Web Based Auctions, Buyer Beware!, Realtor Beware!

Attorneys across the country who share the passion to level the playing field between struggling homeowners and mortgage companies often network and discuss market trends, new strategies to defend against foreclosure, and the latest lender tactics.   Among the latest chilling experiments by the mortgage industry many stretch the concept of an auction in ways that our original foreclosure laws were not really drafted to allow.   Just as they are with utterly one-sided REO contracts, State Code and other protections for homeowners and even buyers in these situations are all but eliminated!  Legal advice in the process of  losing or protecting those rights will be implied to someone!

While the lenders do not primarily mean to trample legal rights, their efforts to stimulate higher bid prices on auctions do just that.  The end result is that  what once were considered final sales, i.e., “the gavel dropped” now bring no closure at all.  Many foreclosures and short sale approvals are contingent upon an additional period of time (generally at least 10 days) during which electronic bids by unseen parties can topple legitimate local offers.  Large deposits are tied up for days!  Other opportunities are lost.    It is not enough that lenders require BPOs (broker price opinions) and weeks of analysis before accepting offers on short sales, now in an expression of additional paranoia, they troll the mysterious seas of the internet (or is it just a limited group of privileged bank insiders?) for higher bids after the traditional auction.    I will leave for another day a deeper discussion of the depressing  effect such tactics have on the traditional bidding processes.

Short Sale Attorney Elizabeth Kayser raises a red flag over one such specific scheme in her blog and the additional peril posed to real estate agents in her blog :

Short sales on Auction site –
Be aware of the legal landmines


Short sales on Auction site –
Be aware of the legal landmines 

Over the last 18 months, Auction and similar bidding platforms like Hubzu have drawn significant attention for all the wrong reasons. From questions about shill bidding to general discontent with the process, the pressure on servicers to end the use of these platforms continues to increase.

California Association of Realtors (CAR) has taken the lead by addressing the use of Auction directly with the California Bureau of Real Estate (BRE) and Nationstar, a servicer that has consistently required short sales be worked through Auction. Kevin Birmingham, Transaction Issues Chairman for CAR, has even announced that the Board of Directors voted to amend AB 2039 (Muratsuchi) to prohibit the use of so-called “shill” bidders working for an auction company. This bill will likely be a catalyst for the introduction of similar legislation across the country. You may view text of the amended bill at http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140AB2039.

Despite the push-back, the BRE has informed CAR that Nationstar’s program does not violate any laws. Furthermore, CAR has confirmed that Nationstar will continue to use Auction on its short sales.

As a result, agents must take a pro-active approach to working short sales through Auction to serve their clients and grow their business. Once again, CAR has taken the lead by offering tips on how to effectively manage the site.

Among the most sensible pointers offered by CAR is that “Realtors should also be aware that Nationstar’s market validation program requires both the listing agent and seller to sign documents which could impact their legal rights. Realtors 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.”

Always keep in mind that there are 2 negotiations in a short sale. The 1st negotiation is between the buyer and seller in coming to an agreement on completing the blanks on the Offer to Purchase and Contract which is exactly what real estate agents do best. The 2nd negotiation is getting the lien holder(s) to agree to settle for less than what is owed and what will happen with the loss (deficiency judgments, 1099, and credit reporting) which generates stacks of legal documents that must be signed by the seller and therefore is considered to be THE PRACTICE OF LAW. The listing agent and seller documents referred to by CAR fall into this 2nd category and should be handled accordingly.

Whether or not your client’s short sale is being worked through Auction, it is always important to get legal protection for your client, your broker, and yourself through the process.

For more great tips from CAR on working short sales through Auction, please visit http://www.car.org/newsstand/news/nationstar/.

For additional blogging by Elizabeth go to her website at KayserLawFirm.Com.   Elizabeth has a multi-state practice home based in Missouri:

Kayser Short Sale Law Firm

410 Soverign Court, Suite 9

St. Louis, MO 63011


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