Turn On The Lights, Watch The Roaches Scatter, Part 44

As expected, Foreclosuregate is killing home sales across the country as banks, mortgage lenders, homeowners, and courts have no idea how to proceed when the validity of the paperwork of millions of mortgages is now potentially suspect.  The result is a steep decrease in foreclosed home sales.

Big banks are having trouble restarting the foreclosure process after this fall's "robo-signing" scandal, and the once booming market for foreclosed homes has been hit hard as a result.

According to ForeclosureRadar, the number of properties coming to auction in hard-hit western states -- Arizona, California and Nevada -- has dropped more than 30%.

In San Diego, according to broker Scott Cheng of Cheng Realty, who puts investors together with foreclosed properties, the number of auctions scheduled has fallen from 500 a day, to 300. "That part of my business has dried up," Cheng said. "A lot of my investors have stopped looking."

Cheng used to be able to find about three or four suitable homes a month for investors looking for a bargain. Now, he hasn't done one of these deals since August.

"The ones who are really upset are the investors, who buy on the courthouse steps," said Kevin Berman, a broker with Bankers Realty Services in Fort Lauderdale, Fla. "There used to be sometimes 700 sales a day. Now there are like, seven."

We know that when buyers aren't buying a product and that the supply is too great, prices must go down until the buyers will start buying again.  But what happens when there are millions of homes on the market that cannot be sold at any price because of the legal concerns of paperwork and questions about who owns the note?

That's a recipe for complete disaster, a breakdown of the market in question.  And considering the real estate market in this country is worth trillions, you have to assume that the outcome of this mess will affect everything else.

Here there be dragons, folks.  Strap in.