Sheldon Klain thought he had a deal.

Klain, a manager at the city of North Las Vegas, accepted a similar job with the city of Dallas in the spring. So he and his wife, Jennifer, listed their Las Vegas home for sale in April and prepared to move.

The Klains had an offer on their property -- a 2,200-square-foot home on a third of an acre with a pool -- at the full listing price of $475,000 by May. The deal was scheduled to close July 15, about the same time the Klains closed on a $269,000 home in the Dallas area.

But the sale fell apart when the buyers backed out at the last minute. Now, in addition to the $1,400 a month the Klains are shelling out for their Texas home, they're carrying about $2,800 in monthly mortgage payments on their Las Vegas property.

It's a burden that Klain, who took a $10,000 pay cut when he moved to Dallas, and his homemaker wife can't swing. They've been unable to make payments on their local home since July, and their mortgage lender says they're in default.

"This is a very difficult situation to be in. It's very emotional," Klain said. "We tried to cover all the bases. If we hadn't sold our house right away, we wouldn't have bought a new house. We'd have rented an inexpensive apartment. It's been tough on us."

The Klains aren't the only homeowners in a tenuous housing position.

Statistics from several trade groups and foreclosure companies reveal a marked increase in mortgage defaults in recent months.

Bargain Network, a California company that specializes in preforeclosure and foreclosure sales, has released numbers showing that national foreclosure activity -- which includes homes in any stage of foreclosure, from first notice of default to bank repossession -- rose 39 percent to 103,000 properties in the third quarter when compared with the same quarter a year ago.

The company's research also found a 14 percent jump in nationwide foreclosures from the second quarter to the third quarter.

In Nevada, 6,523 homes entered some phase of foreclosure in the third quarter, an increase of about 80 percent from 3,499 homes in the second quarter and roughly double the rate of foreclosure activity in the third quarter of 2005, said Tom Adams, Bargain Network's president and chief executive officer.

What's more, the National Delinquency Survey from the Mortgage Bankers Association found that the share of Nevada home loans in foreclosure was 0.45 percent at the end of the second quarter, up from 0.39 percent at the end of the first quarter and 0.32 percent at the end of the second quarter of 2005.

The survey, which tracks nearly 510,000 mortgages in Nevada, also revealed that the total past-due rate in the state was 2.8 percent, up from 2.41 percent in the first quarter and 2.63 percent in the second quarter of 2005.

'A ROLLER-COASTER RIDE'

Analysts say the recent surge in foreclosures has multiple causes.

In some areas, faltering economies are making homeownership difficult.

Thanks to mass layoffs in the American automobile industry, the unemployment rate in Michigan -- No. 3 on Bargain Network's measure of foreclosure activity -- was 7.1 percent in August, compared with a national jobless rate of 4.7 percent that month.

"When people lose their jobs, they can't pay their mortgages," Adams said.

For homeowners in other states, high home prices set off a cascade of events that resulted in rising delinquencies.

In Florida and California -- No. 1 and No. 2, respectively, on Bargain Network's list -- home prices more than doubled in the housing boom of 2003 and 2004. The statewide median home price in California is $466,000, compared with a national median of $225,000. Parts of Florida also have sky-high prices: In Naples, the median cost of an existing home is about $470,000; in Miami, it's $378,000.

Those higher prices mean home-buyer hopefuls have needed a few assists from mortgage banks.

Adjustable-rate, interest-only loans allow buyers to cover only the borrowing costs on a mortgage each month for anywhere from two years to 10 years. Option adjustable-rate mortgages let buyers select from four installments each month, including an interest-only selection that might not even cover the full rate on the loan. The result: The unpaid interest is tacked on to the back of the mortgage, and a borrower could owe more than the house is worth.

"Home prices in California and Florida were already tops in the nation," Adams said. "For people to get into the game in those states, they had to overextend themselves. Many people who shouldn't have been homeowners decided, 'This is our shot. This is our chance to play ball.' And the banks made it easy for people to make those decisions."

Adams said he suspects a similar dynamic happened in Las Vegas, where the median price of a new home went from $155,548 in 2000 to $323,000 in September, according to local real estate research firm SalesTraq. With a local median household income of about $60,000, buyers in Southern Nevada had to turn in increasing numbers to the unconventional mortgages that would help them afford a home.

Mike Fratantoni, a senior economist with the Mortgage Bankers Association, said 34 percent of all home loans in Nevada today are adjustable-rate mortgages, a level substantially higher than the national average of 25 percent. Nevada's proportion of adjustable-rate loans now equals the rate in California, long the nation's priciest state for housing.

Bob Hamrick, broker-owner of Coldwell Banker Premier Realty in Las Vegas, agreed that Southern Nevada's higher foreclosure rate isn't based on overall economic fundamentals.

Unemployment in Las Vegas was 4.1 percent in August, based on the most recent statistics from the state's Department of Employment, Training & Rehabilitation. The department pegged job formation in the city at 5.9 percent from August 2005 to August 2006, compared with a national job creation rate of 1.3 percent.

Rather, Hamrick blames the higher rate of defaults on homeowners who borrowed more than they could afford -- and the lenders who allowed buyers to overextend themselves.

"There were purchasers who bought real estate and did not truly have the ability to make the payments they knew they would have to make," Hamrick said. "They bought based on the absolute expectation that real estate would continue to go up. Those people are getting caught."

Robert Klausmeier, a sales agent with Realty Executives in Las Vegas and owner of Mastermind Investments, said competition in the mortgage industry also contributed to the home-buying binge. As some banks loosened underwriting criteria and offered interest-only plans, other lenders followed along to retain business.

"It got to the point where people needed to show very little to get a loan," Klausmeier said. "Now, the interest-only periods on some of those loans are over, and with some bad luck (for buyers), problems are starting to come to fruition."

Those problems often begin with the expiration of interest-only terms, when homeowners face suddenly higher monthly payments.

Adams didn't have Nevada-specific numbers, but he said more than $200 billion in adjustable-rate mortgages will reset at higher interest charges in 2006. More than $1 trillion in adjustable-rate loans will follow in 2007.

At the same time, a glut of housing inventory is suppressing price increases and hurting sales prospects for homeowners seeking a way out of mortgages they can no longer afford.

The Greater Las Vegas Association of Realtors reported a record 20,815 homes for sale in September, up 2.1 percent from August's 20,384 units and an increase of 57.4 percent over the number of homes on the market in September 2005.

Slower price growth has followed the spike in listings.

The association recorded a median single-family home price of $310,000 in September, down from $312,000 in August and equal to the median in September 2005. For homeowners who bought within the last year, low appreciation means little equity -- a perilous position for people who have been paying only the interest on their mortgages.

Sheldon Klain believes the slower market cost him his home sale.

The buyers who backed away from purchasing his home also canceled the sale of their house and decided not to move at all.

"I think they saw what was happening in the market," said Klain, who bought his home in 2002. "They thought the market was going down and they thought they were paying too much."

Klain said his bank has given him until mid-December to pay off the mortgage on his Las Vegas property. If he doesn't, they'll repossess his home. He's had two offers since the initial sale fell through. One buyer didn't accept Klain's counteroffer; the second dropped out of the deal after Klain's lender failed to respond quickly enough to his offer.

The home, now reduced to $419,000, is still in the Multiple Listing Service. Klain's Realtor, John Izzo of Coldwell Banker Premier, is planning an open house Saturday to pique interest in the property.

"This has really been a roller-coaster ride for us," Klain said. "We've never been in a situation like this in our entire lives, so this is rough. I don't know what lies in store for us at the end of this road. We just keep counting on the Lord to take care of us. I know He will somehow. We're just waiting."

SAD ENDINGS?

Experts disagree on how dire the default outlook is in Nevada.

"I think we're just scraping the tip of the iceberg as to what we're going to see in foreclosures," said Izzo, who has worked in real estate sales for 20 years, five of them in Las Vegas.

Adams, of Bargain Network, agreed, noting that the nation's current foreclosure activity is the highest he's seen since his company began tracking numbers 10 years ago.

"Unfortunately, people who got into (delinquency) in the first place probably have other issues that brought them to that point," Adams said. "Many of them can't live up to the responsibility they've committed themselves to, so there's going to be a sad ending for many of them once they start down that road."

And relief from high housing supplies likely won't come in the near future.

Fratantoni, of the Mortgage Bankers Association, said it could take a year for the Las Vegas Valley to chew through its housing inventory.

"If someone is already having trouble making mortgage payments, it's going to be a very difficult time to sell," he said.

Yet, Fratantoni said Nevada is faring better on the foreclosure front than the nation as a whole.

The state's delinquency and foreclosure rates are well below the national averages, he said. While 0.41 percent of mortgages in the state are 90 days or more past due, 0.91 percent of mortgages are in arrears nationally. And though 0.30 percent of mortgages in Nevada went into foreclosure in the second quarter, 0.43 percent of homes entered the process nationally in the same time period.

Fratantoni said his association's survey reveals that Nevada's delinquency rates are also low historically.

Though the number of loans in foreclosure in the state is up in the last year, the current rate of 0.45 percent is below the 0.64 percent the state posted in the second quarter of 2004. It's also substantially lower than the six-year state high of 1.72 percent in the first quarter of 2002.

"Nevada has been one of the stronger employment markets and housing markets," Fratantoni said. "There may be some increase (in delinquencies) from the levels you see now, but there's no real trouble."

Fratantoni also said flat interest rates could ease default numbers in coming years. The Federal Reserve halted a two-year streak of rate increases in August, and Fratantoni said the Fed is unlikely to begin raising borrowing costs again in the near future.

"Rates on adjustable-rate mortgages should hold steady over the next couple of years, so monthly payments for borrowers (of adjustable-rate loans) shouldn't increase much more," he said. "We may have seen much of the increase in delinquencies that we're going to see."

The Klains can also take heart in data that show foreclosure isn't foreordained for homeowners who miss a few payments.

According to statistics from the Mortgage Bankers Association, only a quarter of all delinquent mortgages result in a bank-forced sale. In three out of four cases, Fratantoni said, there's a different outcome: Owners manage to sell or refinance their home, or they work out a new payment plan with their lender. Banks prefer to avoid the expenses involved in taking back a home and repackaging it for sale, he said, so they're unlikely to want any increase in repossessions.

"We're at low levels of foreclosures," Fratantoni said. "The rate might go up slightly from where we are now, but we're starting from a very low level."

National and state delinquency rates

Nevada's foreclosure activity has risen in recent months, but overall delinquencies in the state remain below national and historical rates. Here's a sampling of late-payment activity in the second quarter in Nevada and the nation since 2000:

TOTAL FORECLOSURE INVENTORY RATE

TOTAL PAST-DUE RATE*

SOURCE: Mortgage Bankers Association