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Extending the slump?

Foreclosures in Nevada have virtually ceased in recent months – but not because the number of delinquent mortgages has fallen sharply.

Instead, most people in the banking, mortgage and real estate industries cite Assembly Bill 284, passed by the 2011 Legislature, as the reason for the severe decline.

The law, championed by Nevada Attorney General Catherine Cortez Masto, was a high-profile attempt to finger banks for improperly processing foreclosure documents. In response, the banks now take much longer – and are much more reluctant – to proceed against those in default.

Ms. Masto wasn’t backing down last week, defending the law as a panelist at a Las Vegas conference sponsored by the National Association of Hispanic Real Estate Professionals. “It’s a changing environment right now, and repealing [AB]284 is not going to change that environment,” she said.

Indeed, repeal of the measure is highly unlikely barring a major change in the makeup of the Legislature. But lawmakers should at least re-examine whether their meddling reaped the intended results.

A Reuters report last month suggested that anti-foreclosure laws – such as Nevada’s AB284 – are actually extending the real estate slump by delaying the inevitable and stretching out the time it takes to get delinquent properties back on the market. This theory make eminent sense.

And it’s worth noting that for all the political grandstanding about “unscrupulous banks” and “robo-signing,” there were precious few – if any – victims produced who were current on their mortgages yet were mistakenly foreclosed upon by overzealous lenders. In fact, the law has made it easier for many people to simply ignore their contractual obligations, allowing them to direct their monthly payments to other pursuits, making those who struggle to stay current on their mortgages during this economic slump look like suckers.

The Reuters report quoted a Las Vegas bankruptcy attorney who called AB284 a “mockery” and said, “I am now turning down clients every day who I know have no intention of ever trying to pay their mortgage. They just want to stay in their homes for free. And that is a bad situation for everyone, lenders and homeowners.”

Encouraging banks to work with those in default or to accelerate short sales is a good idea. The faster the inventory of delinquent properties can be stabilized, the quicker the local real estate market will recover. But any law that intimidates lenders into backing off necessary foreclosures is bound to have unintended negative consequences for everybody involved – and the community.

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