“The rise in inventory coupled with the decline in Solds caused our current Months Supply of Inventory to reach its highest level since I began tracking the data.”

Ouch! More than 15 months worth of inventory at the current absorption rate, which doesn’t even include the monstrous number of newly constructed homes. Sellers are cutting their own throats by continuing to list their homes at absurd prices. Little do they know that their window of opportunity is quickly closing as lenders continue to tighten their pursestrings a little more each and every day. The coming fall and winter should be very interesting to say the least.

With today’s news that Nevada is leading the entire nation in foreclosures (1 per 315), maybe we could have some threads dedicated to the process of buying foreclosed or REO property?

Diane and Guy (or anyone else here), have either of you researched or participated in that process?

The Kings Inn which was foreclosed upon back in June, goes up for auction today on the Courthouse steps at 11:00 a.m. for $3,500,000 cash. I would assume those Courthouse step auctions would be part of the buying process of foreclosures yes?

Banteringbear: Good luck on you Washington deal; I was surprised by the heat you took from the boys on Ben’s blog. Sounds to me like you did the right thing after much research and considered thought.

Thanks Casa de Dolar. It’s a tough crowd there to be sure, but it doesn’t bother me. Personally, I’m not anti real estate, I’m anti overpriced real estate. Some of the guys on Ben’s blog have a “never ever buy real estate” attitude which doesn’t make a lot of sense. When you can purchase a property which is inline with local rents, there’s nothing wrong with that. I look for undervalued fixers, with motivated sellers. As far as Reno goes, I haven’t seen anything worth purchasing in quite some time. I think that’s going to change real soon.

In many other markets across the country, we are seeing rising inventories and dwindling sales volume, while the median price holds steady or even increases a bit.
The explanation offered is that the higher end of the market is selling better than the bottom, and that higher priced homes make up an increasing percentage of a dwindling number of houses actually sold.

Guy, is there a way to break down the 334 solds in June by price category?

Many market observers suggest that the truest measure of the market is to know price sold on a per sq. ft. basis. Is there any way to gather that data for Reno-Sparks, Guy? I am not necessarily asking you to do it Guy, just asking if there is a place where a non-realtor can gather that data?

Skrapguy: If you have Excel, just go to the Washoe County Assessor’s site; you can get a lot of information.
Casa

Casa de Dolor wrote: “if the bank or holder of the Deed of Trust bids less than what is owed on the loan a deficiency occurs and the homeowner can be held liable for that amount.”

With all due respect, I do not think this is a technically accurate statement. A non-judicial foreclosure cannot result in a deficiency judgment, even if the security is sold for less than the outstanding indebtedness [i.e., the deficiency].

If you’re a trust deed beneficiary; you fear the value of your security is less than what is owed; and you want to preserve your right to pursue a deficiency against the trustor[s]; you MUST prosecute a judicial foreclosure [because if you prosecute an ordinary suit for money you will be deemed to have “waived” your security, the suit must be for judicial foreclosure].

Stated differently, the beneficiary must make an election of the remedy he/she/it wants to pursue - expedited nonjudicial foreclosure via the NOD/trustee’s sale path with no hope of a deficiency judgment; or, judicial foreclosure with the option of recovering a deficiency judgment.

Pursuing a judicial foreclosure means hiring an attorney [usually]; filing a lawsuit; securing a formal order of sale; the process takes longer and it is drawn out [which ends up costing the beneficiary even more]; and, the court reserves jurisdiction to possibly impose a deficiency against the trustor[s], should one actually occur [there can only be a deficiency if the security sells for fmv].

I bring up the subject because rarely do institutional lenders pursue judicial foreclosure [many don’t understand the difference(s)]. However as prices drop, I think you’re going to see the process change. And when it does, the beneficiary will have less incentive to bid in the full amount owed at the foreclosure sale which means properties will not sell for bloated amounts above fmv.

Two final albiets - first, the case of the sold out junior. Where a junior lienholder [HELOCs anyone?] who has not foreclosed is wiped out by a senior lienholder’s foreclosure [because now his/her/its security has become worthless], he/she/it can file an ordinary lawsuit for money against his/her/its former trustor[s]. I was thinking of this as Jaded demonstrated the number of foreclosures resulting in the holder of a HELOC being wiped out. Now that’s adding insult to injury.

Second, in California lenders are by-and-large [there are some limitations] prevented from obtaining deficiency judgments where their loans are secured by mortgages, and the loan’s proceeds are used to purchase the property that acts as security [this is called anti-deficiency legislation]. For this reason I’ve always wondered why California lenders spend as much effort as you would think Nevada lenders should now be spending, ensuring that the borrower actually has the financial wherewithal to actually repay his/her loan. In California the borrower can have all the wherewithal in the world but it is immaterial because the lender is restricted to ONLY pursuing his/her/its security. If that security isn’t worth enough, then tough twinkies to the lender for being stupid enough to make a loan without taking adequate security!

See, another one of the many advantages to owning California versus Nevada real estate [just a joke]!

Thanks Green for the info on builder sales. Do you have any idea how many houses the builders have for sale?

It is quite interesting to observe the content of the discussion on the blog today compared to when Diane opened up the blog about 18 months ago or so. Back then, anybody who suggested that this market was in for bad times for years to come got blasted to bits by the market cheerleaders, all of whom are pretty much gone now. Does anybody here recall the fullpage ad taken out by one certain very large real estate company in Reno, the self-proclaimed “leader in Reno real estate” that appeared in the Sunday edition of the RGJ right after New Years in 2006? I have a copy of it. It assures the residents of Reno that there is no such thing as a buuble in the real estate market here, and it projects prices in 2006 to rise anywhere between 4% to 9%. So, as it turns out, these “real estate experts” were off about 25%-30% in their forecast.

Today on the blog we are having a sophisticated (Ph.D. level?) discussion about the formalities of the foreclosure process and the ever mounting amount of REO properties in Reno. Quite a change indeed.

The discourse over the past 18 months has been as follows:

There is no housing bubble.

Even if there is a housing bubble in other places, there is no housing bubble in Reno.

Even if there is a housing bubble in Reno, it is very small and shallow and will have no lasting impact on prices. Prices will quickly rebound.

Even if the housing bubble in Reno is larger than we thought, prices here cannot significantly decline because of “population demographics” and Reno’s healthy economy.

Even if prices have declined more than initially predicted, our market shows its inherent strength in the relatively few number of foreclosures and bank owned properties, particularly compared to our dreaded neighbor to the south, LV.

Even though the number of foreclosures and bank REO appears to be increasing, there is no evidence that this REO is in any way contributing substantially to further price erosion.

Anybody want to suggest the next step in this downward spiral?

There is a significant point in Smarten’s post that he sort of mentions only in passing. That is, the deficiency judgment in a judicial foreclosure is not for the difference between what the bank is owed and what the bank (or any buyer) pays, but for the difference between the what the bank is owed and the FMV of the property on the date of sale.

The number of judicial foreclosures over the years has been very very low because it is a far more costly method than a non-judicial foreclosure conducted by the Trustee. But if Smarten is correct that we may see an increase in judicial foreclosures, then there is going to be some work for a few good appraisers needed to determine the FMV at the date of sale. Hopefully these will not be the same appraisers who made a lot of money in 2002-2005 “hitting the number” and who played a major part in the absurd run-up in prices.

GreenNV wrote: “am I correct in reading that in a Nevada
foreclosure, the lien holders (banks) can go after all the owners assets, not just the property at issue?”

I don’t know Nevada law, but if there is no anti-deficiency legislation [and I don’t think there is], the answer’s yes.

In fact, if someone wants to start tracking foreclosure sales where junior lienholders are wiped out [either in whole or in PART]; then approach them with an offer to buy their now “unsecured” position at a steep discount; he/she might make more in this market than waiting for the market to bottom out.

When Guy did his post on his first short sale, I was thinking of BofA having discounted its second so the sale could go through. If it didn’t give the sellers a release [and I’m betting it didn’t], those sellers may very well continue being on the hook for the difference - not just with the IRS in the form of cancellation of indebtedness, but with BofA or its assignee.

So just out of curiosity Guy, did your sellers get a release from BofA? If not, did anyone advise them it might be a prudent thing to do? If not, you might want to add this “thing to do” to your “short” list.

To address Reno Ignoramus’ observation: “the deficiency judgment in a judicial foreclosure is not for the difference between what the bank is owed and what the bank (or any buyer) pays, but for the difference between what the bank is owed and the FMV of the property on the date of sale;” yes, you’re correct and here’s the reason why. If the lender low balls his/her/its bid at the sale, the borrower’s deficiency increases [the very thing that happens in auto repossessions/lien sales]. Since a judicial foreclosure proceeding is equitable, the court has the power [at least in theory] to prevent an inequitable deficiency.

Can you imagine being a borrower; losing your property; and then being stuck for a deficiency judgment which might exceed [because of deficient accrued interest and costs of sale] what was originally borrowed? It’s the ultimate in negative amortization.

Yes, the Reno real estate market could get very interesting very soon and this phenomena may explain why sellers are continuing to make big negative cash flow payments rather than simply walking away.

Regarding the phenomenon of the median price staying stable, or even increasing, in the midst of declining sales and rising inventory, and the explanation that the upper end of the market is selling better than the bottom, look at Somersett today.

There are 133 listings. Only 8 have a pending offer. That is pretty bad at only 6%. But, of the 8 pendings, 5 of them are for listings above $875,000. The bottom of the Somersett market, and particuarly Sierra Canyon, and the Village, are dying on the vine. So it appears that perhaps this explanation, at least with respect to Somersett, may be valid.

Is it true what smarten says, a lender can only seek a deficiency if judicial foreclosure is used, whereas in non-judicial foreclosure, they cannot seek deficiency? I have not read this before…