Second-best market: Rochester, N.Y.

This city 325 miles northwest of New York City along Lake Ontario saw foreclosure filings rise 132.6% last year, leaving Rochester with a 78-month supply of unsold distressed homes.

Again, Blomquist blames New York State's arduous foreclosure process. "There's a big backlog of cases," he says.

The good news for would-be buyers -- people who bought distressed properties in the 1.1-million-person metro area between January and October 2012 saw 25.8% average discounts. Blomquist sees such deals continuing this year.

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