Las Vegas Short Sales Continue to Rise As Banks Avoid Foreclosures

We have repeatedly discussed the various effects of the passage of Nevada Assembly Bill 284 on the Las Vegas real estate market.  The most notable has surely been the rapid decline in foreclosures as banks struggle to comply with the mountain of red tape placed on the foreclosure process by AB284, including the infamous “personal knowledge” making it a felony for bank employees to sign foreclosure documents if they do not have personal knowledge of who owns the promissory note.  Another result of this bill has been a steady rise in short sales.  Ticor Title of Nevada reported that 47.1% of all December home closings were short sales, compared to only 9.6% for REOs, or post-foreclosure bank owned properties.  This is a complete reversal of sales trends in Las Vegas only two years ago, when the majority of closings were REOs and banks were still very hesitant to approve short sales.

Many experts are now speculating on the possible effects of AB284 on the “shadow inventory” of foreclosures that have been widely rumored to exist in the Las Vegas valley.  Some, like Zolt Szorenyi, CEO of Lenders Clearing House LV, believe that the shadow inventory may never materialize, “AB 284 is not going away. That means banks are not going to come back with shadow inventory. It's not going to happen.”  Szorenyi continues, "The new phenomenon is there is no shadow inventory. They're selling notes to Condor (Capital) and doing short sales."  On the other hand, Travis Olsen, president of Loan Resolution Corp., a Scottsdale, AZ based company specializing in distressed mortgages and real estate, believes that there are more foreclosures on the horizon for Las Vegas.  He says, “I think the vanishing inventory of foreclosures is due in part to the National Mortgage Settlement and you're seeing a temporary decline in foreclosures.  That said, there are more defaults and foreclosures to come. We're not out of the woods yet. We'll continue to feel pain for the next couple of years, though increases in prices will help ease that pain.”

There is some question as to whether AB 284 will be modified in the upcoming legislative session, and, if so, how substantially.  Lending institutions and professional real estate organizations are pushing for changes to the bill that they say has the potential to create another bubble-like real estate environment in the Las Vegas market, where the median home price has already risen over 20% in the last year on what  experts believe to be “artificially” low levels of supply.  It will be interesting to watch what effect, if any, this lobby will have on the Nevada Assembly and if any modifications to AB284 will be forthcoming.