Las Vegas Sun

October 22, 2021

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Housing experts seek solutions to Nevada’s foreclosure woes


Las Vegas Sun file photo

The percentage drop in housing prices from the first quarter of 2007 to the first quarter of 2010 was 53.9.

A group of housing experts on Tuesday urged the Nevada Legislature to enact legislation that encourages more short sales and provides more financial protection for homeowners who can’t afford to keep their homes.

The UNLV panelists on “Ending the Foreclosure Crisis in Nevada,” which featured former Assembly Speaker Barbara Buckley, said the region’s housing woes are improving, but it’s a long way from being over, even though measures have helped to mitigate the problem.

Las Vegas-based SalesTraq's numbers show the valley will exceed 20,000 foreclosures for the third consecutive year as the city remains No. 1 in the nation in its rate of foreclosures.

“We are still in the midst of this, and there’s no relief in sight,” said Buckley, the executive director of the Legal Aid Center of Southern Nevada. “Ending the foreclosure crisis is going to be easier said than done.”

Nasser Daneshvary, the director of the Lied Institute for Real Estate Studies at UNLV, which sponsored Tuesday’s panel discussion, said it’s encouraging that the number of foreclosure transactions has been declining since July 2009 and that short sales – sales in which banks allow the owners to sell the home for less than is owed on the mortgage – are increasing. Foreclosures were the majority of sales in recent years but that percentage has fallen to 40 percent. Short sales make up 30 percent of the market, he said.

“We should see more short sales and fewer foreclosures during 2011,” Daneshvary said. “At least for now, the increase in short sales relative to foreclosures are particularly encouraging.”

Daneshvary, who co-wrote a study about how the concentration of foreclosures is toxic for neighborhoods in terms of price declines and blight, said government policy should encourage short sales, especially those in which the homeowner could sell the home to themselves. That, in essence, becomes a principal reduction that allows the person to afford monthly payment and stay in the home, he said.

During the third quarter of 2010 in Nevada, there were 4,690 loan modifications but only 87, or 1.85 percent, were principal reductions, Daneshvary said.

Buckley, who wrote legislation implementing the state’s foreclosure mediation program in August 2009 requiring lenders to give delinquent homeowners the option of meeting to modify the loan, said there will be a push in the 2011 Legislature to better protect homeowners and make short sales easier to conclude.

When banks foreclose on properties, they have six months to collect on a deficiency judgment against the homeowner, but lenders aren’t pursuing such collections, Buckley said. The concern, however, is that state law allows owners of second mortgages to collect on a deficiency up to six years, she said.

In addition, when homes are sold as short sales, the holders of the mortgage have up to six years to collect the deficiency, Buckley said. The discussion in the Legislature will be whether to make second mortgage and short sale deficiencies limited to six months.

“The lenders won’t sue the homeowners, but they will sell the debt to debt buyers who will,” Buckley said. “Not only have they lost the home, but the homeowner can be sued for anywhere from $30,000 to $100,000. If you’re making 30 grand a year and they garnish you at 25 percent of your income, they will be in indentured servitude the rest of their life or they will have to file bankruptcy. We will see the bankruptcy rate skyrocket.”

Buckley faulted the federal government for not doing enough to address foreclosures when it approved the bank bailout in 2008. Getting lenders to do major principal reductions as a condition of getting federal help would have helped ease the foreclosure crisis, she said.

Federal programs needed to be tailored to local conditions and administered at the state level because many Nevadans didn’t qualify for programs because they were so far underwater, Buckley said. She said she fears that more people will walk away from their homes because they don’t see its value rising for a long time.

Buckley said there’s no indication any further help is coming from the federal government, and it may be up to lawsuits already in the courts to help remedy the problem.

“Most of the principal reduction programs and strong modification programs came out of settlements of legal action,” Buckley said. She said a Nevada lawsuit against Bank of America could result in loan modifications.

Buckley said the loan modification program she authored has been a success. Since its launch in September 2009 and through the first fiscal year ending June 30, she said 4,200 mediations took place that resulted in 3,700 cases where no foreclosures occurred.

Between July and September 2010, there were 1,800 mediations and 1,300 resulted in agreements, she said.

One of the panelists, Michael Wixom, a real estate finance lawyer and member of the Board of Regents, said he was skeptical about the mediation program when it was introduced but has since changed his mind.

“In large measure, the skeptics have been proven wrong,” Wixom said. “It has been a relatively successful program.”

Daneshvary said that modifications of loans doesn’t guarantee success and pointed to nationwide stats that show 62 percent have failed after two years and 30 percent failed within the first six months. That’s why he said principal reductions are important to easing the problem.

The panelists said they feared that the problems that resulted from the housing bubble and subprime loans that damaged the economy will be forgotten in 15 to 20 years, and could repeat themselves.

“Hopefully we have learned the lesson while it is still fresh in our mind that there is no doubt the housing crisis led to the economic crisis and nowhere do we see that better than Las Vegas,” Buckley said.

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