County Ordinance Hurts Las Vegas Foreclosure Investing
What were they thinking? Like many municipalities, Clark County Nevada is in dire financial straits. The budget crunch has led to hundreds of layoffs, cuts in services, and numerous added fees. In a mad dash for revenue, changes were made regarding fines for code violations that may severely impact the foreclosure market.
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When a homeowner encounters financial difficulty one of the first things to suffer is routine upkeep and maintenance of the property. If foreclosure is seen as inevitable an owner has no incentive to keep a house looking good. When a homeowner moves out and water and electric service is cut off lawns die and the home often becomes an eyesore. In the Las Vegas area neglecting a property is considered a code violation and is subject to fines.
Adding Up Quickly
Initially in Clark County a homeowner receives a notification to correct the violations. After a short grace period a fine of $100/day is assessed for the first ten days. For the next twenty days it increases to $500/day and tops out at $1,000/day after thirty days. Fines for code violations are nothing new; most municipalities have some sort of system in place. A new amendment to the code violation law went into effect on July 1st that throws a monkey wrench into the REO investing process. (article)
In a blatant money-grab, the Clark County Commission passed an innocuous sounding amendment to the code. It simply made code violation liens “non-extinguishable.” When a home goes through the foreclosure process most liens on the property are wiped out. There are some exceptions, such as tax liens. In Nevada HOA liens can be collected but are capped at nine times the monthly assessment. Being made “non-extinguishable” means that liens for code violations are not wiped out by the foreclosure process.
Since the foreclosure process typically takes many months it is possible that the previous owner accumulated a significant amount of fines. At $1,000/day and a six-month long foreclosure process, the fines could easily exceed the value of the property. Those fines are now the responsibility of the new owner. While the majority of foreclosed properties return to the banks holding the mortgage, a significant number in the Las Vegas area are sold to investors.
Room at the Courthouse Steps?
It remains to be seen how the market here will react. The foreclosure auctions have been the scene of intense competition as experienced and novice investors bid on properties perceived as bargains. How willing will they be to bid if the expected equity has been devoured by fines for code violations? The next few rounds of auctions should give us a good idea.
The best minds are not in government. If any were, business would steal them away. – Ronald Reagan