What? Possible good news for the Las Vegas real estate market?
On October 1, 2011, Assembly Bill 284 took effect. The bill was designed to ensure that mortgage lenders and servicers play fair. In an attempt to mitigate the tremendously negative consequences of robo-signing and other dubious conduct on the part of financial institutions, Nevada lawmakers sought both transparency and full disclosure throughout the foreclosure process. And in my opinion, this bill is a great step in the right direction.
I don’t think this new law has gotten as much press and attention as it deserves; therefore, I find it to be an excellent blog topic.
Notices of Default (NOD), which lenders may file in the county in which a delinquent property is located, are required prior to scheduling a sale date. They are the first real legal step in the foreclosure process, and may be filed when a borrower falls three payments behind. Once a Notice of Default has been (properly) filed, Nevada law mandates a three month and 20 day period that commences with the filing, during which the lender may not sell the property. When the NOD expires, the lender is then legally able to proceed with the sale, by serving proper notice and scheduling an auction. In other words: no NOD, no foreclosure sale.
The new Nevada law addresses the filing of the NOD. Lenders are now required to submit, along with other documents, something new called “Affidavit of Authority”. It must state the identity of the party that owns the loan, the identity of any beneficiaries and servicers, and it requires the lender to be completely honest and forthcoming. Failure to shoot straight will consequently result in penalties, even the possibility of felony charges brought against the lender.
So, if lenders can no longer forge, or should I say “fudge”, documents, they will be, in many cases, out of luck. Some experts are predicting an unprecedented drop-off in the number of foreclosures in Nevada.
How will this affect the local housing market?
Any NODs that were filed prior to the new law taking effect have been grandfathered in, meaning that those NOD filings are not subject to the new law. Those earlier NODs can still lead to foreclosure sales for many homeowners. But once those NODs are disposed of, either through short sales, loan modifications, deeds-in-lieu or actual auction sales, the inventory of new REO (real estate owned) listings is likely to dry up.
Long term, if the law changes, or if some loophole is found to exist, there could be a new wave of NODs, followed closely by a new wave of bank-owned properties flooding onto the market. But if the law stands, and is found to work as planned, then the housing market could find the momentum it needs to improve, finally.
It has been roughly four years since the housing market in Las Vegas began its free fall. Could the tide be turning?
If foreclosures drop substantially, then inventory drops substantially, since REOs have constituted roughly a third of all sales activity in the Las Vegas area over the last few years. And if inventory is down, then prices might begin to inch upward.
Successful short sales, as well, should be on the increase due to the new law. If banks are finding it difficult to file NODs, then they will be much more likely to acquiesce to short sales. It may even be easier for real estate professionals to get their short sales approved, if the threat of foreclosure, which is often used during the short sale negotiation process as a weapon against us by the banks, is dramatically lessened.
Several months ago, I blogged that short sales could reach 50% of Las Vegas real estate transactions. That prophecy could finally become truer than ever.
Another thought on home values: often, when real estate professionals are attempting to evaluate a property doing what is referred to as “comps” (comparable sales), foreclosed properties are responsible for dragging down values. This has made comps for short sales difficult and for regular (non-distressed) sales almost impossible. But if foreclosures are taken out of the mix, values should be easier to determine, and more representative of fair market value.
It is my opinion that by and large, banks will have great difficulty complying with this new law. They have never before had to jump through so many hoops in order to commence a foreclosure. And, since this is state-specific (just Nevada), it will make it even tougher for banks to follow our laws. No more lying about who actually owns the mortgage, or who the actual beneficiaries are. No more robo-signing. No more playing fast and loose with the documents. No more obfuscation, misrepresentation or outright fraud. And if they try it, they will be sorry, at least inside Nevada’s borders. Now, we have transparency, honesty and fair dealing, or we have no foreclosures at all.
With foreclosures on the way down, short sale approvals on the way up, and traditional sales once again able to move forward at fair market values, the Las Vegas real estate market could very well be in for recovery. I am not expecting boom times like we experienced several years ago, but rather, a more modest, healthy real estate market. Assembly Bill 284 could be just what the doctor ordered.