If a homeowner is “underwater” on the mortgage, meaning that the fair market value of the house does not equal the amount owed on the loan note, then the homeowner cannot sell the house through traditional means. A traditional sale recoups sufficient funds to pay off the amount owed to the homeowner’s mortgage company or companies and hopefully make a little extra. In order to sell an underwater home, a homeowner must conduct a “short sale.” In a short sale, the homeowner attempts to obtain the mortgage company’s approval to sell the house for less than the amount owed on the note. The mortgage company must agree to release the lien on the deed in order for the buyer to purchase the house free and clear of the homeowner’s mortgage loan.
By way of illustration, if the homeowner owes the bank $200,000 on the note and can only sell the house for $100,000, the homeowner must seek approval of a short sale. The mortgage company must agree to release the lien on the deed for $200,000, or they buyer won’t purchase the house. Next, the homeowner will want to convince the lender to waive the $100,000 still owed on the note, called the “deficiency” on the note. Under Nevada law, for home sales made before 2009, a homeowner’s assets are liable in court to be seized in order to pay back the bank the deficiency amount. Those homeowner assets include property, savings and income. Short sales take a long time to complete. If there are two loan on a home, it normally takes longer. The banks average between four to six months to complete a short sale. It is part of the mortgage company’s normal processes to confirm that the buyer can afford to buy the house before proceeding to closing. The mortgage company will want proof that the buyer is prequalified to buy the property or proof of funds if the buyer intends to pay cash.
Nationstar Mortgage is imposing a new requirement on the buyer, one we are seeing for the first time. In order to obtain approval from Nationstar to conduct a short sale, the application states that “all Buyers requesting a “Short Sale” on a Nationstar property must submit an application for Loan Approval through Nationstar Mortgage before an offer can be accepted on a property. Applicants are not required to use Nationstar to fund their loan. They buyer, however, does have to submit an application to confirm that they qualify for a loan and are in good credit standing.
Several buyers have already objected to the NationStar requirement. They stated that they have no business relationship with NationStar and do not want to share all their financial information with them, especially since they have their own mortgage lender. Some are refusing to participate and simply making offers on different properties.
Some buyers object to giving away all their financial information to a company they have no business with. Nationstar says that the buyer does not have to use Nationstar to fund the loan. So what is the problem if buyers can use their own lender? Well, sometimes they can’t use their own lender.
The Nationstar application also states that “in the event that an outside lender is unable to close a loan by the scheduled deadline, an extension will be granted only if Nationstar Mortgage assumes the loan process so that we can be assured that the transaction will be closed in a timely manner.”
Remember, short sales can take four to six months. That delay is completely within the control of the homeowner’s mortgage company. It is the homeowners’ loan holders that routinely cause delays in short sales, by taking too long to consider the application that they buyer’s withdraw their offers, losing documents, requesting new documents after the previously submitted documents have “expired” and constantly requiring submissions of new pay stubs, new bank statements and the like. When they finally approve a short sale and agree to release the lien, the lenders routinely set unrealistically short deadlines to close escrow, forcing homeowner’s to request extensions in most instances.
This requirement has the potential to force buyers to drop their own mortgage company and take out a loan from Nationstar in order to close the deal. There is something about that idea that, so far, has caused several buyers to say “forget it” and drop the short sale. As buyer’s object to this requirement, it has the potential to delay or kill short sales of properties with NationStar mortgages. If it catches on to other lenders, it could make the already frustrating short sale process even harder to complete.