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When a Short Sale Buyer Blows Off a Nationstar Auction . . .
There are benefits to registering for a Nationstar short sale auction.
This is a story of a Nationstar short sale for which the buyer did not register during the online auction and, as a result, did not participate in the online Nationstar auction. I always advise in-contract buyers to register for the online auction and to place a bid, even if it’s the identical amount that they’ve already offered, during the last few minutes of the auction. There are advantages. First, no 5% premium applies to a buyer who is in contract with a seller to buy a short sale. Second, upon winning the bid process, Nationstar promptly issues an approval letter within the week — OK, maybe another week or so when the investor is Fannie Mae, but still.
These particular buyers did not want to participate in the online auction. OK, they don’t have to. Nationstar doesn’t force them to register nor to bid. But the consequences that happen when they don’t is the approval process starts over and can take another 3 months to obtain the approval letter.
My experience has shown that a Nationstar auction typically doesn’t get a lot of action, especially when the reserve price is set so much higher than the initial starting point. I heard that N.A.R. has stopped shill bids from Nationstar now, so that helps as well. Plus, when you have Fannie Mae as the investor, you can be fairly well assured that Fannie Mae will set a reserve price on the high side of market. But buyers don’t always listen to the listing agent’s advice.
We had already lost one buyer in September who had made an offer and then immediately reneged. Some lame excuse about his parents not wanting him to buy a home. When my seller finally entered into a purchase contract with our new buyers, it was October of last year, a few weeks before Halloween. The Nationstar auction process did not take place until the last few days of December, that quiet time between Christmas and New Years when I flew off to Vanuatu, probably the very worst time of the year for an auction. But like I mentioned, the buyer did not register for the auction.
Green Tree was the second lender, the collection agency that has made enormous profits buying bad paper. Green Tree had previously issued approval, but since Nationstar had dragged its feet on the process, that loan went to charge-off status. Now, Green Tree wanted more money. On top of this, Nationstar came back to say Fannie Mae would not approve the buyer’s closing cost credit, and raised the sales price.
All of this happened because the buyer did not bid at the auction. Good thing the buyer still wanted the property from my seller. Six months from the date of the purchase contract we closed, and the buyer had to pay a higher price, plus wrap the closing costs into the loan. The moral of this story is if you’re trying to buy a short sale and are faced with an online auction from Nationstar, you may want to register and participate. You have nothing to lose but time. And quite possibly, money.
Story of an Elk Grove Short Sale With Nationstar Auction
This is an interesting allegory of an Elk Grove short sale that survived two auctions directed by Nationstar. First, let me say that the very nature of short sales can sometimes mean the listing agent will be forced to sell that home 2 or 3 times. The reason for multiple resales has nothing to do with the negotiations, sellers or listing agent. It is almost always caused by the buyers. They flake out. Cold feet. Change their minds. Find something else. Move away. Lose jobs. Indigestion. Whatever.
The first time I sold this home in Elk Grove, it was to a buyer who also had a home to sell and wanted to present a contingent offer. While there are ways to accomplish this feat, a contingent offer is not always your best bet because, if short sale banks catch wind, they tend to reject those arrangements. A smart Sacramento short sale agent realizes this. The agent found a buyer for the buyer’s home almost immediately, and this buyer entered into contract to buy the Elk Grove short sale.
Nationstar could not bring the home to auction for more than 3 months. Much of that time was spent arguing about the health of the sellers, which was dire, and their ability to survive that sort of thing. In the past, we’ve been successful with a strong defense against the Nationstar auction and could opt out, but not this time. We also had to escalate the short sale several times because of non-action on the part of Nationstar.
The buyer registered for the Nationstar auction, even though the buyer was under contract, because the buyer was worried about losing the home. Another buyer would need to pay a 5% premium to Nationstar, but a buyer under contract is exempt, so this buyer had nothing to lose by registering. Except by the time the auction rolled around, the buyer grew more anxious and nervous. Near the end of the auction period, Nationstar, we suspect, submitted a shill bid. This is a phony bid designed to encourage panic in the original buyer and result in a higher price. Until recently, this was a legal practice on behalf of Nationstar.
The shill bid by Nationstar caused the buyer to push up the price another 3% or so. The auction ended and our buyer won. We received short sale approval within a week. Shortly after entering escrow, the buyer canceled. Something about realizing the roof had to be replaced, which was always an existing issue and made clear. The buyer who was purchasing that buyer’s home was devastated and crushed because now that sale fell apart. We put the home back on the market.
See, the thing is this home was priced about $100K under its value, maybe more. It was in line with the comparable sales, which was how we could get it approved by the bank, but its actual value was considerably more. The neighborhood is high demand. End of a cul de sac, too, which is always a premium in Elk Grove. Sometimes I get these kinds of listings, but the pricing is typically geared toward what the bank will accept, which needs to match the comps.
Sure enough, an astute real estate agent came along who recognized this excellent value and put in an offer at list price for a cash investor client. While this happened, we also received a bunch of lowball offers from idiots. I don’t know why comps aren’t run at times but these are the guys whose M.O. is to throw offers at the wall to see what sticks. They don’t do their homework, so they miss out on good deals by just lowballing whatever the price seems to be.
Second time around with Nationstar took a month longer than the first time, and there was no argument about the auction. Nationstar held the auction and nobody bid. The buyer did not register for the auction. We were informed that because the buyer did not register nor bid, the short sale would start over and we would not receive an approval letter a few days later like we did the last time. Buyers should be aware that this happens. It takes longer for approval, so my suggestion is to register and bid, at a minimum, your purchase price contract amount to speed up the approval process.
On top of this, at the last minute, Nationstar decided to offer considerably less to the second lender, Bank of America, and the second bank would not budge from its demand. Bank of America said no to the offer. Ordinarily, in these situations, there are ways to bring the banks to an understanding. However, that procedure involved a lot more time and the sellers had already found a place to move. Anybody who knows me well knows my compassion but I am also astute. I don’t give away my paycheck. I work too hard. It is very rare for me to kick in cash to close a transaction, but every once in a blue moon it makes perfect sense, especially when the clients’ needs take precedence.
Many people don’t know it is against the Code of Ethics to ask a buyer’s agent to reduce the selling end commission. Yet, there are also ways to encourage a buyer’s agent to participate in a cash contribution without directly asking the agent to do it, but I decided just to pay the difference myself. It was expensive but worth it for my clients. Both of the banks allowed this hijacking. I absolutely will not pay a guy’s child support, however; and I’ve been asked, if you can believe it. But these sellers were unlikely to find another place to move that met their specific needs, the negotiator at Nationstar was not very cooperative and sometimes vanished for days, and this needed to end. It was in my power to make it end. So, I did.
Ten months of hell. Over. Clients: extremely grateful. That’s the silver lining.
