Experts in the Carolinas are blaming a mass of homes that are slowly moving through the foreclosure process as the reason for potentially reduced home prices and a delayed recovery of the housing market. These homes are frequently referred to as "shadow inventory." All of the properties are left out of monthly sales reports published by trade groups.

Shadow inventory is typically created by homes being foreclosed on but not sold, or homes whose owners are behind on mortgage payments and unlikely to recover. Once these properties fully undergo foreclosure, they will be listed for sale. If this "pipeline" were to burst at once, some experts say, the market would be flooded and homes would quickly become devalued.

Research firm CoreLogic estimates national shadow inventory at about 1.6 million homes, compared to 3.3 million homes listed for sale in October. In some areas of the United States, shadow inventory is even more problematic. For instance, Lancaster County, South Carolina, saw almost four times more shadow inventory than homes for sale.

Experts say shadow inventory is largely due to a decreased speed at which lenders pursue foreclosures. Foreclosures were temporarily halted in 2010 in many states after it was revealed that several major banks improperly completed and filed paperwork that caused thousands of homes across the United States to be illegally foreclosed on.

Now, some experts say banks are understaffed and cannot deal with the backlog of foreclosures. Others suggest that lenders are choosing not to foreclose because they wish to avoid flooding the market or take losses on a foreclosed home's next borrower.

For underwater homeowners who are struggling to pay their mortgages, a delay in foreclosure proceedings can provide crucial time to prepare a case for why they deserve to remain in their homes. There are legal options out there to stop foreclosure in its tracks, such as a modification of monthly payments.

Source: Charlotte Observer, "Housing glut looms behind region's 'shadow inventory,'" Kerry Singe and Gavin Off, Jan. 1, 2012