California Realtors get Heads-Up on Short Sale Complications
A short sale program for properties serviced by Nationstar, which bills itself as one of the nation's largest independent loan servicers, is the subject of a new member advisory from the California Association of Realtors (C.A.R.). C.A.R. is acquiescing to the program about which it has been in talks with the servicer for the last year but which it has been told by the California Bureau of Real Estate (BRE) does not violate any laws.
Nationstar requires most of its mortgaged properties to be listed on auction.com before a short sale is finalized. The company says it utilizes this business model as a verification system to insure owners receive the best possible price.
As a practical matter all potential short-sale properties are put through the appropriate MLS by their listing agents just as they do for properties managed by other servicers. However, once a Nationstar listing receives an offer acceptable to the seller, the servicer requires the property to be listed on auction.com for a three week period. During that period the original offer will remain valid as long as the buyer along with the buyer's agent have registered with both Nationstar and auction.com.
This appears to be a rather straightforward practice albeit one that extends the already lengthy time it takes most short sales to close compared to a market rate sale, but C.A.R. maintains there are complications. First, during its lengthy discussions with the servicer C.A.R. says it learned that auction.com tends to list the starting bid significantly lower than the actual amount of the accepted offer in order to encourage bidders.
If a higher bid comes in through the auction site of course the original buyer will lose the property unless he/she places a second and higher offer with auction.com. The ultimate buyer is charged a 5 percent buyer fee although the original buyer is exempted if he has properly registered as above.
C.A.R. maintains that a buyer on auction.com may be unable to use FHA or VA financing to purchase as those both generally prohibit a buyer from paying a premium such as required by the site. This would not apply to the original buyer if he or she has properly registered so the fee is waived.
C.A.R. reports that Nationstar says that foreclosures may start or continue on a seller in default while the property is in its "market validation program." However, the foreclosure date will be suspended until the property is sold in an approved sale or otherwise removed from the program.
The Realtor association is advising its members who take seller listings where Nationstar is the servicer to immediately contact the servicer to determine if the property will be listed on auction.com and whether buyers' agents should be notified accordingly. Also the agent should determine if there is appropriate language that should be inserted in offers or counteroffers.
Agents working with on the buyer are advised to inform their clients of the possible additional steps that may be needed to complete transactions on these properties. Buyers who are using government-back mortgage programs should also be told to check with their lenders about the required buyer premiums before bidding on an auction.com property.
C.A.R. also told its members that this validation program requires both the listing agent and seller to sign documents which could impact their legal rights. Agents should advise their clients to seek legal counsel to interpret any clauses in such agreement that may raise concerns as to possible costs or risks to sellers for participating in the process.
C.A.R. said that the servicer has not, to date, changed anything stated in the MLS with regards to agent commissions, unless it does not meet the requirements of the loan investor. However, this could change based on servicer guidelines.
Nationstar claims to be the fastest growing of the top 50 servicers in the U.S. As of December 31, 2013 it had $391 billion loans in its portfolio. It is a "high touch" servicer which means that it handles many distressed loans.