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Published: Friday, 10/22/2010

Investors retreating from buying foreclosures


NEW YORK - Investors who have been snapping up foreclosed homes are backing off in light of the U.S. foreclosure fiasco, driven by sagging inventory and fears over legal title, and some economists say the trend could hurt the overall housing market.

With foreclosed properties accounting for a large portion of housing sales, and investors accounting for a large portion of buyers, the implications for the broader economy could be serious.

Investors who would buy, rehabilitate, and then sell or rent foreclosures were playing a "huge role," in helping to clear the market, housing economist Tom Lawler said.

But many of those investors are staying on the sidelines now.

"We're like a plane flying around in a holding pattern, waiting to land," said Tony Alvarez, an investor in southern California who is renting out 40 former foreclosed homes. "Nothing is going on, and why? Fear has taken hold in the marketplace."

Allegations that banks failed to review foreclosure documents properly or submitted false statements when they foreclosed on properties spurred a joint investigation by the attorneys general of all 50 states and triggered foreclosure moratoriums by some of the biggest U.S. lenders.

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