Las Vegas no longer has the highest foreclosure rate among major metropolitan areas. After 22 months in the top spot – a dubious honor – it fell to No. 5 in October, according to a new report.
But there's little cheering in Las Vegas – the city's two newspapers didn't even report it – because the drop is happening for the wrong reason. Instead of a big decline in foreclosures, the drop mostly represents a delay in processing them – a phenomenon that has rippled throughout the United States.
"We have this kind of on-again, off-again type of approach," says James Saccacio, chief executive officer of RealtyTrac, an online marketplace for foreclosure properties based in Irvine, Calif., which issued the new report Thursday. "We need to be affecting demand rather than regulating supply."
The number of foreclosures fell last fall after revelations that banks had rushed through foreclosures without the proper paperwork, the so-called robo-signing scandal. Major banks temporarily halted the taking of properties while they cleaned up the process. Foreclosures began to pick up again this year as banks restarted the process.
In October, foreclosures hit a seven-month high, according to RealtyTrac. But just as the process seemed to be speeding up again, some states have begun requiring banks to take extra measures to ensure that foreclosures are properly entered.
New Jersey foreclosures slowed after the chief justice of the New Jersey State Supreme Court placed a moratorium on foreclosures from major banks until they could document the accuracy of their procedures.
With reports this summer that robo-signing was still occurring, Nevada passed a law requiring lenders to sign and have notarized an affidavit explaining why they had a legal right to take a property. The law took effect in October. New default notices fell by 80 percent, as lenders took the extra legal steps to complete the process, and Las Vegas's overall foreclosure rate dropped to 1 in 162 homes.
That's still three times the national average, but the decline allowed the metropolitan area to relinquish its title as nation's foreclosure capital. The new leader is Stockton, Calif., with a foreclosure rate of 1 in 143 homes.
Las Vegas's improvement is temporary. Homeowners are still falling behind in payments. A whole raft of properties are already in the pipeline.
"I don't know if it goes back up to No. 1," Mr. Saccacio says. But "we're not out of the woods, by any means."