WHAT A LONG STRANGE YEAR ITS BEEN
In the Spring of 2008, Las Vegas homeowners stopped paying their mortgage, and filed predatory lending lawsuits against their lenders alleging mortgage fraud including RESPA and TILA violations. Hundreds of those cases were filed in the Clark County State and Federal Courts. The year following those filings, testy Las Vegas judges dismissed 99% of those cases reasoning that no one, no matter what, should live for free in America.
In the Fall of 2008 laid off mortgage brokers started mortgage modification companies by the hundreds, often requiring the homeowner to pay $2,000 through $4,000 up front and in advance. But 90% of the time, the loan modification company couldn’t modify the mortgage and the home was sold at a foreclosure auction to out-of-state investors.
In the Winter of 2008, the late Keith Schwer, the former head of the UNLV economics department, took the position that the only way to end the Las Vegas Real Estate crises would be to somehow reduce the principal amount of the mortgage to the present value of the house. But a wholesale principal reduction, claimed Schwer, could have severe unintended consequences.
In the meantime, Mexican drug cartels sent their salesmen to Las Vegas to start multi-level marketing loan modification companies- just like Amway. These young men gained the confidence of the Las Vegas Hispanic community who gladly gave them their money. Likewise, pretty Filipina mortgage and real estate brokers lured other Las Vegas Asians into paying them upfront and in advance for loan modification services.
Wall Streeters and Hollywood media buyers wearing Jack Nicholson sunglasses, sent their salesmen to Las Vegas to spend millions on prime time Las Vegas TV advertisements, and spout false promises on hundreds of billboards all over the Las Vegas Valley. Websites with surreal images of Leave it to Beaver type families playing on the front lawn promised to save your home.
By Spring 2009, Hispanics and Asians became the number one group of Las Vegas people to have been ripped-off, in their native tongue, by loan modification businesses.
Over one hundred California Lawyers were charged with loan modification fraud in 2009.
In early 2009, the House of Representatives passed the infamous “Cram Down Bill” that would authorize bankruptcy judges to reduce the principal balance of mortgages for homeowners in bankruptcy. Las Vegas judges began attending meetings on how to handle the new onslaught of Cram Downs. California and Nevada lawyers began hiring more staff and scheduling Cram Down seminars.
But the Senate carved out the Cram Down provision of the bill and it died. President Obama signed the bill without the Cram Down feature in March 2009. The solution had slipped through America’s hands.
In Summer 2009, in response to a record number of Las Vegas foreclosures, the Nevada Supreme Court convinced the state legislature to pass AB 149- the Foreclosure Mediation law, which allowed more people to discuss why things weren’t working out.
The answer became clearer to more people, principal reduction was always the way.
Lenders still won’t authorize a principal reduction outside of a foreclosure or short sale, 99% of the time. But ironically, lenders have done tens of thousands of “principal reductions” in Nevada and millions nationwide as the natural result of every foreclosure trustee sale.
Continuing at an increasing rate, principal reductions will come in the form of short sales which will include the lender waiving its right to pursue the homeowner for a deficiency judgment. Expect more short sales and expect all lenders to waive the right to a deficiency judgment. Expect more foreclosures too. This is how the real estate crises will finally come to an end- through principal reductions.