New law has stalled, not stifled, foreclosures
Sun file photo
VEGAS INC archives
Banks have stopped filing new foreclosure notices in Nevada, but that doesn’t mean the housing crisis has passed.
In fact, bankers say a new law that took effect in October has put bank foreclosures on hold and is preventing the Las Vegas housing market from finally hitting bottom and “returning to normal,” Bill Uffelman, president of the Nevada Bankers Association, said.
Assembly Bill 284 requires that before banks start foreclosure, they must first file a signed affidavit in which an individual attests to firsthand knowledge of the documents. Bad actors can face felony charges. Under prior laws, such violations were a misdemeanor.
The bill was passed by the Legislature and signed by Gov. Brian Sandoval in June.
The impact has been dramatic.
Almost 4,000 notices of default were filed in Clark County in September.
In October, when the new law took effect, foreclosures dropped to about 800, levels not seen since 2006, before the Las Vegas housing bubble burst.
And foreclosures have remained near that level since, with all of the foreclosures being brought not by banks, but by hard-money lenders or homeowners associations going after people who have stopped paying their dues, Uffelman said.
But supporters of the new law stand by it, saying the least that banks can do before taking someone’s home is to prove they have that right.
“Banks are fumbling. In their zeal to earn billions, they had sloppy paperwork,” said Barbara Buckley, executive director of the Legal Aid Center of Southern Nevada and former Democratic speaker of the Assembly.
“I assume when they put their effort into finding and cleaning up their paperwork mistakes, the actions will proceed once again. The homeowners are not the ones who lost the paperwork. The lenders are,” she said.
Nevada — Las Vegas in particular — has been the epicenter for the national housing crisis. Homes were being thrown up as quickly as construction crews could manage. The process was funded and fueled by demand for bundled mortgages sold to large institutional investors. The packaging of hundreds and sometimes thousands of mortgages for resale on Wall Street has made tracking individual mortgages difficult for banks.
Prosecutors, including Nevada Attorney General Catherine Cortez Masto, have accused lending institutions of forging paperwork to get around that difficulty.
Proponents of AB284 said it was never their intention to slow or stop foreclosures. But with robo-signing controversies — where legal documents were approved in bulk without proper review — existing homeowners need to be sure the foreclosing lender has the authority to carry it out.
Also, those who ultimately buy a foreclosure need “clean title” — proof of who owned the mortgage.
Advocates call the delay in foreclosures temporary, and dispute assertions that the law has slowed the recovery.
They say banks had already been dragging their feet on foreclosures, creating a “shadow inventory” of pending foreclosures.
“It’s a red herring,” said Cortez Masto, a Democrat, who has sued Bank of America and other banks, alleging improper foreclosure practices. “We’re not asking for anything other than documents that are true and accurate.”
She accused banks of holding back on foreclosures in order to “get muscle” to change the law.
She invited critics to suggest changes to the process.
Assemblyman Marcus Conklin, D-Las Vegas, who sponsored the bill, said he didn’t expect the bill to stop or slow foreclosures. But he said it is a reasonable consumer protection to ensure that the banks foreclosing actually have the right to repossess someone’s house.
“People need to have faith that a legal transaction that’s about to take place is legitimate,” Conklin said.
Housing experts say the market needs to bottom out before the economy can fully recover. People staying in homes they can’t afford and not paying their mortgages or taxes only prolongs the process. But, they add, banks should also have kept better track of their records.
“I understand it might cause more work for the banks,” said Nasser Daneshvary, director of UNLV’s Lied Institute for Real Estate Studies. “But I think it was a reasonable bill. All it says is when you’re filing paperwork, you have to sign that it’s accurate. It’s enforcing the law of the land.”
But Uffelman, with the bankers association, said banks are still trying to navigate the affidavit process and it’s delaying a resolution to the housing crisis.
“People still aren’t paying their mortgages. That’s not doing anything to resolve the housing collapse in the city of Las Vegas or state of Nevada,” he said. “People are just living there for free.”
He said mortgages in Nevada may have passed through companies in Arizona, North Carolina and California. Some of those companies have “come and gone in that period of time.”
Conklin said the bill allows those who sign affidavits to correct mistakes.