Hat tip to Booty Juice for sending in Nick’s article on the Las Vegas market- and the effects of halting foreclosures:
You’ll need to be a subscriber to read the full article – but here are excerpts:
LAS VEGAS—In a city dotted with tens of thousands of vacant houses, Jericho Guarin figured it would be easy to buy his first home. But nearly a year after beginning a search late last summer, he has come up dry.
“It has been a nightmare,” says the 37-year-old U.S. Air Force officer. “There are plenty of empty houses, but they’re just not for sale.”
Indeed, it is a lopsided equation. The number of available homes has plunged here after a sweeping state law subjected lenders to stiff new foreclosure rules and penalties. With banks exercising caution, many homeowners—including those seriously delinquent on their loans—have been allowed to remain in place. As a result, there is little on the market at a time when first-time buyers and real-estate speculators are anxious to tap both cheap prices and low-interest mortgages.
Many real-estate agents, home builders and consumer advocates argue that the law, intended to remedy foreclosure-processing abuses, has backfired. Some owners who are behind on payments aren’t maintaining their homes as banks refrain from eviction proceedings. The perverse outcome: Inventory shortages have spurred new developments despite a glut of properties stuck in foreclosure limbo.
The foreclosure delays have helped distressed homeowners like Scott Chatley, who went 54 months without making a mortgage payment. That gave him enough time to pay off debts, repair his credit, and begin saving for a down payment on his next home. Mr. Chatley, who bought a home here in 2005 for $495,000 with no money down, stopped making his $4,000 monthly mortgage payments in mid-2008 when he lost his job as a software engineer.
Mr. Chatley says he delayed foreclosure first by seeking loan modifications and then by filing for bankruptcy. His mortgage company, Bank of America Corp., last fall approved a short sale of his home for $169,000 to an investor. Though he moved out in September, Mr. Chatley says he probably could have stayed longer because the bank hadn’t been actively moving along the foreclosure.
Recently, he was prequalified by a credit union for a new mortgage and hopes to buy a new place later this year or early next. “If I see a rule that exists to help me recover without having to do anything illegal, why would I not use that?” says Mr. Chatley.
A Bank of America spokesman said it isn’t able to tell how much, if any, effect the state law had on Mr. Chatley’s foreclosure delay.
Nearly 45,000 loans are either 90 days or more past due or in foreclosure. Local electric-utility data showed nearly 64,000 vacant homes at the end of last September, according to a tally by analysts at the University of Nevada-Las Vegas. Fewer than 8,000 of those units were listed for sale.
A lag in foreclosures has had other deleterious effects. Homeowners’ associations aren’t collecting dues from borrowers who are behind on their mortgages. Some associations have begun taking advantage of their rights to file liens ahead of the bank—and then sell the liens to investors, who pay a few thousand dollars for the right to take control of the home until the bank forecloses.
Investors buy the liens “in the hopes that the mortgage is going to be lost in la-la-land, and the bank won’t foreclose for six months or two years,” says Richard Weiss, a real-estate investor who said he has taken ownership of around seven properties. While waiting for the bank to get its act together and foreclose, “you can do whatever you want—put a tenant in there and collect the rent,” says Mr. Weiss.