'Gulf Oil'
"In the employment-rich suburban submarkets, this will be much like the gulf oil spill," Otteau said in an e-mail. "For the most part, it never happened. The foreclosure wave will be the same way."
Foreclosure delays in judicial states also are keeping capital on the sidelines and reducing borrowing options for buyers of high-end homes, according to Chris Whalen, a senior managing director at Tangent Capital Partners LLC in New York.
"Here in the Northeast, we have a problem," Whalen said in a telephone interview. "Investors won't touch a state where they can't foreclose on the house. They have no collateral."
In California and Arizona, which have cut their shadow inventories in half in the past two years, investors have flooded the market with cash to buy a diminishing supply of distressed homes, helping housing prices find a floor and reducing the incentive for underwater homeowners to walk away from their debts.
Phoenix Homes
Phoenix-area homes sold for a median $149,000 in July, up 31 percent from a year earlier, according to a Sept. 6 report from the W.P. Carey School of Business at Arizona State University.
Mike Orr, director of the business school's center for real estate, said the shadow inventory no longer deters investors in Arizona.
"It's not as big and scary as you think because time will take care of it," he said in an interview. "The problem is really focused on the East Coast, where you have a foreclosure system that is slow and a build-up in delinquency rates."
Billy Pinilis, an attorney with Pinilis Halpern LLP who represented the Bradys, said court proceedings give delinquent homeowners who can't pay their mortgage more time to consider options, including a loan modification or selling for a loss.