New Nevada law spurs big drop in homes entering foreclosure
For years, the housing news in Nevada has been unrelentingly bleak: Nearly 3 in 5 homeowners, even the state’s attorney general, are underwater on their home loans. In Las Vegas, home prices have tumbled further than in any U.S. metropolitan region.
So when market researcher RealtyTrac announced a 75% drop in the number of Nevada homes entering foreclosure in October, even as those numbers surged elsewhere in the country, things seemed finally to be looking up in the Silver State.
That news, though, did not result from a reversal of fortune in the Nevada housing market. It was spawned by a new Nevada law that plays hardball with companies doing the foreclosing.
Assembly Bill 284, which took effect in October, requires those foreclosing on a home to file an affidavit proving they have the right to bring the action — and it increases civil and criminal penalties for using fraudulent documents in a foreclosure.
The new law was an attempt “to close any loopholes that a criminal element likes to find,” Nevada Atty. Gen. Catherine Cortez Masto said. But it also has forced banks and other companies in the foreclosure business to back off, at least temporarily.
Weeks after the new law went into effect, Masto announced what may be the first criminal charges to result from widespread revelations last year that banks used faulty means to foreclose on delinquent borrowers.
A Clark County grand jury in November indicted two Southern California title officers on a combined 606 felony and misdemeanor counts, alleging the two headed a vast “robo-signing” operation in which tens of thousands of foreclosure documents were fraudulently filed in the Las Vegas area.
“This is real important stuff because it asserts that bank employees and companies that work for banks actually have to follow the law, and if they break the law, they can be indicted,” said Kurt Eggert, a Chapman University law professor.
Nevada has been one of the states hit hardest by the housing bust.
Las Vegas residents have seen the worst home-price declines of any major metro area in the nation; prices are down 60% from the August 2006 peak, according to the Standard & Poor’s/Case-Shiller index. Vegas also had the highest foreclosure rate of any major U.S. city for 22 months until October.
About 58% of Nevada homeowners are underwater on their homes, which means they owe more on their mortgages than the current values of their property. That is the highest percentage nationwide, according to CoreLogic, a Santa Ana mortgage data tracker.
“I understand the frustration,” said Masto, who is part of that group.
The 75% month-over-month decline in Nevada foreclosure activity was in notices of default, the first step taken by a lender seeking to repossess a house.
The latest figures also show that Las Vegas now ranks below Stockton, Modesto, the Vallejo-Fairfield area in Northern California and the Inland Empire for the highest foreclosure rate, measured by the number of total foreclosure filings per housing unit in the area.
The Las Vegas housing market still is far from healthy.
In the Vegas suburb of Henderson, Clayton Wight was among the first in 2007 to buy in the upscale Inspirada development, an experiment in new urbanist design with broad sidewalks, homes with porches and walkable parks. Developers left it unfinished after the market crashed.
The computer analyst said he thought the home was a good investment for $240,000 but now feels trapped: The home could fetch about $160,000 by his estimate. Many neighbors have lost homes to foreclosures, and he is skeptical that the end of the crisis is in sight.
“There doesn’t seem to be anybody with any answers,” said Wight, 59, walking his dog on a recent morning.
Nevada’s aggressive moves against problem foreclosures signal a political recognition that residents are fed up with the economic calamity brought on by the housing market’s collapse and with bank practices in general, experts said.
Nevada’s criminal case targeted two title officers who worked for Lender Processing Services, a foreclosure processing company in Florida that most large U.S. banks have used.
The indictment alleged that Gary Trafford, 49, of Irvine and Geraldine Sheppard, 62, of Santa Ana directed notaries to fraudulently notarize and file paperwork to initiate foreclosure on homeowners in the Las Vegas area.
Trafford couldn’t be reached for comment; Sheppard and a lawyer for the pair declined to comment. The defendants have not yet entered a plea.
Masto’s office followed up with lesser charges against four Nevada notaries.
In a tragic twist last week, 43-year-old notary Tracy Lawrence, who had pleaded guilty to a misdemeanor and was cooperating with the inquiry, was found dead in her apartment. Several empty bottles of over-the-counter and prescription pills were found, and police are treating the matter as an accidental overdose or a suicide, said Las Vegas Police Sgt. Matt Sanford.
Lender Processing Services said that it was working with authorities and that the company itself was not being investigated. The firm acknowledged that some of its documents were flawed but said the documents didn’t result in wrongful foreclosures.
California Atty. Gen. Kamala D. Harris subpoenaed company records in May to determine whether employees fraudulently signed foreclosure documents in California, part of a broader investigation into improper foreclosure practices.
Harris and Masto announced plans this week to join forces to investigate housing-crisis misconduct, including the packaging and selling of mortgage-backed securities and scams targeting troubled borrowers.
Nevada’s new law and indictments sent shock waves through the real estate world.
That the crackdown is happening in Nevada is notable because most foreclosures there occur without a court order. In other so-called nonjudicial states, including California, evidence of widespread foreclosure fraud hasn’t emerged as readily as in states that require a court to oversee the process.
How long Nevada’s foreclosure slowdown will last isn’t clear. Some experts said banks are merely adjusting to the new law.
“Every bank that I have talked to, they are just dotting their I’s and crossing their T’s; they are just taking a cautious road,” said Keith Lynam, a Las Vegas real estate agent.
Thomas Blanchard, who specializes in listing foreclosure properties for lenders, said he fears a long slowdown. He has slashed hours and laid off one worker.
“You take away a few thousand deals a month,” Blanchard said, “all of a sudden we are going to have another large section of workers that don’t have income.”