Foreclosure and Short-Sale
Short-sales and Foreclosures in Las Vegas
Deal or No Deal?
Three factors play into the current real estate situation in Las Vegas: general slowdown in the national economy, dramatic increase in Las Vegas real estate prices in 2005, and crazy lending practices in recent years. The Las Vegas real estate market has been a boon to investors since the early 1990s, and with as little as 20% down, a savvy investor could create a positive cash flow situation in most cases. So when their California investments were not paying off, and talk of a bursting bubble hit the headlines, these investors sold their current holdings and flocked to Vegas. There was a buying frenzy which quickly drove prices up. In spite of the price increases, investors bought anything that was available. After all, local prices, even when inflated, seemed like a real bargain compared to California's.
At the same time, population growth in the valley continued unabated. Over 50,000 folks moved to town each year, as they had since the '90s. Some were retirees who paid cash for their homes. Others came in search of employment opportunities, having left dismal situations in rust belt or depressed areas.
Many people rented homes and apartments, and rentals were affordable and plentiful. Others purchased homes, attracted by the lure of zero downpayment / low interest adjustable-rate loans.
By the spring of 2006, sale prices began to plateau and investors found that they could not realize enough rent to justify the investment. Many had hoped to "flip" the property, but most would lose money by doing so. Add to this the expectation of most established homeowners that their homes had increased greatly in value. Investors and homeowners alike began to list their homes for sale. The number of listings in the Las Vegas MLS increased during this period from 4,000 to over 30,000!
One year passed and those adjustable-rate loans adjusted upward. In many cases the adjustment moved monthly payments beyond the homeowners' ability to pay, and more homes were listed for sale.
The Short Sale
What do you do when you can no longer make your monthly mortgage payment? You can try to sell your home. But in a situation where prices have not increased as expected and there are so many other homes on the market, chances of breaking even seem remote. The only alternative is to ask the lender(s) to settle for less than you owe. If the lender agrees, then you may be able to bail out, keeping some semblance of your credit rating and avoiding a foreclosure. If the home goes into foreclosure, the bank or lending institution will incur legal fees and other costs, so accepting a lower amount may be their best course.
In this type of situation, a realtor will probably suggest a short sale. Buyers often search for this type of listing in hopes of getting a better deal. There are potential problems however.
After a homeowner has missed payments and defaulted on a loan, the bank will initiate foreclosure proceedings and will take legal possession of the home, evicting the residents. The real estate profession refers to these properties as "lender-owned," "real-estate-owned (REO)" or "bank-owned". The lending institution will hire a realtor to sell the property, and the bank will probably rely on the realtor to set the price based on local market conditions and a comparative market anaysis (CMA). The amount owing, which may or may not be small, has nothing to do with the listing price. Instead, the bank will try to get the highest possible price.
As-Is and Disclosures
In Nevada, a homeowner is required to disclose any defects to the home to a buyer. If a homeowner intentialy hides a known defect they can be sued for three times the cost of correcting the problem. Because of the financial straits of a short-sale seller, it is unlikely that suing the seller would be satisfactory, so a buyer should treat these types of sales as "as is". A thorough professional home inspection is always recommended. Likewise, banks, having never lived in the property, are not expected to be aware of any problems with the home and are exempted from the disclosure law. As a buyer, you will be required to waive any rights regarding property condition.
Thus far I have not seen any bargains in the short sale and foreclosure markets. By focusing only on this type of home, one might miss out on a great deal otherwise.