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.

I’ve had Kitec come up twice in the last week, which is unusual considering that I don’t really work Sun City.   If you need information on the ongoing Kitec lawsuit, you will want to visit PlumbingDefect.com. Although a tentative settlement has been reached, it’s not over yet. This story has a little more background on the nature of the problem, but what happens is that the Zinc is leached out of the defective brass fittings, eventually causing catastrophic failure. While I hate to link to a site whose purpose is to sell you a solution, you can figure out how to determine if you have a problem at this site.

Update: John Griffith of Plumbing Express contacted me recently to tell me that this matter will be back in court again on January 30, 2009 for a settlement fairness hearing.  He was kind enough to point out this document about the hearing. Many thanks to John for keeping us all up-to-date!

There’s been much said today about the Treasury’s “plan” to force mortgage rates down. Since no government agency actually has the authority to “control” mortgage rates directly — not even the Federal Reserve! — it would have to be done indirectly through the purchase of mortgage backed securities.  A whole lot of mortgage backed securities.  That “demand” would drive the price of such securities up, which in turn makes the interest rate go down like any other bond.

This reduced interest rate would theoretically stimulate demand during our current “housing recession.”  Mr. Bernanke seems to be all for anything that would stimulate housing demand and/or reduce foreclosures.  There is much reason to be skeptical that this will work. Even Mr. Obama has gone on record as saying ”The deteriorating assets in the financial markets are rooted in the deterioration of people being able to pay their mortgages and stay in their homes.”  They both agree that it would be great if people could pay the mortgage, but I think they may disagree on whether the answer is lower mortgages or higher wages! 

By far, the best criticism I have seen of the Treasury plan is by Tom Vanderwell over at BloodhoundBlog.  He articulated my question, “How exactly is that supposed to work?”  Here’s the meat:

Okay, not to rain on everyone’s parade, but let’s take a logical look at the numbers and the statistics behind it.

1. What’s the only way possible that I’m aware of to lower mortgage rates?  By raising the price of mortgage backed securities which lowers the rates on them.   Lower rates on mortgage backed securities equals lower mortgage rates.
2. How do you increase the price of mortgage backed securities?  The only way that happens is by increasing the demand for them.
3. How do you increase the demand for them?  Have the government step in and buy a HUGE (I’m talking many many many zeroes!) amount of mortgage backed securities off of Fannie and Freddie.
4. How is the US government going to come up with that money?   All joking about printing presses aside, in reality, they are going to have to borrow the money.
5. How do they borrow the money?   By issuing a LOT of US Treasury bonds to finance their purchase of mortgage backed securities.

So, what happens with the price of US Treasuries if suddenly there’s another $1 Trillion on the market?

• Demand stays the same
• Supply goes way way up because the government is flooding the market with more debt.
• Price goes up down because there is more supply than demand.
• Rates go up.

So this looks very suspiciously like yet another plan where the Government throws money at the financial institutions that helped make this mess worse than it had to be, and hopes everything magically gets better. 

Here’s a trio of bonus items for you today:  the Feds have a new set of financial literacy websites that can help you learn about such important topics as financial security, home ownership, consumer credit, and other topics (go to it directly by clicking this link!);  copper theives are hitting lots of soft targets and causing lots of problems, but this article fails to mention empty houses! (Realtors, please check on your vacant listings regularly… and if you see something amiss in somebody else’s listing please let the other agent know!);  and a micro-loan fund to help entrepreneurs in third world nations is being run by students at Vegas’s Meadows School.

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.

Do not get me wrong.  It is a good idea to make sure your dogs and cats can’t reproduce. Every pet I have ever had was spayed or neutered.  Well, fish don’t count. However, I think the mandatory spay and neuter law favored by Clark County Animal Control is misguided at best.  Admittedly, the statute is unavailable to me and so I cannot know exactly what it says.  However, a number of questions spring to mind.

How exactly do they intend to enforce it?  Does it account for animal breeders?  For feral cats?  Many sources say cats and dogs should be spayed at 6 months, but the proposed law insists on 4 months;  is that really a good idea, and safe for the animal?  The proposed law is based on one enacted by the City of North Las Vegas;  how well has it worked out for them, or is it too soon to tell?

Will this effect Sigfried and Roy?

More questions than answers.

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.

Details are dribbling out as more people have a chance to read the actual text of the big foreclosure prevention bill. It is worth noting that the President did not bother to sign it until Wednesday.

CNBC tells us this bill is bigger and will cost more taxpayer dollars than originally expected.

Alternet tells us it will actually help fewer than one in 20 families facing foreclosure in the next 2 years.

The Christian Science Monitor gives us a summary: No Rescues Soon.

In the meantime, Hope Now is still out there.  They claim to have helped 181,000 borrowers with 76,000 permanent modifications and 105,000 repayment plans in June alone.  Nevertheless, 82,000 families that contacted them still lost their homes.