Maybe Nevada Attorney General Catherine Cortez Masto was right
The robo-signing law that has drawn so much criticism from real estate agents really isn't stopping banks from foreclosing on delinquent borrowers.
Clark County foreclosure filings increased to 1,731 in October, up 30 percent from the previous month and up 92.8 percent from a year ago, online listing service ForeclosureRadar.com reported Wednesday.
That's a sharp reversal from the downward year-over-year trend in notices of default that started when Assembly Bill 284 took effect in October 2011. The law requires lenders to provide affidavits of authority to foreclose, including "personal knowledge" of who holds the mortgage note.
Masto said in July she has no regrets about passage of the robo- signing law, and that banks are simply using the law as a scapegoat, allowing people to live in their homes for free.
AB 284 is just one variable in today's housing market, she said. Another variable is the $25 billion federal mortgage settlement reached in March with six major lenders.
A ForeclosureRadar.com official said there are multiple factors at work.
"There's no question, the national (mortgage) settlement is having an effect as well, but to think that AB 284 has nothing to do with it, our data doesn't support that," said Sean O'Toole, chief executive officer of Discovery Bay, Calif.-based ForeclosureRadar.
"How do you get a bank employee to have personal knowledge of a loan that's been sold two or three times and if someone is making their payment? It's so ridiculously stupid," he said.
Default filings fell by 70 percent to 80 percent through September, though the absolute numbers have been ticking up in recent months. There were more than 2,000 notices of default in August.
Notices of trustee sale, which set the date and time of auction and serve as the homeowner's final notice before sale, decreased 70 percent from a year ago to 1,017 in October.
Other states have experienced a drop in foreclosure activity, but not as much as Nevada, O'Toole said. Clark County saw foreclosure filings peak at 11,482 in August 2009 and stay around 4,000 to 6,000 a month through 2010 and most of 2011, he said. They fell to about 1,000 a month with the AB 284.
O'Toole said he expects foreclosure activity to pick up as banks resolve issues with the Mortgage Electronic Registration System, or MERS, and proceed on some foreclosures.
"You have a handful of lenders that don't have MERS issues and trustee issues like Bank of America had with ReCon Trust," O'Toole said.
ForeclosureRadar reported 523 cancellations of trustee sales in October, down 60 percent from a year ago; 280 sales to a third party, down 55 percent; and 369 real estate-owned, or homes that went back to the bank, down 74 percent.
Realtor Sam Wagmeister of Prudential Americana Group said the inability of banks to foreclose on delinquent homeowners is vastly downplayed. What's not being reported about Nevada's nascent housing recovery is that the banks' hands are tied and they're not able to foreclose, he said.
"Sooner or later, the banks are going to figure this thing out, or our legislators are going to understand that allowing nonpaying homeowners to remain in a property for two years is not the road to recovery," Wagmeister said. "Unfortunately, this recovery will not come without pain. I feel strongly that there's a whole lot of water building behind this Nevada real estate dam and the people of Johnstown better be packing up and heading to higher ground."
O'Toole said lenders are moving toward more principal mortgage reductions and short sales, or homes sold for less than the mortgage balance, which are preferable to foreclosure.
Foreclosures have fallen from nearly 50 percent of Las Vegas home sales to about 15 percent in October, while short sales now account for roughly 45 percent of the market, the Greater Las Vegas Association of Realtors said.
"I think in the current regulatory environment, it's unlikely, if not almost impossible, to see a wave of foreclosures wash up on the shores of Las Vegas anytime soon," O'Toole said.
The inventory of homes in some stage of foreclosure increased slightly in October to 14,930, though it's down 56 percent from a year ago. REO inventory is down 65 percent to 3,789, and homes scheduled for trustee sale decreased 68 percent to 2,181, ForeclosureRadar reported.
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