Last month we brought you some information on Nationstar’s news about their recent servicing asset purchases and short sale changes. They continue to strive to be one of the nation’s largest servicers and they are standing out with a unique short sale requirement! Nationstar now requires borrowers wanting to sell their home on a short sale to auction their property on auction.com for a period of time to try to bring in the highest bidder on their property.
After a short sale offer is submitted to Nationstar, they notify the listing agent that the property must be put up for auction on auction.com. Despite the fact that there is a legally binding contract on the property and a complete short sale package was submitted for review, the seller must be willing to go through this auction process or Nationstar will not permit the short sale to continue. If the borrower refuses, they could be forced into foreclosure.
The listing agent must register as the broker through the auction.com website. The registration process brings the agent to the website https://www.mylandhome.com where a user name and password is created. This registration allows the listing agent to see the property description, details on the website, and allows them to follow the auction process. Nationstar notifies the agent of the dates the property will be auctioned and the agent must notify the buyer’s agent to let them know the buyer must participate in the bidding process if they want the property and a bid exceeds their current contract price. In other words, if the current buyer has a contract on the property to purchase it for $100K and a bid exceeds their offer, they will have to bid against other bidders if they really want the property. The buyer can continue to bid on the property through the end of the auction period. At the end of the auction, the highest bid wins and there is no opportunity to counter the offer after the auction closes. Once Nationstar has the highest offer, they say they will issue a quick short sale approval.
The listing agent remains the listing agent and earns their commission at the closing of the transaction. Additionally, if a real estate agent does not represent the highest bidder, the listing agent has the opportunity to try to represent the new buyer to earn additional commission.
While this auction process benefits Nationstar, the listing agent and the seller, it has created some controversy. Being able to accept the highest bid certainly helps Nationstar recover their asset purchase expense quickly and provides the seller an opportunity to lower any deficiency, but what about the investor and the original buyer with the legally binding purchase contract.
This auction process is not making investors very happy as a complaint was recently filed in New York State Supreme Court by the mortgage-bond investor, KIRP LLC saying Nationstar’s loan liquidations are a ‘blatant abdication’ of the company’s responsibilities as servicer of these loans. ‘Nationstar has not fulfilled its duties as master servicer but rather has engaged in practices to enrich itself at the expense of investors, KIRP said.’ It seems these practices are also at the expense of the buyer with the signed contract!
Nationstar’s asset purchases increased 94% to $198 billion last year after purchasing assets of Lehman Brothers Holdings Inc. Then their portfolio rose to over $300 billion after completing part of their deal to purchase $215 billion in contracts from Bank of America.
The complaint states that many of the mortgage loans Nationstar has auctioned only realize ‘a fraction’ of the total unpaid principal balance of the loans and are much less than the present value of the property that secures the loans. It is argued that Nationstar could take other steps to minimize loss and do more to protect the investors, but the quick loan sales conducted on auction.com simply allow Nationstar to recover their investment more quickly. Another issue seems to be the ‘business affiliation’ Nationstar Mortgage has with auction.com.
Nationstar is competing to become one of the nation’s largest loan servicers and it is likely we will see more changes in the short sale arena in the near future. Uncertainly lies in the fact that the large loan servicers, such as Nationstar, are not regulated by the same entities that govern large commercial banks such as Bank of America and Wells Fargo, and they may not be playing by the same rules.