According to RealtyTrac; a website that logs foreclosure filings,  foreclosure rates continued to rise in most of the top 100 largest metropolitan areas of the country.  

The effects of foreclosure have spread beyond the delinquent borrower.  The losses had a chain reaction from the defaulting borrower, to the lender and the investors.  The foreclosure process costs the lenders thousands in losses through legal fees and taxes due until the property is sold.  Not to mention the lost equity when the house is priced to sell in a weak market.  This month alone a lot of the major financial institutions such as Citigroup, Bank of America, Morgan Stanley and Merrill Lynch reported billions in losses on investments backed by mortgages.  You can read more about this report here.

On a wider scale, even those who did not default in their payment were affected.  Foreclosure raises the risk of fire, vandalism, theft and other crimes not only in the vacant foreclosed homes but in the surrounding houses, streets and neighborhoods.  Here is an article that discussed how the mortgage meltdown sparked a crime wave in one of the areas hardest hit by foreclosure. 

To add, the increase in inventories of houses for sale together with the typically lower than market value sale price of foreclosures weakens the local housing markets.  It pulls down the value of other nearby homes and sometimes the whole neighborhood.  Buying a foreclosed property in an area known for a lot of foreclosures doesn't leave much room for capital growth, if an investor is planning to flip it. You can read more about people cashing in foreclosures, from people making a killing in expensive seminar fees to those people who are actually buying foreclosed properties here.

Remember, although there's a lot of opportunities available in foreclosed properties, it does not apply to all foreclosures.  Do your own research. Check the foreclosure statistics in the area.  How did the foreclosures in the area affect the neighborhood?  Did it increase the crime rate in the area?  Are there any developments or job growth that can affect the area's future capital growth potential?   Be aware of any indicators that can further dampen the house prices and look out for genuine bargains that can be a potential gold mine.

See you soon,

Sherry