Banks and lenders repossessed more than 1 million homes in 2010, but more than 3 million homes actually entered foreclosure last year. As a result, 2011’s foreclosure numbers stand to be far worse than 2010’s as banks attempt to “catch up” on properties that have been delinquent far longer than would usually be permitted[1]. Lenders will be moving through a serious backlog as 2011 gets underway, and one in every 45 U.S. households will have received a foreclosure filing in 2010 that the homeowner will have to confront in 2011.

While the pace of foreclosures slowed dramatically in December partly due to holiday policies on the parts of lenders and law enforcement and partly due to lenders’ self- and externally-imposed reviews of foreclosure practices, there are still a lot of foreclosures out there that will stand up in a court of law. However, it remains to be seen if the lenders themselves can afford to foreclose in the volumes that are being predicted. Particularly in light of the recent Massachusetts foreclosure ruling that brought to light egregious oversights in mortgage paperwork that will likely invalidate myriad foreclosures at least in that state, many analysts are predicting a boom in short sales and loan mods as lenders opt to keep what they can and avoid a massive REO influx.

This new ruling is indisputably necessary in light of massive flaws in the paperwork and foreclosure systems at major lenders. However, it also threatens to stall the real estate market’s recovery indefinitely and render foreclosures nearly impossible. Do you think this is a good thing or a bad thing for the market in the long run?