If you are excited to read that headline, you aren’t going to like what follows.

For the rest of you, let me back up and briefly explain what “hard money” is all about. In short, hard money is a loan it would be “hard” to get anyplace else. According to eHow, “A hard money lender is a person or institution that offers loans, usually for real estate, with low credit restrictions but high rates and fees. Hard money lenders are often considered borrowers of last resort for those who are facing foreclosures or needing loans under abnormal conditions. Due to the high prices associated with hard money lenders, they are generally not a borrower’s first choice.” Wikipedia has much more on the topic.

The Las Vegas Review Journal reports that hard money lenders are in trouble here in Nevada. They’ve been stung so hard by foreclosures that they in essence want ways around state law and state regulations. Specifically, they want the right to manage real estate without either a real estate license and the additional real estate management permit required by law (NRS 118A), and they want to over-ride a privacy law prohibiting investors from having the contact information of other investors in a given project.

While I think it is probably a good idea for investors in one project to be able to communicate with one another, I think it would be a bad idea to let these investors (particularly out-of-state investors) manage property without a license. A good property manager not only knows the law and collects the rent, she or her staff is available to handle emergencies (NRS 118A.260), her actions prevent damage or degradation of the property, and in many cases she can even add value to a property through practices that maintain a high occupancy rate. This is good both for tenants and the investors. It’s even good for the neighbors.

Sure, it will cost some money to do the job right and follow the laws that were enacted to protect all Nevadans. That’s the cost of doing business.

Two little news bits for you.

First, the Senate has attached an extension of the $8000 first time buyers tax credit to a bill extending unemployment aid and passed it unanimously (some restrictions apply, of course). The House of Representatives still has to vote on such a proposal, but a compromise is already in the works and it seems likely they will go along. Update: A bill has passed and will likely soon be signed into law. I know I should be really happy about this, but I have reservations. First, how many qualified first time buyers are left? Second, by continually extending the credit, urgency is lost. Buyers are left wondering if Congress won’t pass a better deal next year! Finally, assuming that urgency is not lost, it adds froth to the market. We have roughly 15,000 pending sales in the Las Vegas Valley; you can’t tell me that’s a normal level.

The second item is undeniably good news here. Clark County wants to raise the fines for not keeping property in good condition. Currently, the fine is $50-200 per day and a maximum of $10,000. They want to raise it to $1000 per day for a maximum of 2 years.  We aren’t talking about mowing the lawn and stuff like that. We’re talking about truly neglectful property owners who allow their properties to become dumping grounds or unsafe places. While some say this is likely to be used against the elderly and the infirm, it will most likely be used against banks who allow foreclosed property to fall into ruin. If you have an opinion that you want heard on this matter, a vote is scheduled for November 17, 2009.

Interesting side note on our County Commission: one of our commissioners won’t be seeking re-election because he is running for Governor next year. His name is Rory Reid. Yes, he’s Senator Harry Reid’s son.

Hope everyone is planning on dropping by again for Friday Figures! Those who do will be rewarded with knowing more about the Vegas real estate market than most people.

More courts are getting picky about mortgage documents when considering judicial foreclosures and bankruptcies. And it isn’t just state courts either; now at least one federal court is in on the action. More federal judges will have a chance to rule on these issues as a part of bankruptcy proceedings. It will be interesting to see if MERS turns out to be an issue in Nevada’s foreclosure mediation program (few foreclosures in Nevada actually involve the courts). If this trend keeps up, title insurance will be more important than ever when buying and selling real estate!

Remember that MERS is involved in as many as 60,000 mortgages nationally. I personally think that if more than a handful of these mortgages is invalidated, that Congress will be under great pressure from the banking industry to quickly push through legislation that clears MERS’s status and allows “business as usual” to continue.

Until that happens, savvy lawyers will ask for proof that the mortgage holder actually holds the mortgage in judicial foreclosure and bankruptcies.

Thank you for dropping by to read Friday Figures! All information from the GLVAR MLS system. Are you are touring, making offers, or listing property this weekend in the Las Vegas Valley? Read this first!

Summary: As much as I hate to repeat myself, available units are down yet again, now under 11,000. Pending sales remain over 15,000, but over half are still short sales subject to lender approval. A research report I read this morning points out that only 12.4% of local closings in the last 3 months were short sales; it seems unlikely that all the contingent short sales will close anytime soon if at all. Closes remain strong, and are likely to be at high levels next week as we head towards the end of the month. Keep in mind that most Nevada banks, state offices, county offices, and city offices will be closed next Friday in celebration of Nevada Day, which actually falls on Saturday, October 31st. That’s right, school kids in Nevada and the 5th largest school district in the country get Halloween off every year! Who says Vegas isn’t family friendly?

Other Information: Home sales are at their highest level in 2 years. However commercial real estate continues to have a disconnect with residential real estate, as many businesses are cutting back on space and few new businesses are getting the funding they need to make a lease commitment (and there’s no tax credit for commercial real estate). Here’s an interesting article on the frustrating world of short sales. And finally, an interesting read on the American dream of home ownership. Remember, Vegas still has an unemployment rate barely under 14%, and this will color our real estate market going forward for at least 6 months and maybe more.

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The Obama Administration is talking about renewing the tax credit for first time home buyers. However, they want to see how much it’s going to cost before getting behind an actual proposal going in Congress. A version of the extension is already circulating as an amendment to other legislation. I can’t blame the President and his people at all for caution.

Most of my colleagues really want that tax credit extended, or even expanded. They see a lot more potential sales. However, I have several concerns.

First, if the Feds keep extending the credit, potential buyers will lose the sense of urgency they have had this year. If the credit is improved, either by making it a bigger credit or my expanding who is eligible, the problem gets worse as potential buyers may hold off waiting for the Feds to offer an even better deal.

Second, all those first time buyers have created an artificial “mini-boom”, accounting for 42% of sales in September. They are particularly snapping up foreclosed homes (adding to the froth, and buying homes that may have serious problems that they don’t even know might be problems). On the surface, this sounds like an argument for extending the credit: can your market afford up to 42% of buyers going away? Surely prices are headed for a slump in December if the tax credit isn’t extended! The flip-side of this argument is this: how many qualified first time buyers are left?

This brings me to the final point. How many qualified buyers are there at all? Here in Nevada, we are dealing with an unemployment rate of 13.3%, and it’s up to 13.9% here in the Las Vegas Valley. The national numbers are only slightly better. People without jobs rarely qualify for mortgages. That means that well over 1 in 8 people in Nevada couldn’t buy a house if they wanted to, regardless of tax incentives. It also means that over 1 in 8 people is at risk of falling behind their current housing payment, regardless of whether it’s a mortgage or a rent payment.

Let’s work towards the long term health of the real estate market, not a short term fix.

Over the last couple of weeks, a huge mortgage and foreclosure story has been slowly developing. You’ve probably already heard about judges throwing out foreclosure cases because the banks didn’t have their documents in order. One judge in Kansas made a ruling that could — if upheld on the Federal level — invalidate the mortgages on 60 million homes. Judges in other states have already made similar rulings.

It goes back to the way mortgage companies have sliced, diced, and sold off mortgages into mortgage backed securities. This often involved a private company, a clearinghouse called MERS. Well, because it would be difficult for a consortium of 10 companies to file foreclosure, MERS did it for them. And this judge says MERS doesn’t actually have the legal standing to do that. In short, they can’t prove they own the mortgage because they don’t.

How do you find out if MERS is involved in your mortgage? That’s hard without getting lawyers involved. The best (only) advice on that I’ve heard is to call your mortgage servicer. The phone number should be on your statement. Ask the nice person at customer service. The problem is they may not know, and even if they do they may not be allowed to tell you. I know it seems like you should have a right to know, but that nice person in customer service doesn’t want to lose his or her job by telling you.

It is pretty easy, however, to tell if Fannie Mae or Freddie Mac holds your mortgage, and Forbes tells you how.

see more Funny Graphs

Granted, they are quite late to the party, but The Market Oracle is talking about Fannie Mae and Freddie Mac’s role in the housing bubble (and therefore the housing collapse that came afterwards).

Don’t even think about trying to fraudulently claim the first time buyer’s tax credit. The IRS is looking for people who do that.

Has housing hit bottom? I don’t know. I think it entirely depends which local housing market we are talking about. The good news is that prices nationwide are up for the first time in 3 years.

Unpaid property taxes are becoming  a problem for municipalities. It is important to remember that just about everybody who has a mortgage pays those property taxes automatically out of an escrow account run by the mortgage company. Should the mortgagee be in default, banks are still pretty good about making sure those taxes are paid off. It then stands to reason that if those taxes are not paid, it is either people who have completely paid off their mortgages, or banks that are shirking obligations.

And last, TheStreet.com has noticed that “About 70% of the Las Vegas-area houses and condos that resold in June were foreclosure resales, meaning those homes had been foreclosed on in the prior 12 months. That was up from 59% in June 2008 but the lowest for any month since it was 68.9% last December.” Notice that their definition of bank owned is that it’s been foreclosed in the last 12 months. Seeing as I can think of a half dozen currently listed addresses off the top of my head that have been bought from the bank, quickly renovated, and put back on the market long before the 12 month mark, I think that number is high.

See everyone in the morning for Friday Figures!

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.

Because Vegas has lost jobs over the last year, our population is down. And that in turn has caused apartment vacancy rates to rise and rents have dropped to 2006 levels.

Economist and real estate expert Robert Shiller (whose name you may recall from the Case-Shiller index) says that real estate prices will continue to drop “for some time.” Please remember that he is speaking about a nationwide trend, not particularly about any specific real estate market.

Important news for our do-it-yourself crowd! If your home is in an unincorporated section of Clark County (NV) and perhaps you’ve forgotten to pull a permit on a home project, you can still make your upgrades perfectly legal and avoid penalties through a permit amnesty program. Contact the county right away, because this program won’t last long. If you are in Las Vegas, North Las Vegas, or Henderson, you will still have to deal with the city permit office.

In News of the Obvious, someone points out that the real estate market won’t really get better nationwide until we have better job creation numbers. Since it’s been months since jobs were really created in this nation, and we spent most of the first half of the decade not making as many new jobs as were really needed, it may take a while to catch up.

A bad economy, lost jobs, and lost real estate values have created a situation where foreclosure is now no longer a sub-prime problem. Nor is the problem just in residential real estate any more: commericial defauls are at a 17 year high.

Here in Nevada, our legislature passed a bill to require mediation in some foreclosure actions. The rules for these mediation sessions are currently being written by our courts. I predict that most homeowners trying to force mediation will discover that large multi-state banks are federally regulated, and banks will claim they are exempt from this state requirement. The truth is there is very little state regulators and courts can do to them.

New rules that were supposed to make appraisals more uniform and less subject to influence by Realtors and lenders are actually making things worse.

And last, a bit of humor — Squat 2 Own Realty. I do NOT advocate any of the methods described! It’s strictly meant as humor. On a serious note, pay attention when viewing “vacant” homes, because they are a target for real life squatters.

It turns out I was right about the mortgage modification plan passed back in July and implemented in October. Here’s what I said then: 

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.

Or, to put it briefly, no mortgage company is going to go for it, and even if they did there are reasons homeowners might not want to participate.

Here’s what the Secretary of HUD told the Washington Post: 

The three-year program was supposed to help 400,000 borrowers avoid foreclosure. But it has attracted only 312 applications since its October launch because it is too expensive and onerous for lenders and borrowers alike, Preston said in an interview.

He went on to blame Congress.

There are a lot of reasons it’s hard to put mortgage modifications in place. Loans that are sliced and diced before being bought and sold are one of them, and you can’t solve that problem without utterly destroying the market for mortgage backed securities (who is going to buy something that Congress can change or declare worthless at a whim?).  Borrowers who can’t afford much and property values that have declined below the amount owed are part of the problem. Congress tried to address those problems, but they’re hard to overcome.  

Mr. Preston is right that this program is a failure.  On the other hand, I haven’t heard him come up with a better idea.