The Belvedere – Scheduled for the courthouse steps next Tuesday at 11 AM. Estimated due at sales date is $28,858,616.34, and there is another default behind this one for $15,900,000. This may be the South Tower only – there are so many players involved that it is hard to keep them all straight. The vacant lot just west of the project went back to the bank in December, and there are at least 20 units in some stage of foreclosure.
89595 – Did you know that the Grand Sierra Resort has it’s own zip code? Sales of units stopped during the summer, Nikki Beach does not seem to be associated with the hotel portion anymore, about 15 units have already gone TD with about the same number in the pipeline. There have been ZERO resales at the GSR since the project opened. 1714, originally $630,000, now listed at $280,000. 1720, originally $292,658, listed at $99,900. Would you take a unit here if they were giving them away? That’s a serious question.
Montage – No closings as of end of business Friday, so it doesn’t look like the promised February 16 move-ins are going to happen. A cabal of "owners" that want to get out of their contracts and get their 10% deposits back met with an attorney yesterday. I have mixed feelings about this. Montage has certainly delivered the product they promised, but not in the time frame and ownership that the buyers anticipated. Stay tuned.
Waterstone at Kiley Ranch – Originally designed to be condos, this 203 unit apartment complex received an NOD Friday for $40,632,000.
Hope for Homeowners – Remember the program that was supposed to save 400,000 homeowners from default? A total of 25 have received modified loans under the program. This and more interesting reading at How the Banks are Worsening the Foreclosure Crisis from Business Week.
Short Sales and Foreclosures – The Irvine Housing Blog is always a fun read. They had a guest letter from a real estate attorney detailing the Financial Implications of Short Sales and Foreclosures. It is must reading. The implications here in Nevada are very similar.
I’m really an "up" person – I swear!
DonC
CL — Let me start with an apology. I realize I made a mistake making a joke about the term “bankrupt” as in “bankrupt argument”. This was supposed to be one of those “laughing along with you” type comments but it probably didn’t come across as intended.
On the substance, your point about changing the rules after the fact is theoretically valid but I’m not sure it’s valid as a practical matter. When the loans were written everyone assumed that in the case of bankruptcy the house would be above rather than under water. So as a practical matter the bankruptcy law probably didn’t matter one way or the other to the lender. IOW the law didn’t result in any loans being written that wouldn’t have been written with the same terms had the law been different.
In a sense, this is similar to borrowers in NV versus borrowers in most other states. Most states are non-recourse. NV is recourse. Theoretically borrowers in NV should be more careful than borrowers in non-recourse states, but I doubt this was the case. That factor just didn’t matter.
Also, the theoretical value of the argument is undermined by the fact that lenders know the bankruptcy law can be changed, just like they know tax laws can change. Once everyone is on notice the laws can, there’s no inherent unfairness in having the law actually change. (This is quite different than ex post facto laws).
FWIW I don’t think changing the bankruptcy law will make much of a difference. In a few cases maybe, but not in that many.
smarten
Disagree DonC –
As I understand it the law in effect when most current mortgages were made prevented BK judges from cramming them down the mortgagee’s throat. If that law changes, I would submit the new remedy cannot be retroactively applied. It’s no different than a new court decision being applied retroactively to cases pre-determined.
Further I disagree with your assessment that this new remedy wouldn’t have made any difference had it been in existence in the past. Similarly, I disagree with your assessment it won’t make any difference in the future. I know it would have made and will make a difference with me and lender-investors like me [the hard money second deed of trust industry]. Although it may not have made/will not make a difference to institutional lenders who really are nothing more than loan servicers, the brush we’re speaking about has a far, far broader stroke.
Finally I disagree with your comparison of recourse to non-recourse loan states. Now that we see properties can go down as well as up in value, I submit you’re going to see a big difference in the LTVs, origination fees and interest rates which are applied to future mortgages – especially jumbo ones. Can you imagine yourself being the kingdom of Dubai and having been stung by the irresponsibilities of the current round of mortgages? You think you’re going to replicate that irresponsibility now that it may be easier for your mortgagor to avoid repayment of 100 cents on the dollar? I don’t think so.
inclinejj
Check out this new one from Arnold in Ca..
http://www.housingwire.com/2009/02/24/90-day-moratorium-for-california/
Reno Ignoramus
In Lewis v. Department of Education, No. 06-35255, D.C. Nos. CV-05-034, Adv # 04-6060, (2007) the U.S. Court of Appeals for the Ninth Circuit ruled that pursuant to the authority vested by the Bankruptcy Clause in the Constitution, Congress may pass laws that impair contractual obligations.
The Bankruptcy Court had held and the US District Court, on appeal, affirmed that a Congessional amendment to the law governing the dischargeability of student loans obligations in bankruptcy may be retroactively applied to a debt incurred prior to the date the law was changed by Congress. On appeal from the US District Court, the Ninth Circuit affirmed the rulings below by the Bankruptcy Court and the District Court.
DonC
smarten – Bankruptcy laws can change at any time. As a creditor you’re entitled to have the law at the time your debtor files fairly applied to your claims. You are not entitled to have the law in existence when the debtor signed the law applied. This is very basic.
I think there has actually been some studies of the loan rates pre and post the bankruptcy law changes with respect to cram downs. If memory serves me correctly, the added risk of the cram down might have amounted to 10 or 15 basis points. You may think that’s significant. I think an increases of that magnitude as a rounding error that doesn’t matter.
Eventually one of us will be proven right about the recourse non-recourse issue. I think lenders will rely on tougher underwriting standards and will continue to ignore the recourse option (too expensive, too hard to collect). In any event, we need not worry about loans from Dubai. Not only aren’t we going to see any real demand for US real estate loans for quite a while, but Dubai, with its real estate in free fall and its need to borrow massive amounts of money, isn’t in a position to lend.
FWIW I think I saw that the default on jumbos is up to 7% or 8%. While still under the 13% rate for Alt-A’s and subprime’s, that’s well above the default rates on conforming loans.
inclinejj
Had a private 2nd loan crammed down in Bankruptcy Court a couple times..
One was a small note for 25k and rate was 12% on a house in San Bruno..the judge gave the guy 8% and turned the 2 year interest only note into a 10 year interest only note..put all the missed payments back into the loan..
Borrower made 3 payments and went right back into Default
Another one in Roseville..same thing..1st trust deed and the lady paid on the new terms..5% IO for 8 years..Sold the house and we got paid off
smarten
Thanks to all of you who have contributed on this “cramdown” subject [one I was not familiar with before].
I read the In re Lewis case cited by RI [thank you] and it appears to hold that Congress does have the power to make Bankruptcy Law modifications retroactive, which is what it did with the student loan non-dischargeability issue discussed therein.
So I guess if Congress modifies the current law to permit Bankruptcy Court cramdowns on mortgages, it CAN make that power retroactive without impairing existing contracts because mortgage contracts are allegedly impliedly made “subject to constitutional power in Congress to legislate on the subject” in bankruptcies. Don’t agree with the reasoning, but that is what the case holds [this subject is announced for those who care in Wright v. Union Central Life Ins. Co. (1938) 304 U.S. 502, 516].
So let’s review the ramifications.
First, it appears this possible remedy would only apply to first mortgages against a mortgagor’s primary residence.
Second, the mortgage would have to total less than the conforming loan limit [currently $417K].
Third, I think [but am not certain] that the remedy would only be available in Chapter 13 [wage earner plans of arrangement] proceedings.
Fourth, a debtor could not ask for this relief unless he/she had first attempted in good faith to work out some other type of mortgage modification with his/her lender.
Fifth, the theory behind this power is you have a homeowner who wants to pay off his/her mortgage in full but for some reason has gotten behind in his/her payments. So the Bankruptcy Court can fashion a remedy, as part of a larger plan of arrangement, whereby the mortgagor remains current on future payments; past due payments are repaid on a separate installment basis; and perhaps the term of the mortgage is extended to allow the mortgagor to successfully complete his/her plan. Conceivably a debtor’s unsecured obligations could be slashed or eliminated pursuant to the plan which would give him/her more available cash which would allow him/her to repay past due secured payments.
Sixth, and as InclineJJ points out, actually reducing mortgage principal is an extreme remedy. And for it to take place, the fmv of the mortgaged property would have to be less than the current mortgage principal amount outstanding.
So to me the lesson [if you’re a lender-investor] becomes:
1. Loan more than $417K;
2. Make sure the LTV ratio is very, very low so there’s little chance the property’s value will depreciate below the amount loaned;
3. Charge more loan origination fees to defray the added risk;
4. Increase the loan interest rate [and by more than 15 basis points] to defray the added risk.
All of these measures IMO are going to increase the cost of borrowing to those in need the most.
Bankruptcy Attorney
I don’t know what the big deal is with the new legislation. We have already been stripping second mortgages in chapter 13’s for months, when the home is worth less than the first mortgage amount. In fact the lenders rarely even fight it anymore they just stipulate and the second mortgage(even helocs)become unsecured creditors, take their pitiful share with the rest of the unsecured creditors and at the end of the 36 or 60 month period go away with the rest of the debt. In reality it is a cramdown. More times than not the home is usually valued right around the 1st mortgage amount. We are keeping more people in their homes than any government bailout plan. In my opinion I don’t care if the legislation passes, stripping the second mortgage helps about 75% of the peope I see.
CommercialLender
We’ve now had numerous of us, mostly real estate professionals, burn a bunch of time on this issue and we are still not fully certain – getting close, but not fully yet – what implications this tinkering by the govt (politicians/lawyers) will have on the market. We know we are all confused, and if we are, then how the heck will lenders not be? No ifs, ands or buts: this will negatively impact lenders’ willingness to lend and therefore risk mitigants will be increased to compensate, both of which I argued in my post of last week-ish. (BTW, Given Smarten thinks it will impact the lower-socioeconomic group that I submit have a heavier weighting of foreclosures and BKs right now, that might be good public policy?)
BK Attny,
your input misses a major mark (welcome to RenoRealtly Blog, by the way. Love to hear more from you). Namely, 2nd mortgage makers and holders already know the risks associated with a borrower’s financial condition going south, be it foreclosure or whatever. That’s why 2nds are priced higher and generally come with big strings attached and additional servicing requirements. Senior note holders, however, don’t/didn’t plan for these impacts as much, and that’s why they and the secondary market stopped senior loans at 80% or less among other mitigants.
Please do complete your thoughts on your next post as to what a senior noteholder with a loan predating that 2007 ruling might rationally think or act now?
***
Who disagrees with me that the longer the gov’t tinkers with the rules, the longer we’ll be in this mess? Notice the stock market and financial markets in general (and labor) have been nothing but DOWN since Bush’s TARP and continued DOWN since Obama’s ‘Stimulus’. Changing BK laws retroactively might be legit (9th district of all districts?!), but it won’t help to spur fresh, new, low cost lending which the government seems desperate to resume and especially not to the ‘masses’ they seem desperate to target. In recent months, the rules no longer seem to apply, so businesses and investors can no longer transact business or invest until the rules are again known and respected.
GreenNV
Thanks for the continued interest in this thread. It has been going on over 10 days now which is unusual. For what it’s worth, here is my naive take on the possible courses of action:
1. Heartless Bastard – If you bought a house you couldn’t or now can’t afford, the banks foreclose, sell the property for what they can get, and the owner becomes a renter. That’s all, tough love. The Gov will probably have to step in and backstop the banks, but that’s already happening.
2. Passive Aggressive Bastard – If you bought a house you couldn’t or now can’t afford, you get a principal reduction to put your debt in line with current market value of your house. In essence, backstopping the home owner rather than the bank, but the homes are still occupied and some income is coming in. Given the rate of recidivism in mortgage modifications, we still will probably have to save the banks on the second wave of foreclosures.
3. Government Diddle – These are all the programs proposed so far, and the new proposals on the horizon. They haven’t and won’t work. Feels good, but the restrictions end up not helping anyone. 25 home owners helped by the multi-million dollar Hope for Home Owners program. Loan mods only imprison the owners in a home they can never sell, unless there is a principal reduction.
Call me Capitalistic Heartless Bastard. We can’t go up until we stop going down. I know my views are simplistic and there would be a lot of unintended consequences, but just let the 80% or so of home owners who are not in immediate jeopardy know where we stand and let us get on with our lives.
SkrapGuy
Heartless Bastard? Well,count me in too. Why won’t we just acknowledge the f’ing truth? That a lot of people lied about what they earned to by a house they could never afford with a suicide loan they knew damn well was going to explode on them but they didn’t give a crap because they just knew “houses always go up in value”.
If I hear one more story about some housedebtor who got a $300K nothing down, I/O, teaser rate crapola loan by commiting a felony, and whose house is now worth $175K so he wants the govt to reduce the principal of his loan to $175K I am going to throw up. Tell me, suppose the value of the house had gone up $125K instead of down. Would this poor victimized guy be offering to give the $125k to the govt? Oh no, he wants all the upside, but when his crapola decision goes south on him, he wants the govt. to bail out his sorry ass.
Gary
“…but when his crapola decision goes south on him, he wants the govt. to bail out his sorry ass.”
I think I’ve heard more whining from people whose homes are losing value because of foreclosures in their neighborhood than whining from the actual foreclosees asking for a bailout. I guess I should start hanging out with less whiny people.
Waterstone Resident
“Waterstone at Kiley Ranch – Originally designed to be condos, this 203 unit apartment complex received an NOD Friday for $40,632,000.”
What does this mean for current residents? If they get a new owner, I assume everything continues pretty much as normal, but if the bank forecloses, do we all get evicted and the place closes?