A majority of non-foreclosed properties in Las Vegas have lost an average of $78,000 in value due to the foreclosure crisis, according to a new report by the Lied Institute For Real Estate Studies at UNLV's College of Business.
As a result of the "spillover effect" from foreclosed homes, which are often in poor conditions, neighboring well-kept properties devalue - further upsetting Nevada's already unstable housing market. The UNLV report advocates for lenders to initiate more short sales of homes to avoid foreclosures and help neighborhoods retain their attractiveness to potential homebuyers.
"Foreclosed homes are toxic neighbors," said Nasser Daneshvary, an economics professor and director of the Lied Institute. "Homeowners who are delinquent in their mortgage payments have little incentive to invest in their properties. Lenders should consider short sales to reduce the saturation of foreclosed homes, which leads to negative equity and strategic foreclosures. Perhaps, government assistance can go directly to homeowners with a requirement that they will not pursue a foreclosure."
Nevada law allows lenders to have six years to pursue a deficiency judgment from homeowners who sold their homes on short sales, while lenders have six months to pursue deficiency judgment for foreclosed homes.
A six-year lingering shadow is one of the reasons why homeowners pursue a foreclosure route. Daneshvary said Nevada law should be adjusted to equalize the deficiency judgment period so short sales are pursued instead.
Lied Institute economists advocate for state, local and federal governments to put measures in place that would allow speedy loan modifications for primary residences and prevent risky lending practice in the future. The report also calls for lenders to implement quicker processes to mitigate default loans, including the principal and monthly payments.
UNLV economists analyzed data from the Greater Las Vegas Association of Realtors listing of single-family homes sold between January 2008 to the end of June 2009 in Clark County. The Lied Institute report is available online at Lied Institute for Real Estate Studies.
