Short sales now eclipse foreclosures in Las Vegas

Maybe the banks are starting to figure it out.

Instead of dealing with the legal challenges and expense of foreclosure, they're approving more short sales, or homes sold for less than the principal mortgage balance.

In May, for the first time since the foreclosure crisis struck Las Vegas five years ago, short sale closings out­numbered foreclosures in May, David Brownell of Keller Williams Realty said.

He reported 1,289 short sale closings during the month, compared with 1,275 real estate-owned, or bank-owned, closings.

Foreclosures accounted for roughly half of all existing home sales in Las Vegas over the last few years, while short sales bounced between 20 percent and 25 percent. Now they're about dead even at 32 percent each.

ROBO-SIGNING LAW MAY BE KEY

The shift in sales could be attributed to the robo-signing law, Assembly Bill 284, which requires lenders to provide an affidavit of authority to foreclose. Default notices and trustee sales have declined dramatically since the law took effect in October.

Look for that shift to continue in the coming months, Brownell said.

"The momentum for short sales has been on the increase for many months now, even before AB284," the broker said Tuesday. "Pressures from all levels of government have strongly encouraged banks to look for solutions other than foreclosure for the disposition of these properties, and with that pressure, banks have beefed up their short sale and loss mitigation department staffs.

"So both the banks' quest for efficiency with short sales as well as AB284 have contributed to the increase in short sale successes at this time," he said.

With the robo-signing law firmly entrenched, short sales are capturing the market component that was previously occupied by REOs, Brownell said. He sees it in his monthly market numbers.

REO closings are down 25 percent from a year ago and listings are down a whopping 85 percent, from 3,207 in May 2011 to just 494 in the most recent month. More significantly, pending REO sales decreased 48 percent, while pending short sales increased 44 percent.

"I hate to say it, but part of that is AB284," said Joel Sarmiento, senior vice president of Wells Fargo's home and consumer finance group in Phoenix. "Are there more foreclosures to come? It is un­fortunate that my answer is yes, there are more to come."

Wells Fargo looks at ways to help customers avoid foreclosure, and short sale is definitely one of the alternatives, Sarmiento said. It has less of a negative impact on the customer's credit rating and it helps the bank avoid foreclosure costs such as maintenance and property taxes, he said.

The tricky part is getting mortgage investors on board. About 70 percent of the 10 million customers in Wells Fargo's mortgage portfolio are backed by government-sponsored enterprises Fannie Mae, Freddie Mac and HUD, Sarmiento noted.

"So at the end of the day, it's not up to the banks, it's up to the investors to accept a short sale," he said. "So again, we're seeing investors saying this is a better method. They're realizing it's better for everyone across the board."

Greg Adamour of RX Realty said the market has never been hotter for short sales. About three out of every four of his closings are short sales. Banks have streamlined the process and are a lot more cooperative in getting the sale approved quickly, he said.

"You know they want to do it. They're sitting on properties they can't even begin to foreclose on," Adamour said. "In fact, they're rescinding some foreclosures. These are some of the people who didn't make a payment for two or three years."

The real estate agent has seen more than 40 offers on REO properties. One home in Rhodes Ranch appraised for $379,000 and got offers above $400,000, he said.

Bank of America has been completing short sales for customers since the housing crisis began, spokeswoman Jumana Bauwens said. As demand increased for short sales, the bank increased its resources, improved technology and identified ways to make the process more efficient, she said.

The bank offers delinquent mortgage customers between $2,500 and $30,000 in relocation expenses at the completion of a short sale.

"Bank of America is committed to providing alternatives to foreclosure whenever possible," said Bob Hora, home transition services executive for Bank of America. "This program can help customers make a planned transition from owner­ship when home retention options have been exhausted or they have made a decision not to keep the home."

Bauwens said Bank of America has completed more than 200,000 short sales in the last two years, more than twice the previous two years.

PROCESS REQUIRES PATIENCE

Courtney Long bought a short-sale home in the Summer­lin community for $160,000 in April after waiting three months for approval. The home previously sold for $273,000 in 2004.

"It was definitely a good deal," she said. "It requires a lot of patience. It's been a hairy process for other people. I did look at one other house, but again, this transaction only took three months and I was pretty set on this house and willing to wait it out."

Brownell said the real estate market has yet to feel the full impact of the robo-signing law.

More than 15,000 homes are in pending or contingent sales status. Only 4,569 properties are on the market without an offer. That number is likely to decline as the market adds about 4,000 listings a month, while 5,000 listings go to pending status during that time, Brownell said.

"It is getting more interesting as each month passes," he said.

The number of traditional, or nondistressed, closings increased to 1,407 in May, roughly 35 percent of the market. That's another first, Brownell said. Also, total closings for the month were higher than last year's total.

Contact reporter Hubble Smith at hsmith @reviewjournal.com or 702-383-0491.