The news came out around 9:30AM Las Vegas time: BofA is halting all foreclosures for the time being.
Before you think this is some act of kindness or compassion, realize that there is one reason that they did this today: freezing foreclosures will be a less expensive option than the myriad lawsuits they could be facing if they continue with their current way of doing business. This is no philanthropy, for sure. It is a business decision, plain and simple.
Let’s examine this:
One week ago, BofA announced that they would be pausing foreclosures in roughly half of the states, due to “robo-signing”, or the process of signing off on documents without reviewing them. In other words, as I understand it, when files came to manager’s deals for final approval to pull the auction trigger, managers were signing off without making sure that files were compete or accurate. Because of that shoddy work, it is theorized that many homes were foreclosed on improperly. So rather than face lawsuits that would most certainly make headline news and further tarnish their already sullied reputation, they made the decision that they would not auction any homes until those files could be further scrutinized. But after more careful review, and intense pressure from lawmakers on both sides of the aisle, they decided, as a precautionary measure, that they would expand their “foreclosure recall” coast to coast. How many corrupt files are we talking about? I think we don’t know and may very well never know.
Keep in mind that although actual foreclosures are being stopped, the foreclosure process is not. That means that Notices of Default will still be issued, and collection calls will continue, but actual auctions will not happen.
For those of us in the real estate industry, especially those of us mired in the muck of short sales, it is obvious that Denmark had no odor problem compared to these mega-banks. In fact, I have blogged about them before, and I pleaded with them to clean up their act and just get it right. Someone other than me, apparently, was upset at their modus operandi, because now, comes this.
After all: we are talking about people’s homes here.
While we ponder this news over the long holiday weekend, with some of us sleeping much better than we have recently, it occurs to me that BofA is not alone. While certainly leading the pack of laggards (huh?), BofA is not alone with their misdeeds. Therefore, I predict that next week, after the barbecue grills have found their way back into garages from Portland to San Diego, other banks will follow BofA’s strategy, and also freeze their foreclosures. It does, if nothing else, make for good news headlines.
Who knows how long this temporary freeze will last. A month? Two? Until additional legislation can be passed? Really, as I write this blog, it’s anyone’s guess.
But how will this effect the Las Vegas real estate market?
Las Vegas is the foreclosure capital of the United States. Therefore, nowhere will this have a bigger impact than right here.
I was remembering this morning when a student in one of my classes two years ago or so asked me about the impending flood of bank-owned properties, and I predicted that it would not happen. Since that time, it has not happened. REO’s did come, but not in droves. They have been on the decrease for a while, and the much-predicted onslaught never happened. Now that foreclosures are being completely frozen, the standing inventory should dry up fairly quickly. And where does that leave the Las Vegas real estate market? The answer can be summed up in two words: short sales.
I have long predicted that foreclosures would decrease, while short sales would dominate. Does anyone want to argue that point with me now?
Who wouldn’t at least attempt a short sale, regardless of how close the auction date is now? What’s to lose? I have blogged many times about the benefits of doing a short sale, at least compared to walking away. And that has never been truer than it is right now.
So, if anyone you know, maybe even you, is behind and facing pre-foreclosure or even has an upcoming auction scheduled, the time to list the property for short sale is right now. If, or should I say when, foreclosures resume, it will not have a very positive effect on prices. And the longer the freeze, the more properties will be coming on the market when the ban is lifted.
At some point, the banks will resume foreclosures, no doubt. But until then, this temporary freeze could pump a little B-12 into the arm of the Las Vegas real estate market.
When more news happens on this topic, you can read about it right here.