Once a buyer and seller agree on the terms of selling real estate, the “escrow period” begins. Usually a deposit is placed with a title company. While the buyer gets things like inspections and HOA documents to look over, the mortgage people start working on their paperwork, and a mysterious “escrow officer” begins a very important set of jobs.

Even though it could be handled separately, in Nevada the title company and the escrow company are usually the same place and one set of people does both tasks.

As the “escrow” staff, they act as a third party between the buyer and seller to make sure that all the money is impartially accounted for. They make sure that all the documents are in order, that everybody’s name is spelled right, that the numbers add up correctly. They arrange to have a notary on hand for signing documents. They make sure that everybody signed and initialed in all the right places. Once everybody has signed and the mortgage money has come in, they make sure the seller is paid and the new deed recorded at the county offices.

As the “title” staff, they have the very important job of making sure that the seller gives “clear” title to the buyer. Clear title means that the new owner really owns it, with no mysterious debts from the past attached to the property. In short, it means the new owner can sell the property. The title officer checks to see who owns the property, who used to own it, whether there are any restrictions on how the property can be used, what liens may be against it, if there is an outstanding mortgage and to what bank, whether there are fees owed to the homeowners association, whether the taxes are up to date, and a dozen other details.

They stand behind their findings with something called “title insurance.” The buyer and seller will each have their own title insurance policy. Because in some ways the buyer’s policy protects the buyer’s mortgage company, it is sometimes called the “lender’s” policy. Title insurance protects against a variety of problems from bad and forged deeds to property tax issues. However, just like most other kinds of insurance, there is more than one level of protection. While exact policy details may vary, there are 2 basic kinds of policy: CLTA and ALTA. The ALTA policy in turn has two basic forms: residential and extended. ALTA does cost a bit more, but it covers a lot more too. As a REALTOR, I generally recommend ALTA coverage. However, if you have questions about exactly what coverage you need, it is a good idea to ask your local title/escrow officer.

Some of the details I have mentioned are specific to Nevada. For questions about how things work in your state, call a local REALTOR. To learn more about real estate in the Las Vegas Valley, be sure to check in with BridgetMagnus.com every Friday for Friday Figures.

With the Treasury predicting that millions more foreclosures are coming, it is clear that the markets will be dominated by the banks for some years to come. While foreclosure filings are up month-over-month, they are thankfully slightly down over last year.  No surprise that Nevada has the most foreclosures, although an 8% drop from last month is impressive.

The Review-Journal has chosen to spin our sales and availability numbers in a negative light, telling us that both sales and prices are down. However, even they have to admit that once you take pending and contingent sales out of the figures, actual inventory is down. A bright spot is the media coverage of short sales, which done right do save families and banks money by preventing foreclosure. Remember, it’s called a “short sale” because the bank will be “short” money at the end.

Foreclosures aside, we also have a big problem moving high-rise condos. This is particularly true of the developments on the Strip itself, where resale prices are down 50-70%. Great deals can be had for cash purchasers who want to be in the middle of everything.

Many newer communities across the nation have homeowners associations (HOA), landscape maintenance associations (LMA), or some other type of Common Interest Community (CIC). For some years, Nevada has required that buyers in any sort of CIC get a chance to inspect the rules before buying. It’s only fair, because these rules restrict the way owners can use their property.

However, the “CIC Resale Package” as it is known often costs several hundred dollars. Who pays for it? The law used to be unclear, and many banks and short sellers demanded that the buyer (or more likely, the buyer’s Realtor) pay for it. This made for a sticky situation if the sale fell through. If the buyer doesn’t like what he or she sees in “the package” he/she has the right to cancel the deal and get the deposit back, but the expensive package itself is bought and non-refundable. At least if it were owned by the seller, the buyer could send it back and it could be used for another offer (in most cases).

A new law passed by the 2009 legislative session clears things up: effective June 9, the seller pays for the resale package, period. There is no room for debate.

If you are buying a home in an HOA, LMA or other common interest community, remember that the law says they have to put the rules in your hands, and they have to pay to do it. Some listings still say the buyer will pay, but I expect these to be corrected in a matter of weeks. Insist that the seller follow the law.

First, from the “I sure hope so” files, we have the prospect of a high-speed train between Vegas and Los Angeles.  The Governor of Nevada is asking President-Elect Obama to consider it for part of his stimulus plan. The Governors of both Nevada and California endorse the plan. I think it’s a great idea that will help tourism in both cities.  It will save time and gas.  Furthermore, a stop in Jean is just what the not-yet-constructed Ivanpah airport will need!

Now, a little warning about winter weather. In an unheated home, if temperatures get below freezing, pipes can and will freeze and break!  This can cause thosands of dollars of damage. Since roughly half of the 17,000 available homes in the Greater Las Vegas MLS system are vacant, it’s a risk near you. Realtors, check your personal listings and your pending sale listings. Neighbors, keep an eye out for signs of problems if there are vacant homes near you. I know a lot of sellers don’t want to “waste money” heating a home nobody is living in, but it’s well worth while if it keeps the house’s value from being destroyed by water damage.

As bad as the foreclosure mess has been in residential real estate, we may be just beginning to see a wave of problems in commercial real estate.  Several chains have announced permanent closures. There are of course also small retailers that are being driven out of business by the current state of the economy.  That means there will be lots and lots of vacant retail space in the coming year.  How prepared are the owners to weather extended high vacancy rates?

And finally, this Las Vegas Review Journal article about mortgage “walkaways,” where people just stop paying and let the bank take it back. Things have gotten bad enough that some mortgage brokers are doing it too!

I hope everybody is enjoying the Holidays!  Merry Christmas and Happy Hannukah!

I’ve been hearing a lot of ads on the radio lately for a website called RentalForeclosure.com. The ad does tell the truth about tenant’s rights during a foreclosure: the tenant has very few rights. Nevada does have a loophole for those (rare) cases when the tenant’s lease pre-dates the landlord’s mortgage. It also appears that Nevada is considering additional protections for innocent renters.

Here’s the problem:  legal notices are served to the owner, not the property itself, until the foreclosure is complete. That means the person living in the property might not know anything is wrong until the bank’s representatives show up with a new set of locks for the front door!  Often, the renter will get just a few days notice.  Another twist on the problem is a scam where an unscrupulous “landlord” leases out a random vacant property to someone who thinks they are getting a great deal on a rental. And it is a great deal, until the real owner (usually the bank) shows up.

So what can you do?

First, arrange your rental through a licensed property manager.  Property managers in Nevada are real estate agents — Realtors — who have gone through additional training and have an additional certification to manage rental properties.  The first thing these managers do is make sure the property in question is actually owned by the person who says they own it, and that it is not in foreclosure.

Second, if you don’t know the status of your rented house or condo and you live in Clark County NV, visit the Clark County Website and select “property lookup” from “online services.” Search for your address.  The search will give you the property’s APN or parcel number, which is how the county keeps track of individual properties for tax and recording purposes. From here you can verify the owner, and such.  Use your computer’s “copy” function on the APN, and go to the Clark County Recorder’s website. Select “Search Records”, and then choose “Advanced Search.”  Enter the APN where it says “ParcelNum”, remove all the dashes from the number you pasted, and click on the “Detail Data” button below.  If the most recent entry is something like “breach” or “notice of trustee sale” or “notice of default”, you have a problem and need to call your landlord immediately. Unless there’s a really good answer, start planning to move.

And one more thing,  just because the landlord is in default doesn’t mean you can stop paying the rent.

Although I don’t normally handle rentals except under very special circumstances, I will happily recommend a colleague who does upon request.

UPDATE: Many thanks to the House of Representatives for making almost everything below obsolete by defeating the bill. Since some reincarnation of it is almost certain to ensue, it’s still a good idea to let your Congresscritters know what you think. Here’s some ideas about what the bill should say. It is worth noting that according to CNBC, Wall Street is just shocked that this thing didn’t pass (as I write, the DJIA is still/again down over 500 points). I’m just shocked that they’re just shocked that Congress did constituents wanted instead of what lobbyists, the Administration, and some wealthy financial institutions wanted.  It is 5 weeks before a national election, you know.

Here’s what I wrote to my Senators, supporting links added for your benefit:

As more details about the proposed Bank Bailout are known, the more insane it looks!

Not only does it give vast powers to the Secretary of the Treasury, not only does it do very little to help homeowners in Nevada and elsewhere keep their homes — I hope you have not forgotten that the Sun reports 1 out of every 91 Nevada households is in the foreclosure process — not only are economists on the right and left convinced it could make things worse, not only does it do nothing to keep bank executives from running off with excessive final paychecks while normal employees and depositors get the short end of the stick.

I am now reading that reserve requirements for some banks may be reduced to zero! That’s called “insolvency” by most people, Senator.

Further, the stock shares that the government will take in return for the “free money” in the bill won’t even be voting shares! For pity sake, if Joe Average buys 100 shares of a bank, he’ll get more of a vote than the entity giving them millions or even billions of dollars? I don’t think so!

This bill is bad for the American people, bad for the American economy, and bad for any Senator who hopes to be re-elected.

If you want to read the thing for yourself, a link to it is at Economist’s View. If you have a viewpoint you would like your Congresscritters to know about, grab a peice of recent mail with your Zip+4 on it so you can look up your Representative on the House website.  As I write, the House site is particularly slow, since thousands of people are all trying to reach it at the same time.  Remember, your Rep probably has a local phone number that you can call.  All you’ll need to get hold of your Senator on that site is to know what state you live in.  Feel free to copy/paste if you like what I wrote.  If you aren’t in Nevada, you might want to talk about your own state in that sentence.

Fannie Mae and Freddie Mac are now officially subsidiaries of the Federal Government. Because we all “know” that it is best to minimize government involvement in the private sector.  Ok, strictly speaking they are not “subsidiaries”, but rather they are in “conservatorship” managed by the FHA.  TheStreet.com also tells us that “The current CEOs of the two firms will depart after a brief transition. At Fannie Mae, CEO Daniel Mudd will be replaced by Herb Allison, former vice chairman of Merrill Lynch… and chairman of TIAA-Cref. At Freddie Mac, CEO Richard Syron will be replaced by David Moffett, former vice chairman and CFO of US Bancorp…. Allison and Moeffett’s ‘compensation will be significantly lower than the outgoing CEOs,’ said Lockhart.”

Something that makes me nervous about the plan is that the government will be buying Mortgage Backed Securities from Fannie and Freddie.  Regrettably, it is now difficult to figure out just how secure those securities are.  As many funds and companies have found themselves behind the 8-ball as a result of these MBSes, what happens if the United States Government ends up in over their collective heads?

It’s all part of a massive, four-part, rescue plan that will cost taxpayers tens of billions of dollars. Tens of thousands of millions of dollars, if you prefer. And remember, we “have to” bail them out — after they spent years trying to circumvent the regulations that should have kept them out of trouble, and outright lied to investigators — because of the massive fallout that letting them fail would have on our already-troubled housing market.  Personally, I am willing to go out on a limb and say Phil Gramm is probably ultimately to blame for this.

I honestly figured they would wait until Monday morning.  However, this way, all the bad news is out there ahead of the NYSE opening tomorrow morning at 9:30 EST.

Also in today’s Federal Takeover News, Silver State Bank has been shut down by the FDIC.  It’s the 11th failed bank this year.   Interesting take on it here, from somebody who remembers the Savings and Loan crisis of the 1980s. As with IndyMac, if you have pending business with Silver State Bank– accounts, mortgage application, buying property they own — you will want to check status and develop a backup-plan on Monday.

The World’s Highest Porta-Potty.

That is all.

I guess the Hulkster won’t be taking that penthouse condo after all. Maybe Jesse Ventura wants it?

Las Vegas can make a museum out of almost anything.

Guess what state is NOT on the list of 10 most expensive places to get homeowners insurance?  Nevada!

If you are trying to get money out of your house, make sure you understand the difference between a cash-out loan and a reverse mortgage.

Have a great weekend!

Details of the foreclosure rescue bill passed by Congress and awaiting President Bush’s signature are coming out. Before we take a closer look, keep in mind we have 2.2 million vacant homes on the market, sales of new homes are plunging, and the trend of increasing foreclosure rates shows no sign of stopping.

Back to the bill. First, it won’t come into effect until October. If things continue as they are, there will be another 700,000-1,000,000 foreclosed homes on the market by then. The bill is estimated to help about 400,000 people (a little more than half the number of homes in the foreclosure process in the second quarter of 2008).

It will only apply to owner-occupied homes with mortgages dated 1/2005-6/2007 (one 30 month block). It will do nothing to help renters who dutifully pay rent and live in homes with defaulting mortgages. The homeowner has to prove that the mortgage payment is at least 31% of their monthly income, and that they won’t be able to afford paying it anymore.

Now, here’s the deal-breaker. The old mortgage company has to agree to write down the loan to 90% of the current appraised value and forgive the remainder. CNN correctly points out “that will mean a substantial loss for the lender.” A new mortgage company issues a new loan for that 90% (some sources are saying only up to 85% — where is our cash-strapped homeowner going to get that 5% difference?) and the old mortgage company has to accept it as full and final payment. One of the mortgage companies has to pay FHA a 3% insurance premium up front.

As for the homeowner, they will have to pay an insurance premium to the FHA every year of 1.5% of the principal. In addition, they will have to share any profit on the house with the FHA (100% the first year, declining to 50% after the 5th year, plus a 3% exit fee). The homeowner also must accept strict limits on equity loans.

For the sake of argument, let’s flesh out these numbers. If you own a median priced house in Las Vegas, the nice folks at HousingTracker say it’s worth $225,000. Scroll down for historical median prices. Let’s assume the mortgage originated in the middle of the 30 month window, March of 2006. Median prices then were roughly $325,000. For the sake of argument, say you had a 90% LTV, or a mortgage of $292,500.

Assuming you actually meet all the other qualifications, your mortgage company would have to agree to write down what you owe to 202,500 (lose almost $90,000 — the principal has come down a little since then unless you have an interest only loan). The local experts in bank-owned properties tell me that it costs a lender $60,000-80,000 to take a foreclosure to completion., so they really only have to bet that prices won’t decline another $10,000-$30,000 over the course of 6 months to come out ahead by refusing to play along. This bet becomes even better for your mortgage holder if you financed 95% or more of your home’s value.

But let’s also look at why this deal might be bad for you. First, somebody is going to pass the 3% FHA insurance origination fee on to you. That’s $6075. Plus there is the annual 1.5% insurance fee that will be tacked on to your payments, $3037.50 annually ($253.13 per month). And even if you sell your home 20 years from now, you will still owe the FHA half of any profits you may make on the place.

Rest assured, this deal is not a bailout. It doesn’t help much of anybody.

I’ll leave you with a couple of local interest items: 2 Nevada banks taken over by the Feds; and a Nevada court upholds term limits.