As dreadful as they've been for many homeowners around the country, foreclosures have spawned one of the few growth industries left in the United States.

The economy as a whole is stuck in low gear, and joblessness is rampant, creating a tidal wave of foreclosures. Lenders are expected to foreclose on 1.2 million homes this year, up from 1 million last year. In 2005, two years before the subprime-mortgage bubble burst, there were just 100,000 foreclosures, according to researcher RealtyTrac.

The research firm said on Thursday that foreclosures rose 4 percent during the third quarter, and rose 3 percent in September to a monthly record 102,134, crossing the 100,000 mark for the first time.

Still, the misfortune of millions of borrowers created opportunity for others in what might be known as the Foreclosure Economy. There are countless small business—from trash haulers to process servers, loan processors, specialized foreclosure law firms, and property-preservation firms—that have grown with the rise of distressed real estate.

And now that Foreclosure Economy is bound to take a hit if lawmakers in Washington get their way and impose a nationwide moratorium on foreclosures, which investigators have found are rife with errors.

On Wednesday, attorneys general in all 50 states announced a joint investigation of industry practices, which reportedly include the use of "robo-processors" to sign thousands of documents without a proper review. Bank of America already has halted foreclosure in all 50 states, and JPMorgan Chase and Ally Financial, the former GMAC, have halted them in 23 states.

Rick Sharga, a senior vice president at RealtyTrac, in Irvine California, says the size of the Foreclosure Economy is tough to measure. But he estimates that the value of foreclosed real estate itself is in the hundreds of billions of dollars. RealtyTrac estimates that the average foreclosed home is worth $175,000, and that the total value of the 1.2 million homes expected to be seized this year is about $210 billion. That's in addition to the $157 billion in home value that banks already have on their books. Before the recent halt, foreclosures accounted for about one-in-four home sales.

Given the amount of money that's at stake, there's little surprise that what might have seemed like a well-intentioned effort to soften the blows of the weak economy by helping distressed borrowers keep their homes has turned into a murky political and economic debate.

One small business that has profited from the foreclosure boom already can feel the pressure of the crackdown by regulators and enforcement officials. In the suburbs of Los Angeles, Ramon Mercado runs Miss Junk, a 20-person trash-hauling business that specializes in helping banks and real estate agencies clean foreclosed sites.

A former mortgage broker, Mercado switched careers four years ago after the housing market began to slow. "I was looking to be of service, to offer something people could use," he says. And use it they could. As foreclosures took off, so did the need for clean-outs of distressed properties, which accounted for as much as half of his business at one point.

"We were doing 10 to 15 foreclosed properties a week. Now it's down to half that," he says. "A lot of banks are holding back on foreclosure. It has slowed our business down a little bit, although we don't depend upon foreclosures," says Mercado, whose trucks are known for their bright-pink hue.

Here's another example: Lender Processing Services Inc. has lost about half of its market value as furor over foreclosures grows. LPS shares are trading at $28.10, down from a 52-week high of $44.38 reached last October. The company, based in Jacksonville, Florida, offers a broad range of real estate services, including default management. Its DOCX LLC subsidiary in Alpharetta, Georgia, has been the subject of an investigation of by the U.S. attorney and the attorney general in Florida.

The idea of a moratorium has met with fierce resistance from the banking industry and independent economists who say that halting foreclosures will delay the recovery of the housing market. The Securities Industry and Financial Markets Association warned Monday that a nationwide moratorium on foreclosures could have "catastrophic" consequences. The argument is gaining traction. On Tuesday, President Obama indicated he would oppose a broad foreclosure moratorium.

But even without a full nationwide moratorium, the pace of foreclosures is bound to slow—for better or worse.

"We expect that the moratoriums will show up in our foreclosure statistics for October, and that will have a ripple effect on the satellite industry that has grown up around them," Sharga says. "If it turns out that there is more than a temporary delay in processing foreclosures, it could have an impact on the recovery of the housing market itself."

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