Should we do a few more backstory posts while we make our way to Vanuatu? Okay. When last we left off, Kai Rysdall was interviewing some gloom-and-doom economist with ominous news about my newly purchased house in the suburbs. Was it really that ominous? Turns out it was.
After the market hit is peak of 14000 in October of 2007, the downward slide started and built momentum. We heard rumors of houses losing value in Las Vegas, but how does one really know what one’s house is worth if you aren’t trying to sell it?
One day, I sat typing away at my desk working on some motion or brief when the phone rang. It was my old friend from Utah. He worked for a bank now that had a number of commercial property loan portfolios in Las Vegas. He is looking for a good attorney in Las Vegas, and he had heard I am a good attorney in Las Vegas.
If I’m going to be honest with you, as a lawyer practicing in her third year, this call caused me to look around my office - right, left, behind me - as if some other attorney might also be in the room receiving this call. “Who? Me?” I think at first, but then I collect my wits, clear my throat, and say “Absolutely! I am the attorney you are looking for. What exactly do you need?”
In life, there are so many intersections of work and luck. To me, luck is one of the mysteries of the universe that causes me great wonder. I am superstitious about luck, I wonder when it will run out. Sometimes you have to grunt it out, “make your own luck” as they say. But other times, something falls squarely in your lap. I grant you, one must be prepared to take good luck when it comes your way. If I had not built this friendshipyears and years ago, gone to law school, got my job, stuck out the first three years with their terrifying learning curve to the moon, I wouldn’t have been sitting in that chair when this call came in. But still. This call came out of nowhere, just in the nick of time.
The bank needed someone to help them with foreclosure of business real estate. They weren’t foreclosing on houses, but retail buildings, warehouses, etc. As I listen to this request, I think to myself: “Isn’t being in a law firm great! Of course we can help with this. We have a real estate department downstairs, this has to be squarely their expertise.” So, I take the information, start a conflict check and head downstairs to talk to the real estate lawyers.
When I explain to them what the client needed, I received blank stares. “No, we don’t do that type of work.” You don’t? Then what do you do? “Well, we write the purchase agreements, loan agreements, conduct due diligence, etc. when someone wants to buy property.” Yeah, but what about when no one wants to buy property anymore because there is a real estate bubble? Then what do you do? They just shook their head at me. “Maybe ask Joe if he knows any one.”
I went back to upstairs to Joe’s office. I explain my plight. He looked at me and said, it’s more of a dispute than a real estate transaction. Foreclosures are easy, it is a statutory process. You can just figure it out yourself.”
Figure it out myself…this sounded familiar. Yeah. I can figure it out! I immediately went back to my desk and brainstormed what exactly I was trying to do: a commercial property foreclosure. I searched and found CLE Training materials on foreclosure in Nevada, I watched the video, then read the book. It was a little outdated, but this initial CLE guided me toward the proper statutes. So, then I read every relevant statute from boring definitions, through to the end. I read every Nevada court opinion that referenced foreclosure, the relevant statues, loan defaults, and deficiency judgments. I called a title company in town and consulted with them on how they undertake their part in the process. Along the way, I put my feet to the fire and began drafting documents, returning to Joe for his supervision, and tweaking as I went. I made a chart with the relevant deadlines, because nothing makes me feel more in control of my destiny than a concise chart. Within a few weeks, my first client paid its retainer, the documents were ready, and I held my breath as I pressed send on the email that would put the foreclosure in motion.
I had a giant rock in the pit of my stomach: fear. Did I do this right? Would I know what to do next? What if something doesn’t go as planned? But, the wheels of justice grind slowly, and it would be four whole months before the foreclosure would occur. All I could do now is wait to see.
In the meantime, I decided it would be prudent to go to the location where foreclosure auctions would be held to see exactly how the process goes down. I looked at the list of properties up for sale a few days later, learned the loan balances for a handful, and headed down to the auction to watch. It was late spring in Las Vegas; temperatures were already climbing well into the 90s by the 10:00 a.m. auction call. About 150 houses were up for sale this day, no commercial properties, yet.
“Bibbbity bibbbity, bibbbity bibbity, bibbity, bibbity, bib….” The auctioneer sounded like a true auctioneer, speed reading the pages of the foreclosure documents like the ones I typed up, word for word, along with the senseless legal property description identifying the shape and parameters of the property line in terms of feet, degrees and angles. The words were spoken so fast they blend into each other and you have to strain to make sense of every sixth word to know what is going on. Grab the name of the lender, the amount of the loan, the property address and then wait for the auctioneer to open bidding. The house in question had a loan of $350,000, square footage of 2100 square feet the starting bid from the lender was the full $350,000 loan. When I looked at the comps and the valuations for this property before going to the auction, the “market value” looked to be $400,000. This should be a good deal! Someone can get a house $50,000 cheaper than its real market value.
The offer was met with silence from the people in the audience. The bank foreclosed for its loan bid and took ownership of the title itself. No one else wanted to buy it. I didn’t stick around for all 150 properties being called that day, but for the length of time that I stayed, no one bought anything. One property after another taken back by the bank.
What does a bank do with all these properties if no one wants to buy them? I wondered. And these are the cheap houses. If no one is around to buy houses, who is going to be able to buy the retail property, warehouses, business offices, etc. that I was getting involved with?
Appraisers couldn’t wrap their heads around the falling prices fast enough. Appraisers would appraise the houses at $300,000, with a loan of $400,000, but then the banks wouldn’t be able to find anyone to buy the house at $300,000. Then the appraisers would say it had fallen farther, and still no one was there to buy. No one could get loans, no one had cash in hand, no one was there to buy any houses anywhere.
Suddenly, I had the grim realization that these houses are not one off, an exception to the rule, or unusual in any way. These houses are like my house, they are owned by people like me, and inevitably, if no one wanted to buy these houses, no one would want to buy my house. What is the value of an object no one at all wants to buy? I’m here to tell you, it is zero.
I already knew our house could not be sold for anything at all, but it’s okay, it’s still good! It will come back! This is just a blip. Then, the stock market fell. In the matter of days, every extra penny we had saved was cut in half. I don’t remember what the amount was, but let’s say we had scraped up $5,000 - which to us seemed like a lot at the time - by the end of the day the stock market fell, we only had $2,500 left.
Through 2008, things just got worse and worse. I was handling more and more foreclosure matters, now for more than one bank. The auctions were always incredibly grim. If anyone bid on houses at all, they were absolute pennies on the dollar. As an example, like that $400,000 house I watched not sell on the first auction I went to, similar houses were being bid on for $50,000 total. At first, banks weren’t willing to sell the houses for that low, but as the market plummeted, soon the auctioneer was accepting bids for $80,000 on what used to be a $400,000 average sized family home in Vegas.
We knew our house could not be sold, practically for any price whatsoever. No one was out there to buy it. Our “savings” we had invested went in half. Construction had ceased completely and people were getting laid off across all industries. In fall of 2008, law firm layoffs started nation wide. Suddenly, the Godfreys' financial strategy was being stress tested and it was failing. Our expenses were such that we could float them on one job, but what if both of us lost our jobs? In this economy, anything seemed possible.
That rock of fear that started the day I recorded my first foreclosure documents was a giant boulder now. It would not take much for our whole house of cards to fall. If we lost both jobs, $2,500 in savings would take us exactly nowhere. We wouldn’t be able to pay our mortgage, the bank would foreclose, they would not be able to get anyone to bid on the house, they would bid low, they would file a lawsuit against us to get a judgment for the difference between the loan and our valueless house, and we would owe the bank most of our mortgage with nothing to show for it. We wouldn’t be able to pay our student loans and the penalty interest would pile up and up and up, sky high until we could never pay it all. It would take decades to climb back from that outcome, we would never get to go sailing at all.
I started developing strategies that involved us living in Windchime, our little starter sailboat out at Lake Mead. No, she doesn’t have a shower or space for a closet, but I could keep my gym membership, put my suits in a locker at the gym and drop by on the way to work for a workout. We should have done that from the beginning! Live on a sailboat, run our hygiene and office wear plan out of a gym locker.
Our nightly walks became very grim.