There has been a lot of public discussion whether the new Homeowners Bill of Rights (Nevada Law SB 321) will open up short sale transactions that are not considered “arms-length transactions”. The term “arm’s length” means that a sale does not occur between principals who are close relatives, those with existing business relationships, straw-buyers etc. The theory is that the buyer and seller do not have other incentives influencing the transaction. An example would be sellers in a Las Vegas short sale selling to their parents in order to buy the home at a later time. Under this scenario, the parents would be incentive to get the lowest price for the children to buy back later. It is easy to see how a bank taking a loss on the mortgage would see that as not in the bank’s best interest.

The banks who hold the mortgages on upside down properties generally have the principals in a sale (buyer and seller) sign agreements stipulating the sale is an arm’s length transaction between essentially unrelated parties. Once these agreements are signed, the principals are bound by the terms and subject to breaking federal bank fraud laws if they are found to have violated the terms of the arm’s length transaction agreement. One of the most eagerly monitored items was the expectation that SB 321 was going to prohibit banks from imposing arm’s length transactions in Nevada. The following statute in the bill addresses this issue:

Sec. 16.5.

1. No provision of the laws of this State may be construed to require a sale in lieu of a foreclosure sale to be an arm’s length transaction or to prohibit a sale in lieu of a foreclosure sale that is not an arm’s length transaction.

What is missing is there is no language barring arm’s length transactions. I am not an attorney and I am not offering a legal opinion. This is simply my opinion as a real estate professional after consulting with attorneys as well as reading the bill myself. It appears the State is communicating legislative intent that a “sale in lieu of foreclosure” (short sale) that is not an arm’s length transaction is essentially welcome.

This falls considerably short saying banks cannot require the “arm’s length agreements” in Nevada.

There have been plenty of local attorneys and real estate agents putting out a narrative that under SB 321 banks cannot require an arm’s length transaction agreement to be signed. While not really true,  this tactic gets their phones ringing from potential clients, and that is always the goal when trying to get new business.

My consultation with attorneys indicated that the State of Nevada does not prohibit short sales which are not arm’s length transaction. The bottom line is that nothing has changed; signing an arm’s length transaction agreement while trying to do a short sale remains voluntary between all parties. The seller isn’t required to sign and the bank doesn’t have to require one, though they usually do. If the bank agrees to the sale without a signed “arm’s length”, and a seller has provided honest personal and financial documentation, there is nothing illegal about doing a short sale that is not an arm’s length transaction.

Here is the rub, if you want to attempt to do a Las Vegas short sale that is not an arm’s length transaction you’ll have to be up front about what you want to do and try to get your short sale approved without ever signing an arm’s length transaction agreement.  If I have a seller inquiring about what their options are, they should consult an attorney and if they need an attorney recommendation, I can recommend attorneys I have worked with in the past they can consult for free.

Disclaimer: This article is not meant to construed as legal advice and all sellers considering a short sale should consult with an attorney and seek professional tax advice as well.

Shelter Realty, per our lease agreements, requires all tenants to purchase renter’s insurance.  Many tenant’s inquire as to why we require them to purchase rental insurance.  Laurie Yakubik with Farmer’s Insurance has provided the following information about the importance of having renter’s insurance.

HOW RENTERS INSURANCE HELPS COVER YOUR VALUABLES

Imagine a moment you’ve just returned home from a long day at work to find there’s been a fire. Everything you owned has been destroyed: your flat-screen TV, computer, furniture, books, game consoles, CDs, jewelry, collectibles and clothing. Where will you stay until your home is renovated? Who will pay to replace all your belongings? Not your landlord.

A Farmers renters policy can be the answer. It provides coverage to help you to replace your lost or damage items. If you suffer a covered loss, we’ll reimburse you for your lost or damaged items. And if the loss makes your home uninhabitable, we’ll also pay for the additional living costs for hotel, meals and related expenses.

Renters policies are very affordable, generally ranging from $12-$20 each month. For less then a dollar a day, you can have valuable insurance coverage!

BENEFITS

• Personal property coverage
• Personal liability coverage
• Additional living expenses

OPTIONAL COVERAGES

• Personal articles floater
• Jewelry, furs, fine arts

For more information on renters insurance, feel free to give Laurie Yakubik a call at 702-456-8119 or visit her website at http://www.farmersagent.com/lyakubik

Las Vegas Real Estate: Foreclosures Only 7% of Available Residential Listings

As of this writing, the Greater Las Vegas Association of Realtors Multiple Listing Service (MLS) showed a total of 8,793 active Single Family Homes, Town Homes and Condominiums available with no offers. Here is the breakdown:

1. 649 foreclosure listings which comprise 7.3% of all listings
2. 1,338 short sales which comprises 15.2% of the market
3. 1,987 distressed sales (short sale + foreclosures) which equates to 22.5% of the market
4. 6,806 listings are traditional sales which make the up 77.5% of the market

The University of Nevada-Las Vegas’ Lied Institute for Real Estate (pronounced “LEED”) reported in its Housing Market 2013, 2^nd Quarter (displayed above) there were an estimated 72,737 vacant properties in the Las Vegas area. This is a vacancy rate of 9.4%. It is clear from the numbers of listed homes as compared to the overall vacancy rate in the Las Vegas real estate market that there is still a sizable shadow inventory that exists.

Another interesting component of the overall health of the market is new home sales. According to Lied’s Oct 2013 Market Conditions Report, new homes sales were down 77% from last year at this time. You may be wondering what new home sales would have to do with the amount of foreclosures. The relevancy is that still 41% of homes with mortgages are under water (UNLV LIED INSTITUTE FOR REAL ESTATE STUDIES, REPORT ON NEVADA HOUSING, OCT 2013, PAGE 16). The prospect that prices have peaked means that those yet hoping to get bailed out by rising prices are unlikely to see that scenario pan out, leading to more distressed sales.

If this data correctly suggests that prices will stall or decline once again; then the action buyers and sellers should take is pretty clear. If you were thinking of selling now is a great time to lock up your equity. If you’re looking to buy, you’ll need to look at this market very honestly when deciding whether or not to enter.

The Las Vegas real estate market has seen a run up of about 32% across the board over the past year according to several sources such as Zillow.com and Greater Las Vegas Association of Realtors released for the month of August 2013.

During the past three months there have been some fundamentals in the market that causing concern to a growing number of persons attuned to the Las Vegas Real Estate Market.

• Las Vegas’ unemployment rate remains high. According to the Bureau of Labor Statistics the unemployment rate in Las Vegas declined from 9.7% to 9.6%. That figure of one tenth of one percent equates to about 1000 persons. Unfortunately 5,000 workers left the job market and are no longer considered part of the equation so although the rate dipped the actual number of persons without work actually increased. Las Vegas trails only Detroit in the highest unemployment rate of major metropolitan areas.

• Interest rates currently held down by Quantitative Easing (the Federal Reserve pumping money into the economy by purchasing bonds and other assets). Currently, the Fed buys 85 Billion dollars a month or over a trillion per year. Printing that much money will eventually stop and interest rates are then expected to rise. Remember, to the average home buyer getting a loan, a rise in interest rates erodes their purchasing power. This point goes to affordability. Since payments go up when rates go up, the amount a borrower can then qualify for goes down. In essence, the Affordability Rate goes down.

• The Wild Card, Investors – During 2010 through early 2013 as much as 50% of the purchases were made in cash, which most likely indicates investors and not long term homeowners. Las Vegas Realtors during 2012 were bombarded by institutional buyers such as hedge funds seeking to purchase homes directly off the Las Vegas MLS. The pitch was that these buyers were looking for a 5-10 year hold period for the assets they purchased and were mostly interested in attractive rents. Even Wall Street didn’t expect to see 30-60% gains in values in less than a year as some neighborhoods subsequently appreciated. It cannot be understated that as quickly as these investors came in, they could pull up stakes and leave by selling their assets. These owners are not here for the long term, they came simply to make money. If values were to go down, these investors would have to head for the door to protect their gains. Once that happened the market could become flooded with inventory.

• Inventory is up and closings are down. One thing appears fairly certain from my view, there is no upward pressure on Las Vegas real estate prices any further. The only question seems to be whether they will stabilize at current levels or begin to decline again. Sellers if considering selling their home may well be choosing a great time to sell.

I spoke with one of our property management clients today and he inquired about selling his Las Vegas home but he wanted to know if he had to wait till the tenant vacated the property before he could sell.  This was the second time I was asked this question in the last two weeks.  Any Nevada landlord has the right to sell their investment property whether the property is occupied by a tenant or not and the tenant is required to give the landlord reasonable access to show the property.

Usually, our tenants agree to cooperate with showings when they are notified the landlord has decided to sell the property but they do have numerous questions such as:

1. Do I have to move? No, you have a valid lease and the lease will transfer with the sale of the property.
2. Do I have to let people in to see the home?  Yes, our lease requires you to allow reasonable access to the property for showings to prospective buyers.
3. Am I required to have a lock box on the property? No, we understand that you don’t want strangers walking through your home when you aren’t present so all showings will be scheduled with you.
4. Can I buy the home?  Yes, as long as the owner accepts your purchase offer.

Occasionally we will get that tenant that states they don’t care if the owner wants to sell and they have the right to quiet enjoyment so they will not allow anyone access to the property.  At that point we will explain that their lease explicitly states they have to give the landlord reasonable access to show the property to prospective buyers.  Lastly, we will point out that NRS 118a.330 states the following:

A tenant shall not unreasonably withhold consent for the landlord peaceably to enter into the dwelling unit to exhibit the dwelling unit to prospective or actual purchasers, mortgagees, tenants, workers, contractors or other persons with a bona fide interest in inspecting the premises.

If the tenant still refuses to give access to the property, we will post a 24 hour notice to enter the property during normal business hours.  Luckily, we have never had to post a 24 hour notice to show a property to a prospective buyer as most of our tenants understand the owner has the right to sell their property and cooperate.

If you have any questions about selling your Las Vegas investment property or are in need of a property manager, give me a call at 702.376.7379.