http://realestate.msn.com/buying/Articlenewhome.aspx?cp-documentid=338165 More Americans are losing their homes Risky borrowing is catching up with a number of homeowners across the U.S. Foreclosures rose 45% in January compared to a year ago, and experts only expect the pace to accelerate. By Melinda Fulmer Table: U.S. foreclosure rates How to cash in on a fixer-upper The art of the lowball offer The number of homes entering some stage of foreclosure -- from notice of default to bank ownership -- increased 45% in January from the same period a year earlier, according to Irvine, Calif.-based RealtyTrac. That was one new foreclosure for every 1,117 U.S. households. The number of foreclosures is still low on a historical basis, but it has been rising steadily over the past year, RealtyTrac reported. Job losses in some regions were to blame, but so, too, were risky borrowing practices that left homeowners little wiggle room on their mortgage payments. And with the pace of appreciation stalling and interest rates rising, many economists and industry observers expect the pace of foreclosures to accelerate this year. Georgia leads the pack The areas of the country with the highest foreclosure rates on a per capita basis were Georgia, Nevada and Colorado. One out of every 422 households was in some stage of foreclosure in Georgia in January -- an 88% jump from the previous year. Georgia also came in at No. 5 for the highest total number of foreclosures. Nevada was second, with 1,795 properties entering foreclosure; 2 1/2 times the number reported the year before and one for every 483 households. Colorado came in at No. 3, with a 36% rise to 3,747 properties, or one in every 488 households. Economists speculated that lost jobs in and around the Atlanta and Denver areas were the main culprits. Realtors say the hardest-hit areas appear to be houses in lower-income urban neighborhoods. âThere are definitely more foreclosures out there,â said Duane Duffy of Metro Brokers Duffy & Associates in Littleton, Colo. Indeed, when Duffy recently took a client looking at homes in southwest Denver, âone out of every four homes we were looking at seemed to be a foreclosure.â But, foreclosures, he said, are becoming much more commonplace across Denver County. The states with the largest total number of foreclosures were Texas, with 14,669 foreclosures; Florida, with 10,334; and California, with 9,354. In many cases, the high number was a factor of the large population, and not an indicator of a greater percentage of people getting in over their heads. In California, for example, where the number of properties entering some stage of foreclosure reached 9,354 in January, the rate at which homeowners were defaulting was still below the national average. Rising rates squeeze already-stretched borrowers Typically, analysts say, itâs a job loss or loss of income from a household breadwinner that drives defaults. But rising interest rates are also beginning to play a role. âYou have a lot of people who stretched to get into a house,â said John Tuccillo of Arlington, Va.-based real estate consulting firm JTA Inc. In the last few years, many buyers took out interest-only, variable-rate loans, and in some cases put no money down to afford a house, said Frank Nothaft, chief economist with government-chartered mortgage giant Freddie Mac. He estimates one out of every three loans issued in 2005 was an adjustable rate mortgage. Now that weâve seen 14 consecutive interest-rate increases since June 30, 2004, many of these loan rates are bumping up, increasing the size of mortgage payments. Nothaft estimates that $500 billion in variable rate mortgages will reset, or rise, sometime this year, leaving many with a payment they can no longer afford. âThose would be the candidates for â¦ delinquent status,â he said. Foreclosures had been at historic lows in the past three years as rapidly appreciating home prices gave financially strapped owners the option to refinance, sell their house at a profit or take out a cheap home equity line of credit. But with the pace of appreciation slowing in many markets and interest rates rising, for many, these avenues have been cut off. âYouâre really out of options,â said Susan Wachter, professor of real estate at the Wharton School at the University of Pennsylvania. Silver lining for buyers In the months ahead, analysts expect delinquencies to rise, putting a greater number of these foreclosures on the market for buyers to choose from. Thatâs bad news for owners who live in these areas, analysts say, because rising foreclosure rates typically mean falling home prices. But itâs good news for buyers looking for some relief from the high prices of the last several years. In addition to driving neighboring home values down, foreclosures themselves tend to sell at a discount to the market, said Rick Sharga, vice president of marketing for RealtyTrac. Typically, Sharga says, buyers can shave 10% to 30% off the market price with a foreclosed home, depending on demand. The best deals can usually be negotiated with an owner, when a property is in default, but hasnât been put up for auction or turned over to the bank. âSometimes you can negotiate both ends, with the property owner and the bank,â Sharga said. Risky business But foreclosures donât always mean bargain-basement prices. âIn a hot real estate market, I have seen properties sold out of foreclosure for more than the estimated market value,â Sharga said. And there are more drawbacks and risks to buying property at auction. First of all, most buyers will need to come up with 100% of the purchase price on the day following the auction. Second, many times a property canât be fully inspected, and in some states, the previous owner has the right to buy it back for what you paid within a certain period. âLike any other investment, the higher the reward, the higher the level of risk,â Sharga said. Real estate economist Tuccillo recommends that buyers educate themselves about the foreclosure process now, so they can be ready to move when they see something they like. âStart doing a lot of research and monitoring of those markets now,â Tuccillo said. With interest rates expected to rise 3/4 of a point to a point this year, âIn six months, you will be able to do more picking and choosing.â And remember, Sharga said, sometimes these properties are in trouble for a reason, whether itâs a problem with the neighborhood, or a problem with the foundation. âThey may not be the property where you would want to live,â he said.