In theÂ Las Vegas real estateÂ market, Assembly Bill 284 (AB284), Nevadaâ€™s robo-signing law from late 2011, makes it a felony for loan servicers to sign documents related to foreclosure without â€œpersonal knowledgeâ€ of who owns the note, and further requires lenders to provide an affidavit showing they have authority to foreclose.
The goal of the law was to stop potentially illegal foreclosure activity â€“ preserving the sanctity ofÂ Las Vegas real estateÂ transactions is important, but not like this.
But what has this legislation actually done? Â Primarily it has dramatically dammed up the flow up foreclosures into theÂ Las Vegas real estateÂ market, thereby creating a false heat in the market â€“ i.e., artificially lowering inventory and thus heightening competition between available buyers.
Foreclosure notices were commonly around 5,000 per month and are now about 20% to 30% of that number. Â The other foreclosures donâ€™t simply disappear â€“ rather they are there â€œsomewhereâ€ and this is known as â€œphantom inventory.â€ Â In fact, it looks like the mythical dip inventory has caused a number of the major builders to begin pulling building permits (â€œstartsâ€) and pouring footings/foundations to be ready to answer a possible dearth in supply.
Those missing pending foreclosure borrowers are where? Â Living in their homes. Â One reliable source indicates that about 75,000 currentÂ Las Vegas real estateÂ homeowners have not made a mortgage payment in 3+ months â€“ and it is known that many of them havenâ€™t made a payment for many months and, in some cases, up to 2 years.
But, what is concerning is the volume of reports claiming thatÂ Las Vegas real estateÂ is recovering based on the spurt of false market activity. Â AB284Â has only delayed the inevitable â€“ no one is ever effectively able to fake reality, and the market must organically self-correct without regulatory influence. Â As the old saying goes, capitalism without bankruptcy is like religion without hell. Â The market needs to heal and it cannot begin to heal until it is left alone by do-gooders.
There are manyÂ Las Vegas real estateÂ voices clamoring for stimulus to â€œdrive the economyâ€, butÂ AB284Â and any other measures are only attempts to â€œbreak some windowsâ€ a la the broken window fallacy in economics.