group Inc., said last week it’s stopping some foreclosures to review how they’re handled. Spokesmen for Wells Fargo & Co. and Citigroup Inc. told Bloomberg their companies are still processing foreclosures.

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