Nationstar’s mandated Market Validation Program is a program where it requires distressed homeowners to submit their home for sale on an online public auction with a company, Auction.com. This is required of homeowners, even when they already are in contract to sell the home with a contract vended purchaser by short sale application to the servicer. A refusal to participate in this program causes Nationstar to close consideration of the proposed short sale application and thus any chance for HAFA like relief from the substantial deficiency which results if a foreclosure is consummated on the property.
This forced online auction scheme compels distressed homeowners, as contract vendors, to breach the existing contract of sale which was submitted to the servicer for consideration of the short sale. Under this scheme bidders on the online auction can be the very investors, assignees or note holders of the subject non performing mortgage backed asset. The bidders can also be the auctioneer Auction.com itself or Nationstar, or one of their affiliates or investors. Permitting such non-disclosed investors, shareholders and other affiliates, to bid via the blind online auction appears to avail upon them improper transactional control over the distressed homeowner and property; including creating an artificial bubble like elevation of the offered sales price and interference with the existing contract by affiliates or employees of the investor note holder, whom may not have to actually put all the money allegedly bid on the table to secure the transaction, if certain swaps and the like are available. Who knows?
The distressed homeowner will never know because they are forced to sign an agreement with Auction.com which permits such type of inside dealings. Auction.com can mislead distressed homeowners and contract vendees in the process. Contract purchasers are forced to become bidders in the online auction to preserve their interest in the property. The sale price, set by the contract can then become the leaping off point for investors who want to get the property. This subjects any purchaser to a scenario where on any offer they make for a property which goes into contract, they will be required to bid against their accepted negotiated offer under the scheme.
Auction.com also fails to disclose the reserve prices at auction required to close deals and by secretly bidding on behalf of sellers to drive up prices. Bidders on Auction.com don’t know who they are bidding against, including Auction.com and Nationstar, their affiliates and investors; nor do they know whether any alleged objective reserve price is even set, or instead if the reserved price is a moving bar, known only to the insiders, set by potentially self-dealing entities.
Contrary to Nationstar’s claims, this auction process should not be considered comparable to just any other auction process. Auction.com and Nationstar are not selling widgets at auction. These are non-performing mortgages on loans which are regulated by the Federal and State government, which attempt to provide some measure of protections for distressed borrowers. Meager protections established as impotent concessions by Wall Street for the government, while it doled out all that TARP money and corporate welfare to banks which caused the collapse of our economy and continued to give their executives huge bonuses and golden parachutes.(Guess which sector of the business world has been recording record profits since then.)
This level of control, apparent self-dealing and secrecy leaves a bad taste in the mouths of homeowners who already got that short end of the stick during the sub-prime debacle.
This auction.com process does not seem to me to be “democratizing the process,” but instead the very opposite. Big institutional investors do not need any more inside advantages above what they already have; Especially not at the expense of the distressed homeowner. Come on folks leave some meat on the bone.
My primary objection to this scheme is it jeopardizes distressed homeowner’s opportunity for HAFA like relief, (now that the government’s relief program has been allowed by the Congress to expire as of December 31, 2013) and exposes the distressed homeowner to substantial deficiency judgment on the distressed property should the process cause the existing proposed transaction to be delayed or to fail. Such interference and frustration of the short sale contract process appears more strategic than accidental, permitting improper causative elevation of the short sale’s price. Any elevation in the bid and sale prices of distressed properties should not be driven by blind bids from non-disclosed interested parties, for market control on the bidding process and insider self dealing. Transparency is necessary.
Moreover any affiliation and coordination between Nationstar, Auction.com and their mutual substantial investors, etc., presents as an unacceptable organized enterprise which contravenes the borrower’s rights; and violates various Federal and State regulations; forcing borrower from a loan workout by short sale. Such affiliations and economic machinations, if present, would not only violate the free market processes, and fair business practices, but also State and Federal Law.
This past March, 2014, Benjamin M. Lawsky, of the Department of Financial Services, New York State’s top banking regulator demanded details about the company’s staffing levels, modification procedures and affiliated businesses.
In a letter to Nationstar, Lawsky, superintendent of financial services, said his office had received “hundreds of complaints from New York consumers” about problems related to the company’s mortgage modifications, improper fees and lost paperwork.
“Our department has significant concerns that the explosive growth at Nationstar and other nonbank mortgage servicers may create capacity issues that put homeowners at risk,” Mr. Lawsky said in the letter.
Nationstar, a Delaware company, based in Texas, is one of the largest nonbank servicing companies. Mr. Lawsky will hopefully receive details about the company’s affiliated businesses, which pose multiple conflicts of interest and could put homeowners at greater risk of foreclosure.
Mr. Lawsky is asking Nationstar for a list of its third-party vendors, including its affiliates, and the procedures that the company takes to prevent potential conflicts. Nationstar’s chief executive, Jay Bray, said, “We intend to comply fully and transparently with Mr. Lawsky’s request.” And “We have a proven track record of helping homeowners succeed and avoid foreclosure, and we welcome the opportunity to share this information with the New York Department of Financial Services.”
This does not jive with my representation of hundreds of distressed homeowners over the last 7 years. What I have seen is the recent transfer of many many files from Bank of America and other servicers to Nationstar, coupled with the prompt denial of pending modification applications which were being considered by the transferring servicer B of A.
It appears as though the scheme of Nationstar and others like it are designed to exert improper control over the distressed properties in their portfolios and inventory; that a new industry of big business with designs at procuring distressed properties and converting them to rentals has take root. Insiders can out bid a bona fide purchaser who wants to rehabilitate the property, live in and/or make a profit selling the property, because of their positions they will make substantial profit on the investment in the end.
Making a killing is always a great thing in this capitalist land of the free and home of the brave, where Contract and Profit are kings. But let’s not permit the defiling of our queens, Equity and Fairness, in blind worship and pursuit of the kings. Please do not tell the distressed homeowner to go eat cake.