Nevada enters the housing law business as state number 7 enacting a foreclosure mediation program. Nevada’s law goes into effect on July 1, 2009. The other states with this type of legislation are Pennsylvania, Massachusetts, Michigan, Florida, Connecticut and Colorado.

I don’t know about the other 6 states but here in Nevada the law will be administered by the Nevada Supreme Court. If that isn’t going to the top of the legal food chain I don’t know what is. The unfortunate aspect of the new law is lack of rules. Since the legislation just passed, the NSC has not had time to implement the rules.

This new law leaves out those borrowers who are already in the foreclosure process. They will not be able to request mediation because they went into foreclosure prior to July 1, 2009 unless the lender agrees to let them request mediation. No one however expects lenders to agree to mediation with people already in foreclosure.

Other Problems

As you can imagine, other problems are inherent. For example, the fees to be charged. The lenders will be assessed $200 and the home owners will pay $200. From the lender’s stand point this could be viewed as another tax in a taxing process. From the homeowner’s point of view, paying $200 and not walking away with a favorable decision is a real slap in the face. The only guaranteed winner is the mediator. (S)he is guaranteed to make $400 per mediation client.

Homeowners may not even enter the process because of this fee. Generally speaking, a person in foreclosure is already behind the financial power curve and in a hole. The advice that says when in a hole, stop digging may become the advice du jour for foreclosed homeowners.

The court is still hustling for mediators, clerical people and managers. As one can imagine, legislation passed in June and going into effect on July 1, does not give them a lot of time to hit the ground running. They believe they will meet the deadline but believing is a long way from delivering.

Program Facts

To be eligible for the program a person has to receive a notice of foreclosure after July 1, 2009. The notice has to include information about the mediation program. Not just anyone can mediate. It has to be a court appointed mediator or it doesn’t count.

Both parties are also required to negotiate in good faith towards a possible solution. A loan modification can be one of the outcomes.

The homeowner only has 30 days to request mediation and they still have to be living in their home. Investors are not afforded mediation at all. This means a good many Nevada investors will lose their properties.

Homeowners who have entered bankruptcy or completed a deed-in-lieu-of-foreclosure will also be excluded. Non-native speakers will be required to provide their own translators. Nevada has many non-native speakers so the legislation has covered everyone.

Out of work people, people with no money to pay their mortgage will not be permitted to request mediation. In addition, the lenders are not mandated to modify any loan. They are only mandated to go into mediation in good faith and pay their $200 fee. One might say this is a sneaky way for the state to benefit from someone’s misery. Nevada never misses a trick to enrich their coffers.

The Big Plus

For anyone who has experienced difficulty contacting their lender, servicer or note holder, this new law erased that difficulty. This means those hard nosed SOBs we all have dealt with will have to change their tune. If a lender is a no-show at the mediation hearing, the mediator has the authority to force him to modify the loan. In other words, the homeowner will see more favorable loan terms.

By no means is this law being touted as the magic pill. Truth is, a whole flock of bugs still sit inside the law. However, once this thing actually gets going, it is expected the outcomes will be positive with more people staying in their homes. It might even help the banking industry in Nevada.

No one’s mortgage will go away but the mortgagors will at least have their homes and can continue on with their lives. I don’t know how the other state programs are faring but I want to believe people are being helped. After all, not everybody went out and bought an overpriced home on inflated income/asset statements.

Photo Credit: mrak75

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Tags: foreclosure, law, loan, Loan modification, mortgage, Nevada

Home sales in many markets are dominated by bank REOs, or Real Estate Owned as foreclosures are called after they have gone back to the bank. Generally these REOs will sell below market and can be a great deal for the buyer. However in areas that have an overabundance of REOs they do not sell below the market, they are the market.

Las Vegas

On the surface it may appear that the Las Vegas market is going to lead the housing market out of the doldrums. Looking strictly at the numbers you will see that April home sales were up 78.3% from April of 2008 (article). The median price has dropped to $141,720, a 39.9% reduction from a year ago. Figures for inventory, days on market, and days of supply have dropped as well. These are all good things, right?

Not so fast, it depends on which side of the transaction you are on. For buyers these numbers are awesome. Homes in Las Vegas are more affordable than they’ve been in a very long time. First-time homebuyers can take advantage of an $8,000 tax credit to make it even more affordable. For buyers it’s all good.

Which leaves the sellers. REOs absolutely dominate the Las Vegas market and there are a large number of short-sales as well. In a normal market these distress sales would be an aberration and not a major factor in real estate prices. However, distress sales in Las Vegas counted for a whopping 86% of all closings in April. In a normal market an appraiser can overlook distress transactions when compiling comparable sales. When 86% of closings (article) are distress sales, they become the comps and there isn’t much that you can do about it.

Hobson’s Choice

A seller is now left with the choice of pricing a property low enough to compete with the REOs or not selling it at all. Indeed, many homes have been pulled off the market as sellers wait for prices to improve. Many sellers can’t lower prices to compete because they owe too much on the house. A recent report shows that an astounding 67% of Las Vegas homeowners owe more than the house is worth (article). Their options are to sit tight, try for a short-sale, or lose the home to foreclosure. Ouch!

New homebuilders are facing the same pricing pressure. However, they have overhead and holding costs to deal with as well. They have reacted to this by limiting the number of new homes to a bare minimum and greatly reducing prices on homes that are at or near completion. Some Las Vegas builders have actually reduced prices to a point that is below their cost in an effort to finish projects even if it means taking a loss. The positive point here is that a reduction in the supply of new homes will lead to an increase in sales of existing homes.

In their attempt to alleviate the foreclosure problem the Government created programs to help struggling homeowners. Unfortunately these programs may only prolong the agony. One program, Fannie Mae’s Home Saver, has experienced a re-default rate of 70% (article). Not exactly a promising statistic and it shows that this mess is going to be with us for quite some time.

The bottom line is that this is a terrible time to be a retail seller. If you are an investor who is looking to buy for cash flow, it’s a great time. If you’re an investor who is looking to buy cheap rehab properties and flip them at low prices, it’s not such a bad time. If you are someone who absolutely must sell, good luck because you are going to need it.

What do you think a stimulus is? It’s spending - that’s the whole point! - Barack Obama

Tags: foreclosure, Foreclosures, las vegas real estate

I had been hearing a lot of talk lately about how home foreclosures were down. Real estate agents were pointing to this and saying that the market was going to turn around soon. Even the talking heads on the late night news were reporting that foreclosure filings were down and things were going to get better. Could we really have hit bottom?

Image via Wikipedia

Not so fast. This was just a case of spinning the facts to make them say what you wanted. What they didn’t tell you was that foreclosures had dropped because of a moratorium on new filings. Fannie Mae and Freddie Mac, along with many banks, had temporarily halted foreclosures while they waited to hear how the new administration was going to handle the crisis.

Hail Mary Falls Incomplete

However, the moratorium was recently lifted and that hoped for game saving touchdown pass fell to the ground. New foreclosures were up 24% in the first quarter from the previous year, so much for hitting bottom. When it became apparent that Obama’s plan was not going to be a miracle cure, the banks resumed taking properties back. In a press release Realty Trac’s CEO, James J. Saccacio, said “In the month of March we saw a record level of foreclosure activity - the number of households that received a foreclosure filing was more than 12 percent higher than the next highest month on record.” Clearly there was not going to be a fantastic comeback in this game.

The states hardest by foreclosures were, once again, Nevada, where one of every 27 homes received a filing, Arizona, California, Florida, Illinois and Michigan. This is a contest where being number one is not such a good thing.

Hype, Hope & Reality

The campaign trail hype and rhetoric has been replaced by harsh reality. This mess is not going away anytime soon. While Federal Reserve chairman, Ben Bernanke, sees “green shoots” and President Obama sees “glimmers of hope” in the economy, reality paints a much gloomier picture. While it is important for the President to remain optimistic, these foreclosure numbers are hardly a reason to be hopeful about any recovery in the near-term.

Nobel Prize winning economist and New York Times columnist, Paul Krugman, isn’t so hopeful. Despite being an unabashed Obama supporter, he is concerned that the administration could become complacent as a result of their own spin doctoring about these hopeful signs. In a recent column he says, “Don’t count your recoveries before they’re hatched.”

Even one of the worst economic times in our history, the Great Depression, had a number of false starts. When things are really bad people will look at any positive statistic as a sign of better days. Unfortunately many of these numbers are nothing more than the dead cat bouncing again. We may have a long way to go before this is over.

The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy. - Milton Friedman (economist)

Tags: Ben-Bernanke, Foreclosures, Great Depression, obama, Paul Krugman

We are constantly hearing about homeowners who are upside-down on their homes. The only hope that they seem to have is doing a short-sale, or getting the bank to agree to take less than the amount owed. Frequently no buyer can be found and the home winds up in foreclosure. That is especially true here in Las Vegas where we have been at or near the top of the foreclosure statistics for a long time.

With so many homes having negative equity it would seem to be enormously difficult for a real estate investor to have success here. At real estate club meetings I constantly hear investors talking about the difficulty of just finding a deal, let alone closing one. The strategy for most is to let the properties become bank-owned and them try to buy them. That’s the strategy for most, but not all.

A Different Approach

Brian is a Las Vegas real estate investor that I have come to know over the last couple of years. While many complain about the inability to find deals or raise funds when they do, Brian is absolutely thriving. He doesn’t complain about funding because he uses very little of his own money. Instead of complaining about the lack of equity he creates it. Huh?

Brian has been specializing in pre-foreclosures since the Las Vegas market was hotter than a two-dollar pistol. He had a much harder time then than he does now. Back then homes typically had equity and were easy to sell. Today when a homeowner winds up on a Notice of Default (NOD) list he will be inundated with calls offering various forms of assistance. However most of the callers will wind up telling the homeowner that they can’t help him because there is no equity. But that’s the kind of homeowner that Brian loves.

That’s not to say that every upside-down homeowner can be helped because many cannot be. However many people are in that situation because they have a second or even third mortgage in addition to the first. That is Brian’s bread and butter.

Pulling A Rabbit Out of the Hat

The first step is to find a property where the first mortgage is low enough that there would be plenty of equity if not for the second and/or third mortgage. At this point you work to strike a deal with the homeowner to purchase the home subject-to the first mortgage. (For more on subject-to investing search Jason Hanson’s posts) The key here is to make that deal contingent upon being able to purchase the second and/or third note on favorable terms. At this point the homeowner has generally resigned himself to the fact that he is going to lose the home and is willing to take any deal.

Once he has the home locked up, Brian contacts the junior lien holders (2^nd and/or 3^rd mortgage) and offers to buy the notes. The junior lien holders are aware of the fact that the home is in foreclosure and they know that when the sale takes place they will lose everything. When Brian calls to offer pennies on the dollar they are frequently willing to take the deal. After all, something is better than nothing. Are all lenders willing to settle? Surprisingly no, many will let the foreclosure happen and wind up with nothing.

The end result is that equity has been created in a property that once had none. The house can now be sold at a profit or held as a rental.

The Cat’s Out of the Bag

You might think that Brian would be upset with be for sharing his secret. The truth is that Brian shares his techniques willingly. He has created a real estate club in Las Vegas that holds a monthly meeting at his office. The club charges no membership fees, has no dues nor do they sell anything or promote gurus. By sharing his method he has created an army of bird dogs who are out hunting for deals. Quite often some the novice investors will bring a potential deal to him and they work out a split arrangement. It’s a case where everybody wins.

So the next time that you find yourself complaining about how tough things are or how it’s impossible to do a deal, ask yourself a question instead. What could I do differently or what is it that nobody else is doing? Get creative!

Tags: buying real estate notes, Foreclosures, subject-to investing

Almost 291,000 homes across the US received at least one foreclosure-related notice last month, up 6 percent from January, says RealtyTrac.com, a compiler of foreclosure data.

The big question in the minds of pundits is when the Obama administration is going to officially own the economic and housing crisis. Fifty days into his administration, the President continues to remind us at every opportunity that he inherited this crisis, and that it is the fault of Bush and anyone other than him. Now that the President has made his Housing plan, his multi-trillion dollar budget, and more bailouts official, isn’t he officially running the show? Isn’t he the one whose policies dictate what is to happen in housing, the stock market, and every other facet of the economy?

My Way News reports “nearly 12 percent of all Americans with a mortgage - a record 5.4 million homeowners - were at least one month late or in foreclosure at the end of last year, according to the Mortgage Bankers Association. That’s up from 10 percent at the end of the third quarter, and up from 8 percent at the end of 2007.”

Now that the Obama plans are officially up and running, we should be seeing a slowdown in the foreclosure data, right?

Only time will really show whether these various plans are effective, and we must give it some time, but I have an important question (amongst many others) . . .

Who is in Charge?

I believe that the current President is now fully responsible for what happens under his watch. If his plans don’t work, then he needs to step up and re-work them. If his stimulus isn’t effective, then he should take it back to the drawing board. If the foreclosure plan makes no sense, then man up and do something about it.

I’m tired of the whining and the blame game. If we’re going to blame people, we’re going to have a big list that includes in many ways, practically all Americans, including the President, Congress, Wall Street, Lenders, Agents, Home Owners, and on and on.

Lets focus our energy on ending the housing/foreclosure/economic crisis and stop telling everyone “it wasn’t my fault”, because it was. Most people just don’t care . . . they want to stop living in fear.

Lets do something about that!

Tags: Economy, Foreclosures, housing, obama

Wall Street, banks, even car companies got faster help from the government in the form of one bailout or another, than did the average homeowner in this country. And, now that “help” is at hand, the real question to ask is: will it do any good?

President Obama has now revealed his much anticipated “lifeline” to those facing foreclosure…a $75 billion one at that.

Obama made it a point to say that his plan will not help every homeowner–which may end up being one of the bigger understatements from his young administration to date.

A lot depends on the willingness of various lending institutions to agree to mortgage adjustments and some of it depends on the hope –Obama’s that is–that bankruptcy laws will be changed to allow judges to modify mortgages on the brink of disaster.

To a large degree, the plan is aimed at those who owe more than their houses are actually worth. Moody’s Economy says of the 52 million some odd homemakers with mortgages, some 27 percent now fall into this category–roughly 14 million!–this according to an Associated Press dispatch.

But what about those who played by the rules, are paying their mortgages and yet feel it only fair that they, too, be allowed to trade downward, if you will? The picture is far less clear what will happen to these folks?

And, without a change in the bankruptcy laws, not a sure thing by any measure, there may be no way to force investors who actually own many mortgages nowadays to relax their grip on the homeowners’ pocketbook.

Some critics argue that 75 billion isn’t even nearly enough, especially when you consider how much, much more the government (taxpayers) has already given to help Wall Street fat cats and car company CEOs.

The worse part is, it is likely to take the various agencies and potential participants weeks…maybe months…of study before they really have a clue what is now expected of them. And, as we all by now know, time is not on our side anymore.

Photo Credit: Mike Licht

Tags: bankruptcy, barack obama, foreclosure, housing bailout, housing rescue, obama, rescue

So far, we’ve tackled the subprime lending crisis (and failed), the credit crisis (and failed), we’ve got a TARP, a Stimulus Package, Trillions of dollars in borrowed debt repayments as a result, and from what the Wall Street Journal tells us, we’ll learn about the President’s Housing Bailout Package - aka. Foreclosures R US, on Wednesday:

One likely element of the plan would reduce Americans’ payments on troubled mortgages, people familiar with the discussions said late last week, possibly through a cut in the interest rate, the costs of which would be shared by the government and mortgage servicers. Government officials would make the reduction available to people who are at risk of defaulting. A loan-modification program at government-backed Fannie Mae and Freddie Mac currently calls for holding monthly housing-related payments to 38% of pretax income. The new formula is likely to be as low as about 31%, according to some people.

In addition, the administration is expected to endorse a plan to allow judges to modify mortgages during bankruptcy proceedings in some circumstances, a move long opposed by the mortgage industry. And it could push measures that would remove some contractual obstacles that hinder mortgage servicers from modifying troubled loans. Pending any announcement, the country’s three largest mortgage lenders are putting a temporary halt on foreclosures.

Additionally, “David Axelrod said the plan that President Barack Obama plans to announce on Wednesday will aim to stem foreclosures, provide immediate help to homeowners who are ‘right on the edge’ of foreclosure, and ultimately help in ‘raising home values that have been plummeting.’”

Praised as a “good plan” from senior White House aides, Axelrod said that the plan’s foreclosure prevention aspects would cost somewhere on the level of $50 to $100 billion.

Will this become yet another in the line of failed attempts to stop the bleeding?
Only time will tell. Hopefully this Foreclosures ‘R Us plan at least makes a dent instead of bleeding taxpayers dry for generations to come.

Surprise me Mr. President, please!

Tags: axelrod, bailout, billions, Foreclosures, housing, obama, TARP