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Foreclosure Outlook

April 15, 2010 By

The exact level of Las Vegas foreclosures coming onto the market is unknown, but there are indications from analysts that they may depress pricing levels further:

  • Trulia.com in December 2009: “the market is still on the decline…A lot of cuts are at the top of the market. It would not surprise me to see double-digit declines, unfortunately, in Las Vegas over the next 12 to 18 months. Until unemployment levels off and starts to get better, we expect foreclosures to continue to play a big role in the 2010 housing market.”
  • SalesTraq in December 2009: “Hundreds if not thousands of Las Vegas homeowners haven’t made a mortgage payment in more than a year and still haven’t received a foreclosure notice…that’s how backed up it is. The banks are overwhelmed…If two out of three homeowners in Las Vegas are upside down, it’s a matter of time. If the economy doesn’t improve, a lot of people are going to take a walk and they’re not showing up on the radar right now.”

1 in every 102 housing units received a foreclosure filing in February 2010, and 1 in 89 in Clark County, most of which are in Las Vegas.

February 2010 Foreclosure Map

Source: Realty Trac

In addition to the uncertainty surrounding the shadow inventory, 76% of Las Vegans are currently upside down on their mortgages. If the economy does not improve, or worsens, there could be a further wave of foreclosures. On a more positive note, the recent dip in the number of foreclosures that are coming to market indicates that there may be price appreciation once the shadow inventory is worked through. The time horizon and rate of such capital growth is far from certain.

Las Vegas Foreclosure Activity

Source: Realty Trac

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Las Vegas Trustee Sales

April 14, 2010 By

In February 2010 3,800 homes were auctioned via trustee sales in Clark County, but only 550 of these were bought by third parties. This is a continuation of the 2009 trend, when 3,000 sales took place at the trustee sales auctions during the last five months of the year – just a fraction of those up for auction. The majority of properties are priced uncompetitively at the price of the outstanding debt, and revert to the banks as Real Estate Owned, or have the auction canceled or postponed as a result of negotiations between the lender and homeowner.  Many of the properties that are acquired via Las Vegas trustee sales are quickly released onto the traditional real estate market by the investors that purchased them.

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Values Plummet in Foreclosed Vegas Neighborhoods

April 5, 2010 By

The current market conditions in Las Vegas are creating trauma and delight. Which of these emotions you are experiencing depends on the price point at which you entered the market. Unfortunately around 75% of folks are upside down in their mortgages, so the majority of homeowners are enduring some stressful times. On the other hand, cash-rich investors are swooping in with their eyes on some healthy capital gains once the world stops coming to an end. Welcome to the world of Las Vegas foreclosure homes.

Fifth and Farm subdivision as an example (near North Fifth Street and Tropical Parkway) is a microcosm of the Las Vegas market as a whole. Built in 2004 and 2005 this North Las Vegas community is in line with North Las Vegas’s foreclosure rate of one in fifteen properties. The Las Vegas Review Journal examined over 100 properties in the Fifth and Farm subdivision, and reported that 50 were owned by the original buyer, who purchased for roughly between $150,000 and $220,000; 25 had been purchased in 2006 or 2007 for as much as $330,000 and $325,000. The later you were to the party, the worse its music sounds. And moving to the reality of today’s post-party devastation the journal notes that over the past 18 months, 26 homes were purchased for prices between $80,000 and $185,000. Almost all of these were foreclosures.

Half of the houses in Fifth and Farm are owned by investors for rental income, and it is a familiar story across the valley to see new homes acquired for rental yields being the first to foreclosure. This is creating a situation where new communities are becoming low-level rental resorts. What do we mean by this? Well, consider that 25,000 homes built in Clark County between the boom years of 2004 and 2007 have been foreclosed on since 2007, whereas 24,700 of foreclosed homes were built between 1980 and 1999. The new investor-driven communities are if not crumbling, then under extreme pressure.

One of the factors compounding the problem of Las Vegas foreclosure homes is that as foreclosed properties are bought by yield-driven investors they end up lowering the community standards, and this in turn encourages other under water homeowners to walk away from their debt obligations. It sounds rough in black and white, but it is a fact that investors buying at lower acquisition prices need lower rents to meet their returns, and tenants paying lower rents are from lower income brackets. So now you have a family that paid $300,000 for their house living next to a family that pays $700 a month for rent. I am not saying that either social group is better that the other, but they are two different social groups, and that is having one major impact: the homeowners at the higher price points are walking away from their mortgages because they want to walk away from their neighborhoods.

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Introduction to Las Vegas REOs

March 26, 2010 By

If you have attended a Las Vegas trustee sale down at the car park of the Legal News Building, located near the courthouse Downtown, then you will note that most of the loans offered for sale do not receive any bids, and revert to the lender. The properties are then termed Real Estate Owned (REO), and the lender will manage the property, and eventually add them to the Las Vegas REO listings via a broker. This gives the investor another bite at buying a property during the foreclosure.

REOs are no cake walk, and have a lot of limitations. Whilst you can snap up a trustee sale in an instant, with an REO you could be stuck in a quagmire of bank negotiations for months. Banks are savvy and will have a Broker’s Price Opinion (BPO), and are unlikely to let the property go for less than its BPO valuation. This is especially true if the bank has already written off the debt as this lessens the urgency to get the asset off its books. Some banks rehabilitate properties prior to listing them for sale which reduces the profit margins available to investors. With an REO the bank has no restrictions on its listing price, and this can make it harder to find a bargain. Finally, not all investors are equal in the eyes of the bank, and they have a panel of preferred brokers and buyers that they tend to work with.

With so many Las Vegas foreclosures banks are increasingly appointing third party asset managers to deal with their portfolios of REOs. Or they will have a special department in the bank, that usually appoints and REO broker. With the limitations of REOs, and the fact that you have to build a relationship with specialists on the seller side, you need to prepare yourself in order to be an effective investor. You need to make an effort to become an REO insider so that good fortune, in the form of first look at the sweetest deals, comes your way.

These days cash is king, and trying to secure seller financing to purchase an REO is not usually a successful tactic. Las Vegas REO properties is not a market where you can make returns with no money down. You should use the amount that the bank paid for the property to guide your negotiations, and you can find this by looking for the sheriff’s deed filed at the county courthouse.

Inspecting an REO is not always easy and there are some tricks to doing it well. If the house is occupied the occupier may not let you in, but by talking to them at the door you can at least peek past them to see what state it is in. If it is unoccupied then one way to get access is to offer to change the locks for the bank at no cost. If your offer is accepted then you can take a look around at the same time. If banks recognize you as a serious buyer then you should be able to arrange an inspection. The final option you have is to write an offer contingent upon passing home inspection, but in Las Vegas you are competing against cash bidders that move quickly, so this clause may reduce the competitiveness of your bid.

The best time to buy an REO is immediately after the trustee sale as there is no redemption period for out-of-court foreclosures in Nevada at the time of writing. You may also find that banks are more receptive to bids at the end of each month and each quarter just before they report results. If an REO is listed by a broker, then the earlier you can get your bid in, the better.

One thing that you want to avoid is getting involved in the shady side of REOs. If you have some relationship with a broker who offers you a property at way below market value, which you can then flip, then this is a pass through profit that belongs the lender not you. Another term for broker’s cherry picking their best deals for a favored panel of buyers is pocket listings. You might feel like you have made it to the inner circle of REOs, but this behavior is unethical, and there is plenty of money to be made in Las Vegas REO properties without resorting to these tactics.

Determining the price point that you can take an REO down for is based on a number of factors. Not only do you need to look at the unpaid balance of the debt, but also the other expenses incurred by the bank, such as legal fees, property taxes, collection fees and repairs. If you are buying a property in a declining market then you will want to increase your target profit margin. Alongside the price that you offer the bank will take into consideration your means to pay. The best deals in the Las Vegas REO market are dominated by cash buyers, but if you have solid proof of financing at the time of the offer you may have a chance. If you make a large down payment this can help strengthen your standing, and an unconditional offer is the strongest.

When it comes to closing follow the standard steps. Just because you are buying from a bank, you should not lighten your due diligence. Title insurance remain essential and in the cut throat world of a Las Vegas REO.

http://www.lvre.com/las-vegas-foreclosure-homes/

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Trustee Sales Las Vegas

March 24, 2010 By

Foreclosure in Nevada takes place via a trustee sale. This article discusses the foreclosure process in general, and specifically trustee sales in Las Vegas. Foreclosure is not a one time event, it is a process, and you must understand this process thoroughly if you are considering investing in distressed real estate. There are two main foreclosure methods:  foreclosure by judicial foreclosure and foreclosure by trustee sale. The latter in the common method in Las Vegas.

When a homeowner purchases a property the county issues a sheriff’s deed that the trustee holds in trust until the mortgage is paid in full. If the homeowner defaults then the lender can ask the trustee to initiate foreclosure, with the trustee sale being the final step in the process:

  1. When a homeowner is late by 60 days or more in their mortgage payments the lien holder/bank records a Notice of Default with the county and sends that same notice to the borrower
  2. The homeowner has 90 days to reinstate the mortgage according to the terms of the lender or they will receive a Notice of Sale
  3. The Notice of Sale is recorded at the County Recorder’s Office and sets the date for the Las Vegas Trustee Sale
  4. The Trustee Sale takes place approximately 30 days from the date of the Notice of Sale. During this period the homeowner can reinstate their mortgage
  5. After the sale, the trustee transfers proceeds to the lender as payment of the loan
  6. If there are no third party bidders for the property at the Trustee Sale, or if the minimum reserve amount is not met, the property will usually revert back to the bank and become an REO. This REO will then be marked up and placed for sale through a real estate broker contracted by the bank

Tips for foreclosure bidding:

  • Before purchasing via a foreclosure/trustee sale then you should attend the auction on multiple ocassions to become familiar with the process
  • Unless you are an expert you should not purchase junior liens: there are times when you can use a junior lien to control senior liens, but this is not for the faint hearted
  • You will need to pay by casheir’s check so you should take multiple checks in different increments
  • Set your maximum bid before you go, and don’t get caught up in the excitement of trustee sales in Las Vegas and go above it

Once you have acquired the property you may have to deal with an eviction. The best way to handle this is by offering an incentive package for the evictee to leave. Failing that you will need to file with the district court to handle the eviction.

Link: Looking for homes for sale in Henderson?

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