Linda Humphrey, M.D., Broker/Owner HHC Realty

No, this was not the parting sentiment from seller to buyer at a happy closing. It was wistfully painted above the front door, surrounded by an artistic vine of leaves and flowers, of a bank-owned property I showed to some first-time buyers. We didn't notice it until we were leaving, where it stopped us dead in our tracks. No one spoke for a long time as we resumed our places in the car for the ride to the next potential home.

Every day we Realtors are faced with the dregs of lives gone sadly wrong. Abandoned bedrooms gaily decorated with pink walls and frilly curtains, or perhaps sports-themed trim and a left behind poster of some kid's hero. Lines carefully marked inside a closet as a family's children grew. A forgotten toy left in the rush to vacate as the sheriff drove up the street. Wet, molding, laundry forgotten in the washing machine when the residents come home to discover the locks changed. People peering fearfully out as the REO agent comes to the door to offer cash for keys.

We (and by "we" I mean "I") spend a lot of time arguing the nuances of the "real estate crisis"...whose fault it was, who the winners and losers were, all the minutia of the hows, whys, wherefores of what happened. So much easier and less painful to deal with numbers and abstractions. But at the end of the day, it is the human story that is compelling. Yes, many of those folks likely made poor decisions. Yes, people should be responsible for their debts and promises. Yes, many who invested in those peoples' home loans (including financial institutions) have suffered at least as much; lost jobs, lost savings, huge losses in the value of the companies they work for.

But some days I just feel like coming home and crying.

Photo Credit: Left Behind by Michael | Ruiz from Flickr via Creative Commons License

My husband got a new fancy Timex running "watch" for Christmas, complete with heart rate monitor, GPS, and about a million other things he hasn't figured out yet. His initial take was that it didn't work properly. Couldn't figure out how to make it do what he wanted. Probably broken. Did he read the manual? Of course not...

So, as he harrumphed around threatening to send it back, I gently suggested, knowing I can geek him under the table but trying not to sound like a complete a**hole, "Why don't you let me have a look at it?" He happily slid it over to me and hurried off to do something more to his liking.

I read the directions and fiddled with it for a bit, then went out to run a few loops of the Pecetti Ranch Estates trail system, checking the watch face periodically. At the end of the first loop, I stopped to see what had recorded. Didn't look quite as I anticipated. I reset it and restarted, then headed off on the next loop lost in thought, pondering how the device might be set up to work. I was so totally preoccupied that I dang near tripped over a coyote that loped out of the bushes as I came around the north end of the trail. We were both completely startled; he trotted warily over to the middle of the adjacent vacant lot while I jogged backwards checking to see what he would do next. He was a beautiful animal, sleek and furry, with ears alertly pricked up, about the size of a small golden retriever. I briefly wondered if I was in any danger. Coyotes are extremely common all over Reno, and very acclimated to humans, but I have never heard of one attacking an adult. They will devour your household pet in a heartbeat, but I haven't previously felt threatened by the many I have encountered over the years. Still, you never know with wild animals, and I hadn't ever been quite this close to one.

I continued on with my run, checking back every so often. He stood frozen in some tall weeds, never taking his eyes off me until I had crossed Boulder Glen Way and rounded the corner out of view. Guess he was probably thinking the same thing: "Never can tell with them humans" (yes, I speak coyote. And whale).

I am happy to report that I was able to figure out enough about how my husband's extremely complicated new toy worked to pique his interest (and convince him that it was in fact working correctly). He is now, belatedly, watching a video on the intricacies of setting up the display the way he wants it and enthusiastically planning his first run of 2012.

Photo credit: Arastradero Coyote by donjd2, Flickr via Creative Commons License

The HOA is foreclosing? You're Kidding, Right?? Why would they do that?

Foreclosures by home owners' associations (HOAs) in Northern Nevada are becoming an increasingly common phenomenon. Makes no sense, you say? They will acquire the property with at least one (huge) lien attached. Are they nuts? The bank will just laugh at them.

As the president of the board of my own Reno, Nevada HOA, perhaps I can shed some light on the thinking behind this apparent foolishness. For starters, HOAs are required by both their governing documents (the CC&Rs) and Nevada State Law to perform certain functions. For example:

1. They are expected to maintain a reserve account, monies set aside for anticipated maintenance or replacement of portions of the common areas. There must be a reserve study done at regular intervals to ascertain the adequacy of those funds. If funding has fallen behind, then a plan must be created to bring the funding up to an acceptable percentage in a reasonable time frame.
2. They have ongoing day-to-day operating expenses: management company fees, utility bills, grounds maintenance, etc.
3. They are charged with the duty of maintaining property values within the association by assuring that architectural guidelines are met and homes are maintained in a manner that benefits all homeowners in the development.

None of these items comes cheaply. Given the current state of affairs in Nevada, it is regrettably common for strapped homeowners to be unable to pay their mortgages, let alone their HOA dues. I feel badly at a personal level for people who are in these dire straits, but is it fair to expect the remainder of the homeowners in the development to pick up the slack? Perhaps through a special assessment? Gee, thanks, but no thanks. Times are tough for all of us.

The Nevada State Legislature has seen fit to allow HOAs to have a superpriority lien representing unpaid HOA dues for up to nine months. That means that up to nine months' worth of back dues must be paid to the HOA at the time of short (or not) sale or sale as an REO in order to transfer clear title. That would be great if either short sale or foreclosure of these properties had some hope of being accomplished in that time frame.

Instead, HOA Boards often watch banks file Notices of Default (NODs) on these properties, and then do nothing, sometimes for years. I would not presume to guess what they are thinking, but it leaves the HOA in a bind. They can only count on nine months reimbursement, but the bills are accumulating. The homes and yards in question are falling into disrepair, a blight on the neighborhood. Many HOAs are now taking matters into their own hands, filing liens and then foreclosing on them. Yes, the title transfers with the first lien attached (possibly also delinquent sewer, trash, and real estate taxes). But once the HOA holds title, clean up can be accomplished and the property can be rented. There is no requirement that any of the other liens be cleared as long as the status is disclosed to the new renters. Now the home is occupied, the yard looks nice again, and some of the loss is being mitigated. Ordinarily, the first lien holder continues to pay the real estate tax so as not to lose the home to the tax man for a (relatively) small amount.

What is the endgame of all this? Presumably, the first lien holder will eventually get around to wanting to foreclose. In the meantime, I would argue, they benefit from care, maintenance, and even upgrading of their eventual REO. They cannot foreclose on the HOA, with whom they have no contract. Our legal counsel suggests that what will ensue is that the backlog of HOA debt (plus late fees and expenses) will be reimbursed by the bank, in exchange for the property being quitclaimed back to the original homeowner, on whom they CAN foreclose. Have not experienced that part yet, but it makes sense to me.

Hi AR friends.

Don't know if it has made the national news yet, but we have a terrible situation here in Reno, Nevada this morning. During the night, a fire started in the Caughlin Ranch area that is totally out of control due to howling winds. It is spawning numerous small pockets as embers blow to new areas. So far, according to the news, twenty homes have been lost. Some of those are million dollar luxury homes, not that that makes it worse. When you lose everything, it doesn't matter if you were rich or poor to start with, it is a life-altering, mind-numbing event. Numerous more homes are at risk, with firefighters desperately trying to save them. Their efforts are being impeded by winds currently gusting up to 65 mph in the foothills.

Evacuation shelters have been set up at Reno and Galena High Schools for those displaced. The SPCA has offered shelter to displaced small animals, and horses and other large animals have been offered shelter at several locales including the Livestock Events Center. Surgery has been cancelled at several of the local surgery centers (Quail Surgery Center, where I was scheduled to work this morning, and Surgical Arts), as one pocket of the fire has come dangerously close. To my knowledge, all hospitals are up and running normally. None of them is in a vicinity affected at present.

Please remember us in your prayers; I personally am not at risk at the moment, but many, many people are in harm's way.

**********Update 8:45: The fire has split into two main areas, one that started in Caughlin Ranch and has burned through Anitra (with at least one home totally destroyed), and down past Windy Hill to the Del Monte area, and a second in the canyon between Manzanita and Skyline. Reno High School is filled to capacity with evacuees; people are being asked to evacuate to Galena High School at this time. Photographs of the fire may be viewed at the Reno Gazette-Journal website. Sadly, many of the evacuees don't know whether their home is still standing or gone. The lost homes count has risen to 30.

Shadow Inventory and the Foreclosure Timeline in Nevada

Despite all the press it gets, shadow inventory in the real estate market has never, to my knowledge, been officially defined. Is it the homes that the banks have foreclosed upon and not listed for sale? The properties that have fallen into default but not yet hit the courthouse steps? Where do short sales fit in? How about the normal, every-day sellers that would like to sell their houses and move, but haven't tried because a)they don't believe they would be approved for a short sale, or b)they can't bring themselves to take the loss, even if it is a paper loss from an unrealistic value? Back in the good old days, we Americans used to move about every seven years on average. Is that pent-up selling demand part of the shadow inventory?

Whatever you choose to include, it is pretty clear that this backlog of inventory must make its way through the real estate pipeline, like a giant dinner bulge through a snake, before we can regain some sense of normality.

A quick review of the timeline for foreclosures in Nevada may provide some insight. For our purposes, lets assume that Harry and Hannah Homeowner have fallen on hard times and cannot go on making the payments to their lender. There are various sidetracks that they can take throughout this process (short sale, deed in lieu, bankruptcy filing, loan modification, etc.) that we shall ignore for simplicity.

Month One

1st - Payment is due on the Homeowners' first (and only) mortgage

16th - Payment is late; late fees apply. If they pay the mortgage and late fees before the end of the month, likely no credit hit will ensue

Month Two

1st - Payment is now 30 days late; the Homeowners are delinquent and just received their first credit ding

Month Four

1st - Payments are now approx. 90 days behind. The Homeowners are "in default". A Notice of Default is filed by their lender with the Washoe County Recorder and sent to them by registered mail. At this point they have 30 days to pay all of their back payments and fees and remove the default; at the end of that time, the acceleration clause in their mortgage kicks in making the full balance plus late fees due and payable. In Nevada, the Homeowners also have the right to request mediation with their lender. A mediator will be appointed upon their request, with the cost split between the Homeowners and their lender. This right will be brought to their attention in the Notice of Default paperwork that they receive, along with an application to pursue it.

Month Five - The Homeowners have either waived mediation/were not eligible/did not respond/or mediation was completed without relief for them. A Certificate of Mediation is filed, and the foreclosure process resumes.

Month Seven - The Homeowners are now six months delinquent. A Notice of Trustee's Sale is filed specifying the date, time, and place of the auction sale of their property. This notice is published in a paper of general circulation for three consecutive weeks, with the sale scheduled for the fourth week. The sale can be postponed three times, then another notice is required.

Month Eight - A foreclosure sale takes place on the courthouse steps. The home is either sold to a third party, or else is "sold" back to the lender for the amount of their opening bid, which may be the total of what was owed or some lesser amount that they specify.

Subsequently - If the Homeowners are still living in the home, they will either be offered cash for keys to move without damage to the property, or else formally evicted and removed by the police.

So, with that background, where do we stand in Northern Nevada as far as "shadow inventory" at the various time points described? Here are the stats for Washoe County (population 417,379) as of this date (Labor Day, 9/5/11):

Notices of Default: 1868

Notices of Trustee's Sale: 656

REO (ForeclosureRadar): 914

REO listed in MLS: 923

Less than 90 d late, want to sell but not listed, etc: ????

Interested in purchasing a foreclosure property? Come check out our new foreclosure search tool!

Picture credits: Garter snake eating a toad by The_Gut, Shadow houses by D'Arcy Norman, both via Flickr Creative Commons License