The ongoing controversy surrounding foreclosures is taking its toll as homebuyers refused to look at distressed properties in October, and foreclosure sales suffered from delays, according to the latest Campbell/Inside Mortgage Finance Monthly Survey. Both the share of home purchases involving distressed properties and average prices for foreclosed properties fell last month, the survey found. News reports that major servicers were pulling REOs off the market, including some already under contract, spooked would-be homebuyers. The monthly survey found that 14% of owner-occupant homebuyers and 6% of investors refused to view foreclosed properties in October. Homebuyer fear was worse for short-sale properties where 30% of owner-occupant buyers, and 20% of investors refused to view these homes. Servicing problems disrupted both short sales and REO sales. Survey results show that 24% of closings scheduled for October were delayed or canceled due to issues with short sales, while 12% were delayed or canceled due to REO title issues. Although distressed properties have dominated home sales for much of 2010, recent foreclosure problems helped trigger a dip in their share of the market last month, according to the survey. In October, distressed properties accounted for 44.3% of transactions tracked in the latest survey — down from 47.5% in September. "It's clear that decreased homebuyer demand for distressed properties has resulted in lower prices," said Thomas Popik, research director for Campbell Surveys. "With the foreclosure 'fraud' issue still out there, buyers are skeptical to purchase a REO. Until the fraud mess gets cleared up, most of our clients are second guessing their interest in REO properties," reported a Florida real estate agent responding in the latest survey. Campbell/Inside Mortgage surveys more than 3,000 real estate agents nationwide each month for the survey. Write to Kerry Curry.