"Lenders foreclosed on a record number of properties in September and in the third quarter, taking a bite out of the backlog of distressed properties where the foreclosure process was delayed by foreclosure prevention efforts over the past 20 months," said James J. Saccacio, CEO of RealtyTrac.

"We expect to see a dip in those bank repossessions–and possibly earlier stages of the foreclosure process–in the fourth quarter as several major lenders have halted foreclosure sales in some states while they review irregularities in foreclosure-processing documentation that has been called into question in recent weeks."

But he also said the processing problem needs to be addressed quickly.

"If the lenders can resolve the documentation issue quickly, then we would expect the temporary lull in foreclosure activity to be followed by a parallel spike in activity as many of the delayed foreclosures move forward in the foreclosure process," Saccacio said.

"However, if the documentation issue cannot be quickly resolved and expands to more lenders we could see a chilling effect on the overall housing market as sales of pre-foreclosure and foreclosed properties, which account for nearly one-third of all sales, dry up and the shadow inventory of distressed properties grows–causing more uncertainty about home prices."