Foreclosure filings have fallen off sharply in Nevada, just one month after a state law designed to cut down on foreclosure fraud took effect.
Nevada has long been an epicenter of the national foreclosure crisis, with thousands or tens of thousands of distressed properties entering the foreclosure process every month for years. The sudden drop in foreclosure filings with the advent of the new law suggests that shoddy bookkeeping and conflicts of interest may have been widespread, raising concerns on the national level.
According to HousingWire, the new law imposes a $5,000 fine on fraudulent practices like robo-signing, the term for when banks cut corners while processing mortgage paperwork, often by signing it without reading it first.
Robo-signing has been found to be prevalent across the country, and caused foreclosure processing to grind to a near-halt last year as officials went back and scrutinized thousands of documents from some of the country's biggest banks and lenders, including Bank of America, Wells Fargo and JPMorgan Chase.
A federal effort is currently underway to correct the fallout from mishandled foreclosures, including a proposed settlement of as much as $29 billion to be paid by the country's five largest mortgage servicers, and invitations to millions of foreclosed homeowners to have their cases reviewed by independent consultants and determine whether misconduct took place.
Nevada's law, which calls for greater transparency and due diligence in the foreclosure filing process, took effect on October 1. In the month since then, according to The Wall Street Journal, foreclosure filings have dropped a full 88 percent in the state's two most populous counties, as measured by the company ForeclosureRadar.
The foreclosure crisis has arguably hit Nevada harder than any other state. As of September, Nevada had had the highest foreclosure rate in the country for almost five years running, according to the data company RealtyTrac.
Meanwhile, Las Vegas had the highest foreclosure rate among cities of its size, one five times as high as the national average. A recent report from the company SalesTraq speculated that the city would experience about another 100,000 foreclosures in the next four years.
In Vegas, as elsewhere, the rash of foreclosures has emerged as both a cause and a symptom of a depressed housing market. Home prices have dropped precipitously in Las Vegas since the peaks of a few years ago, as reported by Calculated Risk -- a trend that extends well beyond Nevada. Analysts believe the national housing market could be heading for a "triple dip" as high unemployment and widespread foreclosure notices drive home prices down even further than their current lows.
Low housing prices are seen as one of the key factors holding back the housing sector from a robust recovery -- and a housing recovery, in turn, is thought to be a necessary precondition for a turnaround of the wider economy. Foreclosures tend to depress neighborhood prices and make it more likely that nearby homes will themselves enter foreclosure.
Among other effects, the law that went on the books in October attempts to prevent conflicts of interest by making it illegal for a foreclosing bank to use a subsidiary company as its trustee -- the party that informs a homeowner that she's in default, and then oversees the foreclosure sale if the borrower can't clear her debts. This means that banks wishing to carry out a foreclosure must use a third party, one they don't own, as the trustee.
In August and September, BofA and ReconTrust served more than 400 notices of default in Washoe County alone, according to the Reno Gazette-Journal -- a number that has notably declined since October's law took effect.
The law also makes it a felony for a mortgage servicer or a trustee to make false representations about a real estate title.