A knowledge of real estate law is essential to take advantage of the crisis in the financial and real estate markets.

Real estate law, of course, is a huge topic. It encompasses commercial and residential, urban and rural, quick turn and “buy and hold,” sales and leases, financing and foreclosure, development and subdivisions, legal descriptions and methods of holding title, title insurance and escrows, and evictions. This list is certainly not exhaustive. Each of the foregoing topics can be subdivided into numerous sub-topics. As this website grows and develops, attention will be given to those areas in which the readers express an interest.

From a small business perspective, the hot topic at the moment is the turmoil in the financial and housing markets.

It has been said that "for every door that closes, another one opens." That saying is particularly true in today's real estate market. The last few years have been pretty tough for home owners and real estate investors. The huge increase in foreclosures and the crash of real estate prices left a lot of homeowners and investors in property which is "upside down," that is, in property which is worth less than what is owed on it. The financial crisis and the evaporation of easy loans contributed to this mess. The bright side of this is that property is becoming available at bargain prices and on bargain terms. Using new strategies and a knowledge of real estate law, today's investors can prosper.

The huge number of foreclosures has had a pervasive effect on local real estate values. Lenders do not want to hold real property in inventory. This inventory, called "real estate owned" or "REO," is a non-producing asset. It negatively impacts the lender's financial statement, and it reduces the amount of money which is available to loan on other property. The lenders' goal is to get rid of the REOs as soon as possible.

When a seller is motivated to sell property quickly, the seller reduces the price of the property to an amount which is less than comparable property on the market. That lower price level quickly lowers the median price in the neighborhood. In turn, the next lender who puts an REO on the market will price its property even lower. This has a spiraling downward impact on the market prices.

This is well illustrated by the following graph showing the sold median price for Washoe County, Nevada, from January 2000 through January 2009.

The height of the market was in January 2006 when the sold median price reached $365,000. By January 2009 the sold median price had dropped to approximately $220,000 -- a loss of 40% in three years!

The price slide is probably not over. As long as there are significant foreclosures, there will continue to be downward pressure on prices. The above chart showing Notice of Default recordings in Washoe County from January 2006 to January 2009 is sobering. In January 2006 there were 12 NOD filings. In January 2009 there were 675 NOD filings! Under Nevada real estate law, it takes approximately 4 months from the filing of the Notice of Default to the Trustee's Sale when the property is sold. In February or March 2009, most of the 582 NOD filings from October will be going to Trustee's Sale, and most of those Trustee's Sales will result in new REOs.

So what does this all mean?

We are approaching a time when residential real property can be purchased at bargain prices. Lenders will continue to slash prices on REOs until the glut of foreclosures has passed through the pipeline. Likewise the odds of getting meaningful price reductions on short sales are getting better all the time.

The present market conditions are in a state of flux. Devalued prices and the $8,000 tax credit which is part of the Federal Economic Stimulus Plan are very helpful to first time home buyers who plan to live in their new house for a number of years. From an investor's standpoint, the continued downward pressure on prices caused by the glut of foreclosures makes new purchases risky unless the investor can buy for less than 70% of the current fair market value. If the investor can buy at a sufficient discount to market price, it may still be possible for the investor to sell at a smaller discount to market price and still make a profit.

Options may become an emerging strategy in this market. Under applicable real estate law, an option confers the right, but not the obligation, to buy the property at a set price within a set period of time. Acquiring a lease option or an outright option to buy a property at a price lower than current market prices will reduce the risk in buying. It will then be possible to market the property at a higher price without having to worry about the risk of falling prices, low sales volumes or the continuing effect of foreclosures.

If you would like to learn more about options, lease options, and real estate law, you should contact Dave Guinan to discuss his teleseminar or coaching programs.

Click on the following links for more detailed discussions about these areas of law:

Easements - How to get from Point A to Point B over someone else's land.

Eviction: Summary Eviction in Nevada

Foreclosure: How foreclosure works in Nevada

Leases: Understanding lease agreements is critically important.

Legal description: The Various Ways to Describe Real Estate

Optons: Whether you're buying or selling, they're a great tool!

Our law firm understands real estate law and has all the necessary expertise and legal forms to advise our clients about options and other issues in this emerging area.

For a one-half hour no charge consultation with Dave Guinan, click here.

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