Analysts say another wave of foreclosures could hit Las Vegas

The grim reality of real estate in Southern Nevada.

VEGAS INC Coverage

Falling home prices in Las Vegas and prospects they won’t recover soon may trigger a new wave of people walking away from their homes.

That’s the concern of those who track the Las Vegas housing market, which is undergoing its own mini version of a double-dip decline in prices. Studies have suggested about one-fourth of Las Vegas foreclosures are so-called strategic defaults in which people walk away even though they can afford their payments.

The prospect of falling prices, prices that won’t rebound for years and a weak economy may exacerbate the problem when many were hopeful that strategic defaults were dissipating.

Real estate service Zillow said 85 percent of Las Vegas homeowners are underwater. CoreLogic pegged the numbers at 66 percent in a state that has led the nation in rate of foreclosure filings for more than four years.

“I do have concern because as the prices go down further, it might provide more incentive for people to strategically default,” said Nasser Daneshvary, director of the Lied Institute for Real Estate Studies at UNLV. “They still owe the same amount of money to the banks, but I think it’s getting bad enough that the ethical issues become less important to people.”

Starting at just under $290,000, median prices fell nearly 60 percent between 2007 and the spring of 2009 before holding steady for about a year between $120,000 and $125,000, according to SalesTraq. But once a federal tax credit effectively expired at the end of April 2010, prices have started to fall again.

In April, SalesTraq reported the median price of existing homes sold was $106,900, which was 14.5 percent below where it was in April 2010.

Some of the forecasts about the housing market predict further declines. Financial services firm Fiserv, which produces the Case-Shiller Indexes, predicted a 20.9 decline combined in 2011 and 2012.Frank Nason, the corporate broker of Residential Resources Inc., said he’s more concerned about strategic defaults than ever.

“Friends and associates that would have never considered walking away a year ago to 18 months ago are,” Nason said. “It’s about the dismal outlook going forward. They see it’s going to take a decade before there is any daylight in their house.”

Those people were raised that they should honor their contracts, but they can walk away from their house and rent for far less than what they’re paying for their mortgage, Nason said. About three quarters of the home sales have been distressed properties over the last two years and the slumping housing market affects people’s psychology, he said.

“It wears people down,” Nason said. “It’s going to start impacting people who may not have considered walking away from their house. How big is that going to be. I’m not sure, but it’s going to be going on for some time.”

Las Vegas housing analyst Dennis Smith, president of Home Builders Research, warned about the problem worsening as well in his recent newsletter to clients.

Without major legislation to force lenders into a program that addresses home values in severely distressed markets like Las Vegas, the foreclosure mess will continue for years, Smith said.

“Consumers that are many years away from seeing any positive equity growth will continue to walk away from their homes,” Smith said.

Most would prefer to stay in their homes rather than uproot and even if prices stabilized that would give them some hope, Smith said. People are angry about sending money to bailed-out lenders.

“The public anger that was apparent in the last congressional election has not dissipated in severely affected housing markets like Las Vegas,” Smith said. “The loss of artificial wealth can be accepted by most, however, it has gone way beyond that and many have also lost a great deal of their life savings and retirement funds in order to honor their obligations on underwater homes.”

Daneshvary said the best options for banks to prevent people from walking away is to restructure their loans and reduce the principal and share in any appreciation.

No one is expecting that to happen and Las Vegas will have to cope with strategic defaults becoming an even larger problem unless home prices stabilize.

But not everyone is so dire with the forecast that more Las Vegas residents will walk away.

Daniel White, an economist with Pennsylvania-based Moody’s Analytics, said his firm’s projections is that foreclosures will begin to lessen in the state by the end of 2011 and that home prices should bottom by the second quarter of 2012. The firm projects foreclosure inventories will be drawn down to “acceptable levels” by the end of 2012 at the earliest.

“It’s definitely a risk that more people will walk but we don’t see that happening much more in Nevada,” White said. “If people waited it out this long, they are going to be hard pressed to leave now when things are starting to turn around.”

Despite that assessment, there are plenty of doubters.

Richard Plaster, the president of Signature Homes and a leading advocate for people to walk away from their homes, said when homeowners see corporations and other companies getting out of their debt, that makes the alternative more palatable.

“I don’t think people can stay stupid forever,” Plaster said. “It is definitely going to go up if prices are going down. People who keep paying on their mortgage are going to lose.”

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  1. "Richard Plaster, the president of Signature Homes and a leading advocate for people to walk away from their homes -- "I don't think people can stay stupid forever . . . People who keep paying on their mortgage are going to lose."

    With another wave of foreclosures coming maybe people will wise up to what's actually going on and take advantage of the Consent Orders those big banks signed two months ago. Check if your lender/bank is on it @ http://www.occ.treas.gov/news-issuances/...

    Among many other findings from the OCC was foreclosures were wrongfully executed without the necessary original documents, like the Notes.

    "Why don't the banks want us to see the paperwork on all these mortgages? Because the documents represent a death sentence for them..... in America, it's far more shameful to owe money than it is to steal it." -- an article from the November 25, 2010 issue of Rolling Stone by Matt Taibbi "Courts Helping Banks Screw Over Homeowners"

  2. The Banks did get a Bailout to save Homeowner Foreclosures. What did they do with Millions and Billions of Dollars in Guarantees and Loans? BONUSES !!! And No real significant re-regulation. If you are 100k upside down, how long will You have to work to realize the Net money to pay for the 100k that has ZERO value. How will it impact your family? Get out of this mess immediately and let the Banks who were paid by the government to solve it do their jobs.

    Now consider yourself a Corporation and the Debt is multiplied a hundred fold. You would be insolvent and declare Bankruptcy Immediately which would wipe out all debts allow a new start. If you were a Giant Bank capable of bringing the economy down, the Government would make your poor investments good and allow you to keep profits from your good investments. Socializing Losses and Privatizing Gains.

    You as an Individual cannot and will not get help - because you cannot damage the economy.

  3. "I do agree on this practice as there has to be leverage to ensure people honor their contracts."

    forthetruth -- if you're really interested in the truth you should start your enlightenment @ http://www.cbsnews.com/video/watch/?id=7...

    More often than not the foreclosers take homes when they can't any right to the property. They just shove paper at the homeowners and make demands to get paid on threat of taking the homes. It works in this state -- articles like this prove it.

    Meanwhile everyone's looking for a government program to bail them out when all they have to do is force the foreclosers to prove their claim under the centuries-old law of notes. The usual "LOANMODLOANMOD" mantra is mostly smoke and mirrors to replace lost notes with new ones.

    Meantime our stellar AG barely goes through the motions on just one of the big foreclosers, BofA and its parasites. And our useless legislature just piles more law on top of old, useless codes when all that's necessary is to impose RICO-type penalties for every foreclosure backed by fraudulent docs.

    "If you're going to take my house away from me, you better own the note." -- Joe Lents (who hasn't made a payment on his $1.5 million mortgage since 2002) in Bloomberg's 2/22/08 "Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish"

  4. At least most of the realtors have stopped telling people now is the time to buy. 2013 may be the right time however. Unless Vegas completely dies there should be a recovery 2013-4 sounds like it could be the start. If you buy now you could still be 20% or more underwater by then.

  5. There is a real ethical problem when a person enters into a contract to purchase a home by financing, terms clearly laid out, and then later decides to voluntarily violate the contract by failing to comply with terms they agreed to at closing. There apparently is nothing in most mortgage agreements to allow for the supposed impact of government lender bailouts or the effects of a prolonged recession, driving prices down. So the defaulting purchaser is on shaky ground, and is subject to lawsuit to enable the lender to recover damages for non performance of the contract.There is no mandate for the government to bail people out of contracts they entered into voluntarily.

    Whatever the individual borrower thinks of banks, much criticism, after the fact, is just a smoke screen for not accepting responsibility. The bank is just an intermediary, neither buyer nor seller. They provide financing at the request of a qualified purchaser. In default, they get stuck with possession of property they never intended to acquire, often because the borrower decides to walk away, even when they continue to have the funds to make mortgage payments. It is illogical but convenient to blame the lender for the loss of equity due to property price deflation.

    Banks are so overwhelmed by defaults that they are unlikely to pursue all collection remedies to protect their financial interests. The "strategic defaulter" is hardly on high moral ground, he is demonstrating the same kind of lack of business ethics of which companies are often accused.

  6. "There is a real ethical problem when a person enters into a contract..."

    oldPSUguy -- except they're not really contracts, they're notes. Totally different law applies -- like only the Note Holder is entitled to receive payments. That means actual, physical possession of the actual, physical Note, AND having holder status.

    Try going to the bank to cash a check and hand the teller a copy instead of the original. See how far that gets you. Same basic principles apply -- it's all right there in NRS 104, mostly in Article 3.

    "The note is the cow and the mortgage the tail. The cow can survive without the tail, but the tail cannot survive without the cow." -- the late Professor Chester Smith of the University of Arizona College of Law, as cited in Restatement (Third) of Property, Mortgages 5.4, Reporters' Notes