Friday, November 23, 2012

Bank Foreclosures Start Again in Las Vegas, but…

First, a little background:

Most large banks (Bank of America, Wells Fargo, etc.) are members of MERS, the Mortgage Electronic Registration System. This system allows a third party entity, like Recon Trust, to transfer notes between members of the system without recording the deed of trust into the new note holder’s name. So the name on the deed of trust and the name of the new note holder do not match since MERS was not required to record these documents. This made it difficult, if not impossible, for a homeowner facing foreclosure to actually find out who was foreclosing on them and try to work out an agreement. Many homeowners were foreclosed upon without ever being able to contact the existing note holder.

So in light of these national “robo signing” scandals, Nevada was among 11 states that enacted legislation to protect homeowners and regulate illegal foreclosure activity. In Nevada, Assembly Bill 284 was passed which required a bank employee to sign an affidavit stating that to the employee’s personal knowledge all previous transfers of the note were correct before the bank could start the foreclosure process.

Since there is no bank employee that could possibly attest to previous transfers of a note, AB284 effectively stopped the Las Vegas bank foreclosure process in Nevada, and foreclosure filings dropped from around 6,000 per month to less than 1,000. (Not all banks were affected by AB284 since they were not members of the MERS system.)

In October of 2012, however, the Nevada Supreme Court ruled that banks using the MERS system would be able to foreclose on properties as long as the note holder and the name on the deed of trust matched prior to the foreclosure sale.  This ruling will allow the third party entities used by MERS to record a deed of trust in the name of the current note holder and consummate the foreclosure process. Recording the deed of trust gives homeowners the opportunity to contact the note holder and work out a settlement, but doesn't allow them a "free ride" to stay in their homes indefinitely with no payment.

What this means for the Las Vegas real estate market:

The housing inventory has been at an extreme low for the past eight months, with bank owned foreclosures of Las Vegas single family homes accounting for only 10% of the active listings at any given time. Active short sales account for about 20% of the active single family listings and the rest are “real” sellers. It’s a “seller’s” market, prices have risen steadily since January, there are multiple offers on most listings within days of coming on the market, and buyers are finding it difficult to make a purchase unless they bid above appraised value.   

Banks have started the foreclosure process again, and we do expect new inventory to begin hitting the market after the first of the year, probably in or March or April. However, the banks do still have very stringent hoops to jump through, and there is no huge wave expected all at one time. Still, there should be more listings on the market, allowing frustrated homebuyers the opportunity to finally get an offer accepted. Hopefully we will get back to a more balanced market that remains steady for the next few years. A balanced market is better for both buyers and sellers and the local economy.
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