Where Have all the Foreclosures Gone?
There’s something missing from the nation’s foreclosure capital. It seems that while no one was looking all of the Nevada foreclosures have disappeared. Has the market finally absorbed all of the delinquent homes so that markets can return to some semblance of normality? Hardly. You can thank a new state law – with a wave of a magician’s ward, and a quick abracadabra, the overabundance of foreclosures have gone poof.
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In the last legislative session in Nevada a bill with an innocuous sounding name, AB 284, was passed. The bill became law last October and foreclosure activity plummeted. (LA Times Article) The new regulation required that lien holders do something radical before they could commence proceedings to take back a home – they actually had to prove they had the right to do so. This is a legislative requirement that lenders “produce the note” before being allowed to proceed. It sounds easy but with the way mortgages are sliced, diced, and sold it can actually be a difficult thing to do. The paper trail of a mortgage can wander quite a long way from closing room to courthouse.
Initially the drop in activity was thought to be temporary as lenders adjusted to the new rule. Here we are six months later activity is still low. There wasn’t much o a problem at first because there were quite a few REO properties available. Lately buyers and real estate agents have been singing the blues because there aren’t enough homes to go around. This seems to have squashed the myth of the so-called “shadow inventory.” If banks really were holding back inventory they would be jettisoning it now.
Looking at the raw numbers may give the impression that there are plenty of properties on the market; when you look at available inventory it’s a different story. What inventory is available is often subject to fierce bidding wars between cash buyers. This competition hasn’t produced higher prices – yet. Word on the street is that upward pressure is there and may show itself as the summer buying season gets underway. There is still a pent up supply of retail sellers who have been reluctant to sell because of the low prices, as numbers climb higher more of those sellers will reenter the market. Supply and demand requires that either more people opt to sell or prices will have to climb.
Short Sales are King
What has happened is that banks are much more willing to entertain short sales. That seems to have been the intent of the law. Real estate agents and buyers who have been doing this type of transaction all along now have a leg up on those who had been focusing on foreclosures. Investors need to adapt to the changing market and move from the courthouse steps to the negotiating table. The short sale process is moving much quicker than before as banks have been forced to embrace the idea.
The results of Nevada’s statute may inspire other states to follow suit and enact similar legislation. For investors who may have been reluctant to consider short sales because of its inherent problems it may be time to reconsider that position. Investment success often comes from being ahead of the curve.
A study of economics usually reveals that the best time to buy anything is last year. – Marty Allen
Photo Credit: JefferyTurner