Before Superstorm Sandy, some of the hardest-hit areas in New York, New Jersey and Connecticut were experiencing a huge spike in foreclosures. But now that a moratorium on foreclosure activity in these disaster areas has been put in place, the foreclosure problems are about to get worse.
In the 34 counties that have been declared disaster areas, close to 125,000 homes were already in some stage of foreclosure or bank-owned at the end of October, a 54 percent increase from the year before, according to RealtyTrac, an online tracker of foreclosed properties.
Ever since the $25 billion mortgage settlement was reached last spring, lenders have been working through a heavy backlog of foreclosures that had been accumulating since the robo-signing scandal arose two years ago. The agreement cleared the way for banks to start filing paperwork on delinquent borrowers and pursue those who were further along in the foreclosure process.
But Superstorm Sandy derailed that momentum.
Last week, mortgage giants Fannie Mae and Freddie Mac told their servicers to postpone any actions against defaulting borrowers in counties designated as disaster areas. Foreclosure auctions will be suspended for 90 days, as will evictions of borrowers who have already lost their homes to foreclosure but have yet to move out.
While the move will help buy some time for storm victims, it may be a significant setback to the housing recovery.
"Moratoriums being put into effect as a result of the storm will likely extend the already lengthy time to foreclose in these states," said Daren Blomquist, vice president of RealtyTrac.
And all of those distressed properties will continue to weigh on home prices as the banks try to unload them in foreclosure auctions and sell them on the open market at a discount once the suspensions are lifted.
More properties will also likely fall into foreclosure as some storm victims choose to walk away from their homes rather than rebuild, said Brad German, a spokesman for Freddie Mac.
In past disasters like Hurricane Katrina, however, fewer homeowners walked away after disasters than Freddie had anticipated, he said.
The three states hit hardest by the storm saw the highest annual increases in foreclosure activity in the country during the month of October, according to RealtyTrac. New Jersey's foreclosure activity climbed by 140 percent year over year, while New York's rose 123 percent. Connecticut, by comparison, had a rather tame but still significant 41 percent increase.
The results in the Northeast were not indicative of the country as a whole, however. Overall, foreclosure activity was down 19 percent compared with October 2011. And bank repossessions declined for the 24th month in a row.
Foreclosure Mess Awaits States Hit by Superstorm Sandy
A National Guard Humvee travels through high water Tuesday during a patrol to check the effects of Hurricane Sandy in Ocean City, Md.
This photo provided by Philadelphia's WPVI-TV shows the Inlet section of Atlantic City, N.J., as Hurricane Sandy makes it approach on Monday.
A woman is lifted into a National Guard vehicle after leaving her flooded home Tuesday at the Metropolitan Trailer Park in Moonachie, N.J.
Boats are left piled on each other in Brick, N.J., on Tuesday after Hurricane Sandy struck.
The Kunta Kinte-Alex Haley Memorial sits in floodwaters in downtown Annapolis, Md., on Tuesday, after the superstorm and remnants of Hurricane Sandy passed through that city.
Ocean City municipal employees Michael Brown, left, and Enos Jones fill a truck with debris as they clean the boardwalk Tuesday after the effects of Hurricane Sandy in Ocean City, Md.
A woman rides her bicycle through a flooded street in the Red Hook section of Brooklyn on Tuesday after Hurricane Sandy caused extensive damage in New York City.
This photo taken Tuesday in New York City shows what appear to be transformers exploding after much of lower Manhattan lost power during Hurricane Sandy. Much of New York was plunged into darkness Monday by a superstorm that overflowed the city's historic waterfront, flooded the financial district and subway tunnels and cut power to nearly a million people.
One World Trade Center and large portions of lower Manhattan and Hoboken, N.J., are seen without power from Jersey City, N.J., on Tuesday.
In New York City, an uprooted tree blocks 7th street near Avenue D in the East Village as a result of high winds from Hurricane Sandy on Monday.
Sailboats rock in choppy water at a dock along the New York's Hudson River Greenway during the storm on Monday.
The facade of a four-story building on New York's 14th Street and 8th Avenue collapsed onto the sidewalk on Monday.
Firefighters respond Monday at the scene of the building collapse on 14th Street and 8th Avenue in New York.
John Constantine makes his way out of his house after winds from Hurricane Sandy toppled a tree in Andover, Mass., on Monday.
Johnny Jones watches the Indian River rise in Sussex, Del., from the longtime family home where he and his brother, David, have spent their entire lives.
A row of houses stands in floodwaters at Grassy Sound in North Wildwood, N.J., as Hurricane Sandy pounds the East Coast on Monday.
Michael Wirtz, of Wilmington, Del., braves floodwaters and high winds that arrive with Hurricane Sandy along North Michigan Avenue in Atlantic City, N.J., on Monday.
A fallen tree rests on top of a car in the Cliffwood Beach section of Aberdeen, N.J., on Monday.
A few dozen people take refuge from Hurricane Sandy at a Red Cross shelter on Monday in Deer Park, N.Y.
A Rehoboth Beach, Del., resident watches the waves crash in Monday's storm.
Curious onlookers get a closer glimpse at rising water from the Hudson River as it overtakes a bank drive-through in Edgewater, N.J., on Monday.
Water floods Bayville Avenue in Bayville, N.Y., on Monday as a result of Hurricane Sandy.
Jake Wilkerson, 20, and Kaityln Baker, 21, both of Annapolis, Md., struggle with their umbrellas as Hurricane Sandy approaches that city on Monday.
A surfer rides a wave Monday at the Virginia Beach Fishing Pier at 15th Street in Virginia Beach, Va.
People wade and paddle down a flooded street Monday as Hurricane Sandy approaches in Lindenhurst, N.Y.
Water from the Hudson River surrounds a hotel in Edgewater, N.J., on Monday as Hurricane Sandy lashes the East Coast.
A construction crane atop a luxury high-rise dangles precariously over New York streets after collapsing in high winds from Hurricane Sandy.
A New York City firefighter and police officer look at the collapsed construction crane dangling precariously atop the luxury high-rise.
A worker clears a tree dropped by the high winds prior to landfall of Hurricane Sandy in Shrewsbury, Mass., on Monday.
A warning sign displays a directive near downtown Philadelphia ahead of Hurricane Sandy's landfall on Monday.
Lower Manhattan goes dark during hurricane Sandy on Monday, as seen from Brooklyn, N.Y.
A storm surge hits a small tree as winds from Hurricane Sandy reach Seaside Park in Bridgeport, Conn., on Monday.
As Hurricane Sandy bears down on the East Coast, Ron Croker, left, and Tim Wood, wheel a personal watercraft to a safer location in Ocean City, Md.
Trees bend in the wind and driving rain in downtown Philadelphia ahead of Hurricane Sandy's landfall on Monday.
A house is inundated by flood water as Hurricane Sandy approaches on Monday in Center Moriches, N.Y.
A couple posing for a picture get hit by a wave in Hampton, N.H., on Monday.
The storm floods streets on Monday in Hampton, N.H.
Debris and water close Virginia Dare Trail after wind and rain from Hurricane Sandy left many roads flooded and impassable in Kitty Hawk, N.C., on Monday.
A car is submerged in the Dumbo section of the Brooklyn borough of New York, as the East River overflows during Hurricane Sandy on Monday.
In this Oct. 26, 2012 photo, residents walk past tree branches and power lines felled by Hurricane Sandy in Santiago de Cuba.