(Michael Chamberlain/Nevada Business Coalition) – Politicians have an uncontrollable urge to do something in response to any unusual event. But too often they end up doing something that makes the problem worse or that creates an entirely different set of problems. And often these new problems are worse than the one they were trying to fix.
The collapse of the housing market and the glut of foreclosures in Las Vegas resulted in a profusion of abandoned homes. Some people have complained about abandoned homes in disrepair that are both unsightly and can be an invitation to squatters and vandals. To address this, the City of Las Vegas passed an ordinance requiring banks to register and maintain abandoned homes on which they have filed notices of default (NOD), the first step in the foreclosure process. But, as is often the case, this law has created a new set of problems.
Within 10 days of the NOD filing the bank is required to register the home, pay $200 and send someone out to the property to verify whether or not someone is living in the home. If it has been abandoned, the law forces the bank to take responsibility for maintaining the exterior of the property and threatens fines and possible jail time if they do not.
So who’s going to go to jail? Will the City make a big show of arresting the President of CEO of the company, someone for whom it is not possible to know the status of every mortgage, inviting the press and the cameras to show their serious? Or will they arrest some poor hourly worker in the mortgage department who just happens to have the misfortune of working on that file?
What about the people who’ve purchased a second home and walked away from the first? According to the ordinance they’re not responsible for the upkeep, the lender they stiffed is.
The new law requires banks to trespass onto property they don’t yet own. They will also have to keep utilities turned on, such as water and power – in houses that are officially still owned by someone else.
And the registry they’re supposed to use? It doesn’t exist yet. Hopefully that bid will be an item on an agenda in the near future. Meanwhile, some are under the impression this ordinance is taking effect right away.
The ordinance may not have very much effect after all.
Fannie Mae and Freddie Mac own more distressed mortgages than any other lenders in Las Vegas. The Federal Housing Finance Agency (FHFA), which regulates these two entities, is suing the City of Chicago, claiming only the FHFA can tell Fannie and Freddie what to do, not some local government.
If the FHFA wins the Chicago suit, the two entities that own more distressed homes in Las Vegas than any other lenders will not have to abide by this ordinance. Even if the FHFA loses its lawsuit against Chicago, it has already informed Fannie and Freddie to raise their rates on mortgages in Chicago to cover the additional costs they will encounter from that City’s plan. As if it weren’t hard enough to sell houses in Las Vegas, this ordinance will likely increase the cost of mortgages in as well.
But the ordinance could fail to do exactly what it’s supposedly designed to do. The mandate to maintain properties only applies to those with a mortgage. When the bank actually owns a property after completing the foreclosure process and failing to sell it at auction, there is no longer any mortgage, so legally the bank is under no obligation to keep the property up.
In other words, this new ordinance requires banks to maintain properties they do not own but not properties they do.
Just another example of the unintended consequences when lawmakers feel they have to do something in response to every event.