An article in the Los Angeles Times on Tuesday documented the sad story of a defaulted homeowner who was the victim of alleged foreclosure fraud. The homeowner said he was tricked into signing over the title of his home by a scam artist who did nothing to stop the foreclosure and then took out another loan against the property with no intention of paying it off. The article goes on to make the case that foreclosure fraud crime is on the rise.

It is a crime that consumer advocates fear could become increasingly common — especially in Southern California, where many homeowners have stretched themselves to their financial limits to afford the region's record high housing prices.

"The scammers don't create the foreclosure rates, but they swoop in at the time that someone is in distress," said Elizabeth Renuart, a staff attorney with the National Consumer Law Center in Boston and the author of "Dreams Foreclosed: The Rampant Theft of Americans' Homes Through Equity-Stripping Foreclosure 'Rescue' Scams."

While still considered low, indications are that the nation's foreclosure rate is on the rise, meaning the pool of potential victims is growing. Overall, the foreclosure rate in the Los Angeles region has doubled since October, according to RealtyTrac Inc., an Irvine-based company that monitors foreclosures. As of February, the rate was one foreclosure for every 1,223 households.

At the same time, the steep rise in housing prices over the last few years has created a massive amount of equity in many properties — a tempting target for swindlers.

The Milwaukee Journal Sentinel posted a similar article last month.

It’s not clear from these articles whether the apparent rise in foreclosure-related fraud is the result of a few bad apples, widespread scams or just more vigilance on the part of the media and homeowner advocate groups such as the ones quoted. In any case, legitimate foreclosure investors will need to find ways to overcome the stigma associated with foreclosure investing because of the increased attention to this problem. In the end, the increased attention benefits both homeowners in default and legitimate foreclosure investors, but it may take some time and effort to separate the wheat from the chaff.

Any thoughts on how legitimate foreclosure investors can differentiate themselves from scammers? Make a comment or send us an e-mail.

RealtyTrac released our February 2006 foreclosure numbers today, and they show U.S. foreclosures increasing for the third month in a row. We show 117,259 properties nationwide entered some stage of foreclosure in February, a 13 percent increase from the previous month and a 68 percent increase from February 2005. That's a foreclosure rate of one new foreclosure for every 986 U.S. households. Here's what our CEO, James J. Saccacio, had to say about the numbers:

"This is the third straight month the U.S. foreclosure rate has moved higher, and it’s the second straight month new foreclosures have topped 100,000. In addition, bank-owned properties accounted for 39 percent of the total number, which is a higher percentage than usual and indicates that fewer homeowners in default have been able to stop the foreclosure process by selling or refinancing during pre-foreclosure."

Georgia reported the nation's highest foreclosure rate for the second month, with one new foreclosure for every 329 households. Indiana and Colorado weren't too far behind, with one new foreclosure for every 427 households in Indiana, and one new foreclosure for every 443 households in Colorado.

Texas and Florida were on top in terms of sheer number of foreclosures. Together, the two states documented more than 23,000 new foreclosures, 20 percent of all new foreclosures across the country.

The rising numbers from the last few months have gained significant attention from the mainstream media as well as bloggers. For some people, the escalating numbers are evidence that supports their belief that a housing bubble exists and is about to burst. For others, the numbers simply show that the real estate market is softening. We don't see these numbers as overly alarming, but there are certainly signs the housing market (especially from the perspective of homeowners and sellers) is not as strong as it was a year ago.

How do these numbers play out in your area?

Thanks for stopping by! We've just recently launched this blog, and we hope to develop this blog into a valuable and well-read part of the blogosphere. Feel free to let us know what you think.

Foreclosure Pulse is brought to you by RealtyTrac, the leading marketplace of pre-foreclosure and foreclosure data nationwide, and was created primarily so that those of you in the trenches of buying, selling or investing in real estate have a place where you can find out the latest foreclosure trends and comment or ask questions based on your experiences. In addition, we want this blog to develop into a community where you can connect and share ideas with others interested in the foreclosures market. 

It’s important for buyers and investors who are interested in the foreclosures market to carefully evaluate local market conditions before diving into foreclosures in any given area. Our analysis of nationwide foreclosure property sales in the last seven months shows that while some areas of the country documented a plethora of properties in foreclosure and big savings on foreclosure purchases, other areas reported relatively low foreclosure inventories and smaller average savings on foreclosure purchases.

Foreclosure markets most favorable to buyers and investors
According to data from the RealtyTrac database, homebuyers and investors realized average savings over the past seven months of more than 40 percent on foreclosure purchases in Ohio and average savings of more than 30 percent on foreclosure purchases in Indiana, Tennessee, Georgia and Texas. Those types of bargains are well within the parameters of what most experienced investors consider a sound investment, even in areas where home value appreciation is relatively slow.

All five of the states with foreclosure markets most favorable to buyers and investors reported annual foreclosure rates of more than 1 percent of total households along with increasing foreclosures in 2005. In addition, the low average sales price of foreclosures in these states makes it easier to purchase a foreclosure property — especially at foreclosure auctions, where the full amount in cash is sometimes required.

Foreclosure markets requiring persistence and savvy
In other states, deep discounts on foreclosure properties were harder to find. For example, the average savings on a foreclosure property in California was less than 20 percent. While that’s still a significant savings, the state’s booming property value appreciation rates mean a buyer still needs to invest a substantial amount of money — $412,811 was the average sales price for a foreclosure property in the state. And foreclosure rates in California, New York and Washington were well below the national average, meaning that relatively few foreclosure properties were available to interested buyers and investors.

Still, there were some pockets within these states where buyers and investors found great bargains. For example, foreclosures in Monroe County (Rochester), New York sold for an average price of $59,591 — 47.82 percent of market value.

View charts of best and worst state foreclosure markets.

Let us know about where you've found the best deals with foreclosures.