The King’s Inn has a new interim owner – Washoe County! The county took title to the 4 parcels that make up the property on a 4 June 2009 tax deed for delinquent 2006 property taxes ($65K, though total taxes due are now closer to $175K). Within days, the base of the building was painted dark brown, wiping out the graffiti, signage stains, and old mural. Good work, Washoe!
The next step will be a tax auction, where the minimum bid is the amount of delinquent taxes, interest, penalties and fees. Correct if I’m wrong, but I believe it is illegal for the county to profit from a sale of this sort. Any excess proceeds go back to the "owner" AKA first mortgage holder. The 3 vacant parcels and tower parcel will be auctioned individually, and there is no guarantee that one buyer will end up with all the parcels.
The general process is the county files a notice of default for delinquent taxes. Then there is a 2 year "redemption" period where the owner can get the lien removed by paying up. Finally after 2 years, the county can take the property. There are very stringent noticing requirements throughout the process.
Normally, the properties at a tax auction are there because they are worthless – splinter parcels, mold infestation, falling down health hazards, parcels no one want to continue owning and paying taxes on. But in the list of tax deeds just filed (user ID: rrb, Password 877yodiane), there are a lot of interesting properties besides the King’s Inn. Incline, ArrowCreek, Fieldcreek Somersett (234 series) and a swath of riverfront property in Verdi (see the 038 series).
Generally, the bank will swoop in and pay off the delinquent taxes to prevent the tax deed. Maybe some occasionally fall through the cracks. But if you were a bank and you mortgagee was in tax default, might it not be cheaper for you to let the county do your dirty work instead of foreclosing yourself? The bank can always bid at the tax auction on their own property (just as they do at Trustee’s Sales on the courthouse steps), but without the costs involved in a foreclosure. Any thoughts on this as a strategy?
Hat Tip to LJK for the "simple question" that lead me to this information. Grand Wazoo, our post on the lofts got "discouraged", but I’ll write you up a private post with what I know. I’ll do a public post when the conflict of interest with this site gets resolved. Anyone else notice that "Ms. Pygmy Head" is no longer listed as a blog contributor at the bottom of the page? Thanks to the Dude for not suing me for using his photo as the thumbnail lead for this post.
reno newbie
really miss her honesty and insight……..
BanteringBear
Ms. Pygmy Head? Is that some sort of inside joke or something? It sounds very derogatory to me. I miss Diane. I’m sorry to see her go.
Reno Ignoramus
If in fact this blog has had its last post from Diane, it’s a sad day. Even though she has essentially been gone from the blog for the last 3 months or so, I too am very sorry to see her go. With Diane’s departure and Guy’s fading interest, this is essentially Mike’s blog now. Maybe the caption of this thread ought to have been the King is dead, long live the King.
I am concerned that with Diane’s departure and Guy’s significantly lessened interest, the blog is going to lose a very valuable piece. That is, the “inside” info that can only be gleaned by a dues paying member of the realtor club who has the “inside” access to the MLS. For example, a few days ago I inquired about last month’s sales data by price segment, ie how many houses sold for less than $100K, less than $200K, over $500K, etc. It’s nice to get a monthly update on the median, but this blog has always been a unique source of additional data that really fleshed in the picture. Without that info, this blog is going to be diminished as a source of information.
Mike is a fabulous data miner from public records. Is there anybody who has the “inside” access to the MLS who is willing to share?
KingBud
Mike, I think something is going on with Homecrafters’ Monte Rosa development.
2 years ago I visited the Monte Rosa development one afternoon. Nice homes, very nice views, small gated development. I was impressed, but thought the homes were overpriced.
I’ve been on their mailing list since that time, probably about once every 6 months they email me some type of promotional material.
Now I’ve been getting emails every month from them since 3/2009. Free upgrades, make an offer, new and lower pricing.
big baby
reno realty blog – RIP
big baby
any bets on how long it takes douchebag mike to turn this blog into an empty junkhole, sort of like the kings inn?
ooops too late, he already did.
Grand Wazoo
“The smell of stucco is strong on this one Luke”.
MikeZ
“Ms. Pygmy Head?”
Would somoene please explain THAT?
GreenNV
Sorry for the inside joke. Ms. Pygmy Head is a term of endearment I use with Diane. It stems from the way her headshot avatar looks on my IE Favorites list.
billddrummer
I, too, am sad that Diane is gone from the blog. It’s up to the rest of us to make sure this blog remains relevant, timely, fun, informative and useful.
So I through down the gauntlet to all of you, to KEEP THE FAITH!!!
DownButNotOut
I’ve been wanting for a while to write as a guest contributor on some random thoughts for awhile. So here goes;
This is a blog. Screen names are used, sometimes to describe where we come from, sometimes to fool people as to who we really are. We don’t really know anything about each other – unless we’ve personally met or had other contact experiences. So we run with what we read and we believe it, as after all we’re just here for the blog, not to invent anything, or in general, to judge anyone.
Does that mean everyone here is honest? And does that mean feelings can’t come into play? Who’s right, who’s wrong, might be simple on the surface, but that’s also because we assume who we hear it from has credibility. Most everyone that writes in a benign response is being honest and credible. But what of those that aren’t? What of the verbal bully that seems 6’5” on paper and threatens to kick your @ss? Is he really 6’5? Or is he 5’6? Does it matter? After all, we know a physical confrontation is unlikely. It allows us a lot of latitude. We could even be someone we’re not.
So we know, although we stay away from it, that it’s easy for someone to grow a pair and make sure everyone listening bows to your views. It’s easy to push people away that might fall under free speech, continually proving your strength and status by doing so.
In elementary school we were taught how to deal with physical bullies, but how do we deal with cyberspace bullies, if in reality we don’t even know what, where, who they are? Worse, how do we know what a bully is – especially if that person contributes in other areas in a positive way? Can a person be a bully AND a respected contributor?
When poster’s write in that this is the last time they’ll post – due to being disrespected, or put down, that’s not right, although it’s their decision to stop and certainly not mine to defend them. But when Otto, Pursuit Ace and others don’t feel they can’t comment here anymore without being put down – there is an injustice being played out. How many are reluctant to say what they really mean because they don’t want to be targets?
Terms like Kool-Aid, carnage, delusional, idiots, etc are great visuals – but god help you if you want to express the opposite view – upbeat, strong, consumer confidence, leveling out. How about the psychological aspect of dealing in Real Estate? We all know it’s easier to put down general thinking than to put it in a positive light. Same in life really.
Poster’s here that have called for a downturn in Reno’s Real Estate economy have been right – through and through. In fact it’s what this blog has been known for, and rightfully so. It’s THE subject. Has this information contributed to the downturn? The consensus is not at all. Has any information come from here as to how to maximize (leverage/ jumbo loan, etc) a purchase – yes, unfortunately few and far between when compared to the downturn talk. And those positive posters take a lot of crap then consequently post less.
So we arrive at a post that if you agree with everything said you’re golden, and you might even get in with the ‘in crowd’. But if you don’t – ‘Step away from the Bong’, as you obviously must be on something, even if it’s just your opinion your posting.
When I give people sh!t here it’s to bring them to the table and make them confront what they’re saying from an outsiders standpoint. Sometimes the response is better judged not about the words written in response but by the tone in which it’s said.
Keep on truckin’.
Happy Fathers Day to you fathers, and to the rest of you – get fricking busy!
BanteringBear
Downer-
I really think you need to “grow a pair”. Either that, or stop blogging. You just don’t seem cut out for it. I mean, your skin is so thin your organs are showing, and your post has absolutely nothing to do with Reno real estate but everything to do with WHAAAAAAAAAAAAAAA! It’s so dreadfully off topic that it borders criminal. Perhaps you can take that crap over to a Dr. Phil site or something.
Can we bring this thread back to the Kings Inn? My questions regarding that hideous eyesore are: does any value exist in that structure anymore? Why is it not being demolished? After decades of bum refuse and pigeon droppings, it must be just hammered inside. Get rid of that thing, yesterday.
smarten
I too am concerned with what has happened to this blog.
When Diane first announced she was moving back to the Bay Area, she stated her “presence” would be taken over by JoAnn. Although JoAnn has contributed a couple of posts here and there, they really haven’t been thought provoking and for some time now, she has basically been silent – I just don’t think she’s cut out for blogging.
Although Guy continues to contribute, it’s not like it was [daily and many times several times a day] when Diane was active. It was almost as if he and Diane were here to play off of each other.
Although Mike provides us with some amazing data, I feel that many of his blogs represent nothing more than efforts to “jump start” ANY discussion about anything – as if to fill the void.
A number of long time posters seem to have gone [unless they’ve turned into lurkers] and many of the newer ones just don’t seem to have as strong a real estate background.
What about me? Well I joined close to three years ago basically at Diane’s urging. My intent at the time was to get a better grasp of the residential real estate and mortgage markets in Northern Nevada because I was a would be purchaser, and this blog has been invaluable to me [thanks to all for that].
As many of you know, I’ve found something to buy in Incline Village. It has been a very, very rocky ride – one challenge after another, and then another [actually, I think it would make an interesting series of blogs]. I really haven’t spoken much about it because many times I thought it would blow apart, and I didn’t want to jinx things.
Well, we’ve just about overcome every hurdle and are scheduled to close escrow at the end of this week. At that point, I am afraid to admit that much of my personal interest in this blog will be gone – at least for the immediate future. Like Diane, I will have moved on.
And really, that’s the point. For this blog to survive, others with sufficient motivation need to step to the plate and shape it into their own.
So let me throw out a subject for your consideration. It’s called be careful what you wish for!
When my wife and I first began our quest, we mapped out a game plan. All sorts of events had to occur for us to again become homeowners – everything from procuring a sufficient down payment from then existing assets; being able to qualify for a purchase money mortgage being self-employed/semi-retired persons; long term interest rates dropping [they were artificially too high at the time]; overcoming delusional seller [and their delusional agents] pricing; finding a home that asthetically, we could be in love with; finding a community we could be in love with; etc., etc. So many “things” that honestly speaking, should NEVER, NEVER have come together – at least in one’s [or in our case, two’s] lifetime[s].
Well now it has and we’re excited. But we’re absolutely scared to death as well. What happens if prices continue to drop? Are we close to a housing bottom, or could this just be the first leg of a double bottom? What happens if long term interest rates go through the roof [we’ve secured a 5/1 ARM mortgage because 30 year fixed rate jumbo mortgages are unattractively priced]? What happens if our recession turns into a depression and our sources of income dry up? How secure are we going to be paying three times the housing costs we’re currently paying as renters, for the privilege of being homeowners? Are we really, really ready to make the step we’re about to make?
Are any of you out there in our shoes? Or maybe you’re where we were a couple of years ago and don’t need to face reality because the odds of attaining your nirvana seem slim? Do you play it “safe;” take pot shots from the sidelines; and never pull the trigger? Or do you throw it all out there and open yourself up to the possibility of financial devestation?
Sully
smarten, very thought provoking comment! I too, had the very same thoughts.
I ended up buying in the current median range. Didn’t get my view, but the house was 3 yrs old so major repairs are (hopefully) down the road a while, nice neighborhood. Can easily stay here for a long time.
My reasons for buying had nothing to do with being a homeowner, as much as it did for security and badly need of more room, not to mention the damn airport traffic overhead.
My former landlord is selling all properties (short sale); not surprising. I had a feeling it would come to that and didn’t want to have to relocate at the drop of a hat!
I did buy an REO, so my down side is less than if I bought at the higher end of the market and I don’t have to worry much about losing it as I paid cash.
Do I have any second thoughts or reqrets – NO, we are very satisfied with the house and neighborhood. Easy access to shopping and at the maximum distance from Hwy 80 that I would consider.
But my situation is not meant to be a pattern for others, just a thought on what I did, having the same concerns you do! 🙂
billddrummer
To smarten & Sully,
Both thought-provoking and illustrative posts.
In my situation, I’m renting now, and am standing still in my low-rent apartment to wait and see how I can 1)heal my credit; 2)recover liquidity; 3)pay down some onerous debts; 3)remain employed; 4)stabilize my living situation; and 5)determine whether I want to purchase again.
The next year will be the year of consolidation and work on the four items I listed first. When those are taken care of, I’ll explore number 5.
Until then, I’m a renter, and not ashamed of it.
I enjoy this blog, as a contributor and a reader. Many of the current contributors provide great insights (CL in particular), and I trust that we’ll continue to get contributions as thoughtful and precise in the future.
I don’t have any axes to grind, and I still have a negative net worth. With a foreclosure, repo and several collections on my credit report, the process will take time. But I’ve got time.
I think the King’s Inn should be torn down and the parcel converted to a park that can be tied into the retail development proposed for the train trench right of way. It’s clearly an eyesore that should have come down long ago. Now that the city has taken title, perhaps the Redevelopment Agency can explore alternative uses–that don’t include the existing building.
Now that we’re back on topic, let’s canvass the group for ideas.
Reno Ignoramus
Smarten,
Allow me to share with you a story about a friend I have. This is a man who is in his late 50s now. His dream was always to live on the beach in Florida. After about 30 years of a successful career, about 3 years ago he was finally in a position to purchase what he had always wanted. But this was only a year or two after the succession of devastating hurricanes that came aground in Florida. Many people told him he was taking too big a chance. What if another Ivan or Katrina comes along and literally blows you and your house to smitherings?
One night I told him about the last days of my dying grandfather. My grandfather died when he was 89, and what I remember most about what he told me in his last days was that he regretted that he had “always played it too safe.” He said the only regrets he had were not for anything he did, but for the things he did not do.
So my friend bought his place on the beach. And boy let me tell you it is right on the beach. Every day he gets up and watches the sun rise over the horizon and then watches it set in the evening. He is a happy man. Could this be the summer that brings the hurricane that wipes him away? Well, yes, of course it could be.
Could the economy get worse, could rates be higher when your loan resets, could the value of your house go down? Well, yes, all those things could happen.
When you are 89 do you want to look back and remember how in the summer of ’09 you played it safe? How you gave up the opportunity to own your home on the beach, or the lake, or in the forest, because the future was uncertain?
I truly hope you don’t leave the blog Smarten. Your contributions have been valuable. I suppose that most blogs do have a lifespan, and maybe this one is now into its maturity. But you have been a valuable contributor, and I hope you don’t depart. if nothing else, you can keep us all apprised of the IV market.
CommercialLender
BillD, thanks for the kind words!
Smarten, I for one would be very much interested to hear your whole story and whatever key learnings you can give us, after your deal closes, and if you are willing. Your phsycology of the purchase would be of particular interest, as recently you turned markedly upward in your own sentiment. So, you bought. Or, was it that you bought and then needed to talk up your own decision, putting your thoughts down on this blog to do so? Either way, you are getting to the core of what must happen to turn this crappy economic tide: consumer sentiment must improve and in a wierd, seemingly unscientific way, it will become self-fulfilling prophecy. Secondly, the fact you (and others) post on this blog in part to ‘hear’ your own arguments mapped out is very interesting as it in a way is part of the due diligence process of making a huge housing decision. All good stuff and please do share when the time comes.
CommercialLender
As for Kings Inn, I must be careful here, but as I recall, my shop was in discussions with the owners on trying to finance this deal. we turned it down rather quickly, as the chances of financing the deal were very slim. In years’ past, maybe was financable, but if memory serves me, the units are all SROs and the cost structure was was out of line. Seemed to me the asset was functionally obsolete. The bulldoze idea might make sense, or turn it into a UNR dorm.
billddrummer
To CL, Smarten, Sully, RI & DBNO:
I hope all of you continue to share your lives through this blog. I will.
billddrummer
To CL,
Isn’t there enough SRO housing in downtown Reno? Even with the condo conversions that have taken some of those buildings out of the market (Belvedere, the old Comstock [new name eludes me]), I can see why financing a renovation would be so tough.
If the property wouldn’t pencil after a redo, then the best thing to do in my opinion is to raze it and start over.
But then, that’s just me.
BanteringBear
Smarten posted:
“What happens if prices continue to drop? Are we close to a housing bottom, or could this just be the first leg of a double bottom?”
You are in Incline Village. I think it’s a given that prices will continue to drop, and a LONG way. The high end areas have yet to really capitulate. Sure, there have been some reductions, but considering how overpriced things had become, there’s still a lot of downside there.
“What happens if long term interest rates go through the roof [we’ve secured a 5/1 ARM mortgage because 30 year fixed rate jumbo mortgages are unattractively priced]?”
This just blows me away. From you, the one who has paid so much attention to the purchase money side of things, to not take advantage of the historically low rates is absolutely staggering. I’m almost speechless. While they will attempt to keep rates artificially low, the bond market will blow the lid off that plan, and as mortgage rates rise, the price of houses will fall in conjunction. When it’s time to refinance that ARM, you’ll be paying high rates, with a high principle balane- the worst of both world. Again- SHOCKING to hear this from you.
“What happens if our recession turns into a depression and our sources of income dry up?”
We’re already on our way, Smarten, and one need only look at the unemployment situation to draw that conclusion. You have more than most, so perhaps you’ll weather the storm better, but nobody knows how bad things will get. One thing’s certain- the worst is yet to come BY FAR.
“How secure are we going to be paying three times the housing costs we’re currently paying as renters, for the privilege of being homeowners?”
This, to me, says it all. Paying three times rent to own is a MAJOR warning sign that the price you are paying is bloated like a dead horse in the hot summer sun. While Incline Village is a little different as rents pertain to ownership costs, it’s almost certain to narrow to the thinnest margin it’s ever seen. The second home market in this country is dead, and for the foreseeable future. That is an ominous sign for IV house prices.
Just my two cents, Smarten. I, like others, will be disappointed to see you go. We had some rocky times, you and I. But, I grew to enjoy your posts, and respect you. Like RI has mentioned a few times, blogs have a shelf life, and perhaps this one is nearing the end of it’s usefulness. Maybe not. Time will tell. Good luck to you, Smarten, and if you can keep us abreast of the market up there, and Incline Village in general, I’d certainly enjoy it.
SkrapGuy
It’s hard to envision any use for the Kings Inn. It has been rotting away, literally, for almost 35 years now. Any renovation of the building would have to take it down to the steel beams and start anew. And to turn it into a …..?
Fill in the blanks, folks, as I can’t think of any financially viable project at this point in time.
To Smarten: BB states the most likely scenario in the way that only he can do. RI, however, reminds us all that we will just grow old waiting for everything to “be right”. Whatever choice you make, I too hope you stick around.
CommercialLender
I have to agree with BB on Smarten’s 5 yr loan deal: if as RI puts it, he does not want to look back and regret, that’s fine, but a hedging strategy on the debt might serve Smarten well. I would highly encourage matching a long term hold plan with a long term debt plan, but just my opinion.
Smarten, perhaps watch and see and maybe in a year we might have another rate dip, but even with BB’s deflation scenarios, it’s hard to argue that long term rates are not otherwise due to be higher in the future, and 5 yrs comes quick.
Best of luck! And dont’ stop reading and contributing even after you close escrow.
****
Quick update on my biz, I have a number of good clients now, with good, performing notes on multitenant assets that are coming due with maturities in the next few months, who despite low LTVs and decent DSCs (debt service coverage), can’t find refinance loans. In the past 2 business days, I’ve written 2 requests for my own company to extend the loans (good luck on that). This wave is just starting to hit and for the most part, my clients are just starting to ‘get the memo’. I’ll keep you posted, but sadly commercial real estate is quickly getting very ugly.
Move to Reno
This blog will be around for quite some time because there are a number of bright people interested in real estate who post here.
As for me, I’m looking to buy in Henderson probably within a year. It will be for a modest house at under $100 a sq ft. I have family in Henderson and SoCal so it makes more sense than Reno, although in the future I might get a small summer place in Reno.
I’ve lived in Oklahoma for 22 years but it time for a change.
Kings Inn needs a dozer.
reno newbie
hope this blog survives……..has been the only voice of reason for the new residents in reno
geopower
could the Kings be more artists’ lofts like the riverside? I always heard that conversion was a big success and artists’ spaces don’t require as much refinishing once they strip the interior.
Sully
This came out on MarketWatch today, interesting reading (it is a bit off topic).
http://www.marketwatch.com/story/public-enemies-run-not-rob-our-banks
GreenNV
First off, the blog isn’t going away. If it ever did, I have a placeholder site set up to continue the discussion. You haven’t heard the last of Diane, either. She has told me that she will post about her short sale once it closes (as may Allen). Short sales are just too delicate – you don’t want to be keeping a high profile until the fat lady sings and the deficiency judgment deadline has passed.
Do I occasionally put up posts just to fill dead air? You bet I do. I learn more from your comments than you will ever learn from my musings, and you all love to talk. So if a thread has died out and no one else has a post ready to go, I try to put up something to give you a chance to go off on any tangent that is important to you.
King’s Inn – I’ve been doing some more research today. The tax deed won’t result in a tax auction for another year. The opening bid on the entire 4 parcel project will be about $1.5M (there are about $4.5 M in loans on the project). This is sure a case of negative lot value. geopower, your idea is exactly what I think could be the only saving strategy for the King’s, and I’ve run some numbers on it. It’ll never work without public funds, which I think we need to spend. Should be a weird dynamic with the county owning Reno Redevelopment land! This will be a developing story, and I’ll keep you posted on what I hear.
FutureRenoHomebuyer
This is the best real estate blog I have found, bar none. Another noteworthy site is Mark Hanson’s Fieldcheckgroup, but he’s totally focused on California, so one must extrapolate his data and assume Nevada and California real estate are two peas in a pod. I wouldn’t be surprised if many others on this blog are already quite familiar with “Mr. Mortgage”. I presume Nevada’s situation is worse the California (if possible), due to unemployment issues and the heights of the bubble in NV.
Enough of the unpaid public service announcement. Recent blogs by Smarten and the loss of Diane give a signal to all the lurkers and newbies out there to buck up and provide educated, informed, well thought out contributions, to infuse a bit of new blood.
I personally think that the next 3-5 years could bring outstanding real estate opportunities in northern Nevada, and those interested in such would be foolish to walk away from this blog. FWIW.
smarten
Thanks to all for your kind words…and warnings [from BB].
I’m really less concerned about deflating prices than BB. I’ve already shared that our purchase price is 45% less than the property’s original asking price [arguably, bubble fmv]. But it’s also several hundreds of thousands of dollars LESS than the cost to build [and since it represents high end new construction, this fact means a lot to me]. And just to put frosting on the cake, in today’s real estate environment, the home appraised [for loan purposes] for $110K MORE, based upon the comparable sales approach, than our purchase price. And based upon the cost approach; and a land cost that is 42% LESS than the seller paid for the land three years ago, it appraised for $230K MORE than our purchase price!
I agree with CL’s comments regarding long term financing [which really are similar to BB’s]. And thank you both for sharing them. For the benefit of the group, here are our options: 5.375% with 0 points [and no prepayment penalty] on a 5/1 jumbo ARM; 6.5% with 0 points [and no prepayment penalty] on a jumbo 30 year fixed mortgage; or, 6.25% with 1 point [and no prepayment penalty] on a jumbo 30 year fixed mortgage. Although I’m not going to share the loan amount [yet], the 5/1 ARM gives us the option of paying interest only for the first five years, or principal and interest [“P&I”]. The difference between the two options [for us] totals roughly $1K/month.
The fixed rate loans are both principal and interest. The monthly payment on the 6-1/2% loan is roughly $650/month more than on the 5/1 ARM, assuming the P&I option. The monthly payment on the 6-1/4% loan only saves us about $140/month over the 6-1/2% loan. So which option would you exercise?
Although I initially stated I was in favor of the 5/1 ARM, my reasoning was based upon the expectation that within the next five years we’d be able to refinance at a lower [30 year] fixed interest rate. But what if we can’t? Then my “bet” doesn’t pay off.
If it does pay off, can’t we refinance having initially opted for the 6-1/2% fixed rate mortgage option? Sure, we might end up spending $7,800/year [or a lesser amount for a shorter pro-rata period] more in interest. But given the alternative, I now agree with CL that matching a long term hold plan with a long term debt plan makes more sense. Besides, we’ll be able to write off the extra $7,800/year in interest [assuming our President doesn’t eliminate the option].
Another decision to make that has required quite a bit of thought on my part, and the luxury of using the RRB resource as a sounding board. Thank you again!
BanteringBear
One thing that is consistently overlooked by people when running the numbers between an ARM and a 30 year fixed is the actual cost to refinance the ARM once it becomes necessary. This needs to be factored into the equation. Unless you’re looking to sell that house in the next five years, or pay it off altogether, I see absolutely no reason to use an ARM in a period of such low rates- especially given the downside risk in the value of the underlying asset. ZERO.
Reno Ignoramus
Green/Mike, I don’t believe that the 6 months limitations period to commence an action to obtain a deficiency judgment under NRS 40.465 is relevant in the context of a short sale. The statute says that the deficiency action must be commenced withing six month of the date of the foreclosure. If there is no foreclosure, the limitations period never commences. By agreeing to a short sale, the lender effectively waives its right to a deficiency judgment.
Now I am aware of some lenders who are consenting to short sales only if the borrower agrees to execute a promissory note for some portion of the difference between what is owed on the debt and the agreed upon sales price. In such case, if the borrower eventually defaults on the note, the lender would have an action on the note, but this is not the same thing as a deficiency action under the statute, and would be subject to the statute of limitations on instruments in writing, which is six years.
Reno Ignoramus
In the above comment, I inadvertently said the six month limitation statute is NRS 40.465. It is NRS 40.455. I apologize for the error.
smarten
I have to agree and disagree w/RI.
I think he’s right insofar as pursuing a deficiency judgment after a formal trustee’s sale.
But we have to remember that a mortgage is a separate instrument from the [arguable] promissory note it secures. Although a mortgage cannot survive without an underlying obligation, that’s not the case insofar as a promissory note is concerned. So in a short sale situation, a lender may choose to reconvey/release its mortgage WITHOUT extinguishing its underlying obligation. As long as the mortgagee does not execute documentation attesting to the fact that the underlying obligation secured by a reconveyed/released mortgage has been satisfied in full and released, the obligation survives a short sale [especially when the sale is made at the request of the mortgagor]. In other words, there’s no need for a lender to require the mortgagor to reaffirm an underlying obligation the subject of a short sale – it survives and can be enforced the way any other unsecured promissory note can be enforced.
Stated differently, a secured lender always has the option to ignore the security and bring direct action on the security’s underlying obligation – an election of remedies.
Reno Ignoramus
” a secured lender has the option to ignore the security and bring direct action on the security’s underlying obligation.”
Not so, Smarten.
In Nevada, there is the so-called “one action rule.” This rule is set forth in NRS 40.430, which says that “there may be but one action for the recovery of any debt…secured by a mortgage or other lien upon real estate. That action must be in accordance with the provisions of NRS 40.430 to 40.459, inclusive.” In other words, if a loan is secured by a lien on real estate (which under NRS 40.433 includes a mortgage or a deed of trust) the lender MUST complete the foreclosure process, before recovering from the debtor personally.
The secured lender must pursue the security first under the one-action rule. Violating the rule by bringing an action against the borrower before completing a foreclosure vests in the borrower an affirmative defense against the action. NRS 40.435 (2). The lender cannot elect to ignore the security and sue on the note.
In the case of Bonicamp v. Vazquez, 120 Nev. 377 92004)the Nevada Supreme Court said that the lender must complete the foreclosure process or “exhaust the security before recovering from the debtor personally.”
Sorry to get all legal here, but I used to do this for a living.
CommercialLender
Smarten,
Assuming a 30 yr amort, your loan is approximately $900K. That said, your problem here is not unlike many others before you: what if you CAN’T refi in year 5?
Say short term rates are high, let’s say 4.0%, add your spread to the short term index, let’s say 275bps, then amortize that 6.75% rate over the remaining 25 year term. You go from paying ~$4,030/mo on 5.375% I/O payments to paying $6,218/mo on 6.75% all-in rate with 25 yr amort. Now assume 5.0% short term rates: $6,800/mo. Or, 3% short term rates: still a whopping $5,662/mo, which does not favorably compare to your then-currently-expiring rate/payment. 2% short term rates? still $5,130/mo. See, only in very few and limited situations will you be in a good situation. This is why we are where we are in today’s housing market; your situation is just as dangerous!
Now assume that rates do climb, and values fall accordingly. Go ahead and try to refi! Appraisal value comes back where? After 5 yrs of rising rates, you might well assume the value will come in short, so you either can’t refi or you must write a big check at the closing table to pay down the loan amount. Me? I think I’d rather amortize the sucker now and sleep well at night with fixed rate payments. (Oh, and what of your income to qualify then, rhetorical question of course.)
These situations are very real possibilities, so thus my point: match your debt terms to your intended hold period.
You mention no prepay penalties, well that’s standard for single family homes. If the rates come down and you can obtain better long term fixed rate, then and only then do you play the refi game. You’d need to wait a full year to refi, and you’d want to stop first and think about whether the loan on a purchase is recourse versus a refi loan (here in CA…). Also, by all means pay the point going into the house, but not on a refi in most situations (tax reasons, check with your tax advisor). Finally, also check the effect of AMT in your situation as you might be surprised to find some of the tax benefits of interest, prop tax and paying points start to erode if you are AMT liable.
Smarten, maybe a poor choice of words that you used “bet [paid] off”, but now more than ever before, you recognize the sobriety of the decision to take on mortgage debt and how not to gamble the family home on this. A mortgage is a tool to use for you, but it can also be a prybar the lender would use to remove you at a very bad time from your own home. Anyone buying today must reasonably assume the risk they’ll have to hold for a very long time, and therefore they are well advised to seek long term, risk-averse debt. Besides, long term debt rates are still historically very low – if one cannot afford the payments in today’s rate environment, one must reevaluate their decision to even purchase the asset [or at that price]!
Please do keep us informed. Best of luck.
LandLawyer
The one action rule is a trap for the unwary. Here’s the deal for any lender who holds a note secured by real property in Nevada: Think 3 times, no 4 times, before bringing ANY sort of action against a borrower on a loan secured by a lien on real property before completing a foreclosure.
If the lender does not foreclose first, the result can be fairly devastating for the lender. If a lender sues the borrower before foreclosing, and the borower does not raise the one action rule as an affirmative defense, and the action proceeds to a final judgment, the entry of the judgment discharges the lien. Presto, the lender is now unsecured. There is no longer a secured debt, and the lender has no more than a unsecured judgment. In one fell swoop the lender can go from being secured with the right to foreclose and then seek a deficiency, to being the owner of an unsecured judgment. Not a good thing if you are the lender.
smarten
Thanks for the analysis CL –
Your various assumptions are not totally accurate, but they’re close enough [as is your thought process] for discussion purposes. And BTW, the factors we’re considering apply across the board to all mortgages. Thus the factors you identify, are the very ones I’ve been fretting over. Unfortunately, I haven’t had the luxury to fret very long over because of the roller coaster ride we’ve been on given the many complications to which I’ve referred.
Not to disagree with you but for the first five years of a 5/1 ARM, the interest rate is just as fixed as the 30 year fixed rate mortgage. Assuming you pay P&I on your ARM [which is the ONLY way I’d take on an ARM], you save almost $7,800/year over the fixed rate alternative on a $900K loan, or nearly $39K over the first 5 years. Let’s say rates increase after 5 years. Given yearly/lifetime caps and a worst case scenerio, how many years would it take to end up paying $39K more than the fixed rate mortgage? You probably have more experience answering this question than I, but I’m guessing 4-5 years. That means comparing both products, side-by-side, and assuming a worst case scenerio, for the first ten years both mortgages are about equal in cost. Therefore the fixed rate mortgage only begins to make financial sense [as opposed to peace of mind sense] after about ten years.
The reason I referred to hedging one’s “bet,” was because of the underlying intent to refi. With no prepayment penalty [see below], one can refi just as easily out of a 5/1 ARM versus a 30 year fixed rate mortgage. But if rates don’t go down enough, come year six [or possibly ten (see above)] you’re protected with the fixed rate loan.
You state we’ll have to wait a year to refi if rates come down. Although I haven’t yet seen the final loan docs, my mortgage commitment letter states no prepayment penalty ANYTIME. Given I’m aware of lenders who still apply prepayment penalties during the first four years of a loan [whenever more than 20% of the loan amount is prepaid (so I don’t know how “standard” a no prepayment penalty provision is)], I think a no prepayment penalty provision is a good thing.
Because the non-recourse purchase-money versus recourse refi distinction you raise doesn’t exist in Nevada [all mortgages are potentially recourse], there are few reasons [see below] to “stop first and think” before refinancing.
Your AMT observations are valid and may very well invalidate any income tax benefits realized by paying more mortgage interest. But the overriding factor for me is really the peace of mind to which you refer.
You state “by all means pay the point” [going into the house] in order to drop the interest rate. But I can’t see paying a point to drop a fixed rate loan by only 1/4%. Using your $900K loan assumption, a $150/month savings translates into 5 years of reduced payments just to repay yourself the point. Doesn’t make too much sense to me.
Finally, you bring up a very valid factor to consider; what if rates come down and you CAN’T qualify to refi? Although you generally assume the loss of equity, I’m worried about your rhetorical question: what of your income to qualify then? As a self-employed person, it has been extremely difficult for my wife and I to qualify for this mortgage – not so much because our income isn’t reflected on our income tax returns and supporting documents, but rather, because the overwhelming majority of lenders disregard all sorts of income you can document if it isn’t “taxable.” And then of course, there’s the question we all face; in the years ahead, will our sources and levels of income remain at the levels they were for the last two years? Another “bet.”
So all-in-all, if you’re of the belief long term rates have nowhere to go but up; but you’re hoping for jumbo mortgage rates to go down as a secondary market hopefully resurfaces; you’re taking a risk – one which can be minimized now by opting for the fixed rate option. I think that was your original point and one I’ve now come to share.
As an anectodal note, my first mortgage was secured 36 years ago. I purchased a new home and the developer had secured special below market pricing – 7% [with a 1% origination fee] on a 30 year fixed rate mortgage. So I don’t think a 6-1/2% 30 year fixed rate with zero points for a jumbo loan in today’s environment is really that bad.
big baby
smarten = -15% equity by years end..
not so smarten after all
FutureRenoHomeBuyer
Smarten was able to get a 5/1 ARM Jumbo with interest only option. Documentation appears a bit of a stretch, as he/wife are self-employed. Am I pushing it by calling it a low-doc (aka Alt-A) loan?
So, has anything changed? It seems the same loans that got us into this mess are still being written (probably this time with the full faith and backing of the US Govt — aka you and me).
Doesn’t make me optimistic about the future of this financial mess. Smarten, I apologize if I’ve inferred incorrectly, and am happy to hear where I erred.
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daily
Off topic, but would someone be kind enough to explain (in layman’s terminology) why an owner occupied property would sign an agreement of “assignment of rents” with their lender? I come across this type of documentation once in awhile and don’t quite
get the reasoning.
Thanks in advance.
Tom
Daily, it is usually part of the total `adhesion contract’ meaning it is among all the docs the lender requires signed as part of making the loan. Owner/borrower doesn’t have to sign it, but then lender doesn’t have to make the loan, either. It protects the lender to the extent that borrower/owner moves out, rents the property, thus theoretically the rental income belongs to the lender as additional security for the loan, and is deemed assigned to the lender. Consequently, the lender could if required assert a constructive trust as a remedy over rental receipts in hands of the borrower. Normally this is not relied upon, just the security interest in the property is relied upon; however, if a deficiency judgment were sought, this would provide another cause of action.
Typically an “assignment of rents” provision is included as part of the terms of the deed of trust, rather than becoming a separate document.
smarten
Future, I think you’ve erred [and thanks for apologizing in advance if you have].
One doesn’t get a jumbo loan in today’s mortgage marketplace unless one places at least 25%-30% down and can document EVERYTHING. Nor was there anything “stretchy” about our loan documentation. Two years of income tax returns; copies of K-1s; copies of 1099s; two years of one of my partnership’s income tax returns [one in which I have more than a 25% interest]; copies of bank account statements; copies of retirement account statements; copies of note receivables [we invest in income producing deeds of trust]; copies of residential rental agreements [we’re landlords]; etc., etc. So where are the “low docs?”
We did NOT seek out an interest only option mortgage. It just so happens Wells Fargo Bank offers the feature on its 5/1 ARM product. Is that a mistake in today’s marketplace? Probably. But I am only reporting what’s being offered. And nevertheless, this does not mean we intend to take advantage of the I/O option [because as CL has pointed out, it comes back to bite you 5 years down the road]. And don’t forget; two other features this mortgage DOESN’T offer are the potential for negative amortization nor extending the 30 year loan term.
And did I mention, hardly ANYONE is able to obtain a reasonably priced jumbo mortgage any longer?
So I think things have changed quite a bit.
And all my financial comparisons are between a fully amortized 5/1 ARM and a fully amortized 30 year fixed rate mortgage. So I don’t see how Baby makes the observation -15% equity by year’s end unless he’s talking about the property dropping further in value. But then this is unrelated to the mortgage thereagainst.
quiver
I guess that I am not one of the highflyers that frequent this blog. The thought of taking on a $900,000 mortgage makes me shake. The thought of a $5000 a month payment makes me shake more. Is it ok for peons to post here?
RRB Fan
smarten said his loan options were as follows:
5.375% with 0 points [and no prepayment penalty] on a 5/1 jumbo ARM;
6.5% with 0 points [and no prepayment penalty] on a jumbo 30 year fixed mortgage; or,
6.25% with 1 point [and no prepayment penalty] on a jumbo 30 year fixed mortgage.
For regular banks theses rates are competitive but are NOT the best out there. Look at PenFed’s current rate for super jumbo loans from $750K to $2M with a 70% Maximum LTV for NV:
5/5 ARM @ 4.750%, 0 pts
30 yr 5.375 0.000 0.000 4.671
RRB Fan
oops posted too soon …
30 yr fixed @ 5.375%, 0 pts but 1% Origination Fee (effectively 1 pt)
Note they also offer at 5/1 ARM at 4.75% with 0 pts. In addition, they have a no lender fee offer where “PenFed pays credit report, flood search, tax set up and appraisal fees. We pay settlement attorney fees if one of our preferred settlement providers is used.”
The only loan costs are title insurance and none of the loans have a prepay penalty. Anyone can join by making signing up for the MOAA for $15.
PenFed is a large institution and is very conservative; however, their service has been great for the six years that I have been a member.
DownButNot Out
Smarten, I’m curious – I didn’t hear what the long term goals were for your new house – keep it and pay it off over 30 years? or reassess in 10? Or maybe building equity for full retirement in 15 years when downsizing is the plan? I would think each scenario – and the many in between – would add to the overall thought process for financing. Each time you refinance the 30 year clock starts again. It must have been a sweet day when that first mortgage was paid off.
I think your reasonong on 5/1 loan is sound, but I for one like the security of a fixed loan with no prepayment penalty. FWIW.
BanteringBear
GreenNV posted:
“You haven’t heard the last of Diane, either. She has told me that she will post about her short sale once it closes (as may Allen). Short sales are just too delicate – you don’t want to be keeping a high profile until the fat lady sings and the deficiency judgment deadline has passed.”
The majority of short sales don’t work out. There’s a good chance neither of these will, either. What’s been talked about before, is that banks will wait until closing time, then produce a promissory note for the difference as part of the documentation, requiring the seller to sign in order to close. Why somebody would sign it, is beyond me, but the bank probably thinks that the pressure of the moment will get them the signature. Foreclosure is often a better option for the sellers. It’s my understanding that the banks won’t even consider a short sale until payments have been missed so perhaps these homes are on their way to default already.
big baby
smarten= -15% equity by years end
no so smarten afterall