Wednesday, December 2, 2015

Las Vegas: The Town That Choked on Debt

For the past decade, housing in Las Vegas has been a scene straight out of the Wild West.

Rules have been bent, and lives ruined — a consequence of a housing crisis that caused such catastrophic and widespread declines in home values that much of the city remains on its knees.

At one point in 2012, more than 70 percent of Las Vegas homeowners with mortgages were underwater, many of them owing more than twice what their homes were worth.

The negative equity rate has fallen to 25 percent but remains higher than any other major market. In normal markets and times, that rate is closer to 3 percent.

Among those affected is Terrie Brooks, a bingo agent for 30 years who never dreamt she’d resort to giving blood to pay her mortgage.

With income of $60,000 a year and money in savings, she paid her mortgage for four years after the recession hit and her employer cut her hours.

She fell behind after her college-age son, who rode a mo-ped between classes and work to save on gas money, was in a terrible accident. A traumatic brain injury left him incapacitated for two years before he died.

“I thought I had put away for a rainy day and was keeping up. Once my son was in the hospital, I didn’t care,” said Brooks, who often stayed home, even when work called, to feed her son and otherwise care for him.

“I gained weight, my health went to hell.  You don’t care anymore … Then you say, ‘Look what a mess I’ve gotten into because I didn’t care.'”

Brooks tried to make up for the lost hours by selling blood and participating in focus groups.

She also tried to get a mortgage loan modification but became stuck in a bureaucratic cycle — a process so common it was the subject of one of the focus groups she was paid to attend.

Squatters and their tenants

Getting a loan modification when people all over town — and many across the country — want one, too, is no simple thing.

Some people give up and stop paying.

Tim

Tim Kelly Kiernan

“I closed a deal in August where a guy hadn’t made a payment in 88 months,” said Tim Kelly Kiernan, a real estate agent with Re/Max Benchmark Realty.

“It wasn’t illegal. He was just playing the system.”

He also wasn’t alone, by a long shot.

Many people in Las Vegas stopped paying their mortgages for months and years at a time with little consequence.

Some filed for bankruptcy and walked away, assuming lenders would take ownership, only to return years later to find the homes still in their names.

Sometimes, their homes had been taken over by squatters or, more absurdly, by renters making monthly payments to someone who’d swooped in and pretended to be the owner of an empty house.

Kiernan had one such client who ended up doing a short sale — negotiating with his lender to sell the house for less than he owed — and walking away with cash to relocate (and leave the house in good condition).

There were even cases of homeowners being sued by squatters who were injured while squatting, Kiernan said.

“I can’t make this stuff up,” he said. “There are all these crazy stories, and [that] story is very common — people filing bankruptcy and leaving their property thinking they were done.”

Tangled in red tape

Getting lenders’ attention is the hard part.

For a while after the housing bubble burst, lenders rubber-stamped foreclosures so fast — in Las Vegas, foreclosures reached six times the national rate — that they got in trouble and were forced to slow down.

Now they often approve short sales and loan modifications, if a borrower keeps the same lender long enough to negotiate such a deal and to exchange the proper paperwork.

“It can be very frustrating,” said Christine Miller, a lawyer at the Legal Aid Center of Southern Nevada.

“Even though you sent a packet, and the fax transmittal shows 54 pages went through, they [the lender] will say they don’t have it, or to send it again.”

It’s against mortgage servicing regulations to draw out the process, but fighting that means filing a complaint with the Consumer Financial Protection Bureau, “and that’s a process” as well, Miller said.

Judah

Judah Zakalik

Tangled in financial red tape, some homeowners turn to experts like Judah Zakalik, an attorney who for two years defended banks against predatory lending lawsuits, then was laid off and switched to the consumer side.

People have to be careful where they turn for help, Zakalik said.

“When we started in 2009, there were probably over 250 loan modification specialists and attorneys in this city doing this work,” he said. “A lot of them were taking advantage of people’s desperation.”

Some charged upfront fees, then skipped town. Others filed bankruptcy papers but didn’t take clients’ names off homes — and squatters often beat lenders to those properties.

Even now, people are renting abandoned homes from landlords who are not the rightful owners. “I see it at least once every two weeks. I saw it this morning,” Zakalik said.

A morality shift

Despite their dire situations, many people balk at filing for bankruptcy or not making mortgage payments.

“They’ve been told, ‘You’re a bad person if you do that,'” Zakalik said.

During the recession, he said, “I’d sit down with people and have discussions about their morality. [I’d tell them] you have to look out for your family’s future. If you throw $700,000 at this loan, you’re taking away money you could invest in your future, your retirement, your children’s future.”

The need for those discussions has waned.

“People understand that now. They understand that corporations are looking out for their own best interests, and they have to look out for themselves.”

There’s been a shift in moral consciousness, he said, “at least in this city.”

Military retiree Robert Lujano stopped making payments just to get his lender’s attention.

“They said, ‘You’re not making payments.’ And I said, ‘That’s right. Didn’t I try for five years to get you to refinance?'” Lujano recalled.

He negotiated a short sale that included $2,500 in relocation fees. It only marginally hurt his credit score, and he plans to buy another house next spring.

“This would be a great time for many, many people to buy a house,” he said.

With help from the legal aid center, Brooks also renegotiated her mortgage — but the relief is temporary.

Her monthly payment has dropped from $1,300 to $760. After 22 years, however, she will owe the full balance of her original loan — $100,000 — and she doubts her house will be worth that by then.

“They said, in a couple years I can do a short sale,” Brooks related hopefully.

If not, there’s bound to be another way.

Already, a passel of homeowners are pioneering another mortgage frontier: re-defaults.

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