Oct. 14 (Bloomberg) -- Municipal bond defaults soared past $4 billion for the year through the end of September, driven partly by the bursting of the real estate bubble, according to the Distressed Debt Securities Newsletter.

There were 137 defaults totaling $4.2 billion in the period, including more than $1 billion in the third quarter, according to the Miami Lakes, Florida-based newsletter. The pace trails the 12-month record of 2008, when there were 150 defaults totaling $7.8 billion, including a $3.8 billion sewer bond issue by Jefferson County, Alabama, according to the newsletter.

Defaults in the third quarter included a $17.3 million issue for construction of an elementary school in a neighborhood being developed in Adelanto, California, according to the newsletter, which is edited by Jack Colombo.

“Unfortunately, the school development got ahead of the home-building and the real estate crash brought down the developer who still held 669 lots” in Adelanto, Colombo wrote.

Builders who issued tax-exempt bonds backed by special assessments to finance infrastructure for residential developments aren’t paying the debt as houses go unsold and the value of land declines, according to Colombo. Many of the real estate-related defaults are in California, Nevada and Arizona, he said.

The other defaults from the third quarter noted by the newsletter included $68.8 million in bonds sold by the California Health Facilities Finance Authority for Downey Community Hospital; a $24.2 million steam utility issue from Menasha, Wisconsin; and $16.5 million for West Village Center in Olathe, Kansas.

To contact the reporter on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net.

Last Updated: October 14, 2009 16:09 EDT