The Real Deal New York

NYC home loans sold at “fire sale” pricing on Auction.com, suit says

Bondholders seek to block future bulk sales
By Adam Pincus | March 07, 2013 05:15PM

Investors in New York are always trying to find an angle as they shop for real estate, but today a group of bondholders is aiming to pour cold water on one auction process that they say is selling off home loans at “fire sale” pricing.

In the past few weeks, an unidentified investor snapped up a portfolio of loans on eight Staten Island homes for $1.75 million, far below the $3.5 million value quoted by a broker. It was one of dozens of packages of mortgages across the U.S. that buyers snapped up through Auction.com, an online real estate marketplace.

Today, Kirp LLC, a New York-based company composed of investors in bonds backed by residential mortgages, including the Staten Island homes, filed suit against the loans’ master servicer Nationstar Mortgage, to block additional bulk note sales, even as home prices are rising across the nation.

Kirp alleges in a lawsuit filed today in New York State Supreme Court that Texas-based Nationstar is selling off some of the $300 billion in loans that it reportedly oversees, a move the court papers say is not permitted under the servicing agreement. Auction.com is not named as a defendant in the suit, but the papers allege the firms have a business affiliation.

“[Nationstar] was authorized to service the loans, or foreclose on the properties if all else failed. It was not entitled to sell the loans, let alone in bulk Internet auctions,” the suit said. “[However, it] is liquidating loans owned by the trusts through online auctions at fire sale prices without authorization and in blatant abdication of its servicing duties under the governing contracts.”

The auctions advertised the sale of a $250 million pool of nonperforming loans backed by homes in New York and 15 other states; one auction took place on Feb. 19, with a second one this past Monday, the suit says. A third is scheduled for this coming Monday.

Bloomberg News, which reported on the suit this afternoon, noted that Nationstar is majority owned by Fortress Investment Group.

The plaintiff claims higher prices could be obtained through continued servicing, modifications or foreclosures.

Nationstar and an attorney for Kirp did not immediately respond to a request for comment.

Even as major investors have snapped up home loans nationally, in New York City there has been little activity in bulk acquisitions. One of the few recent examples is DelShah Capital, which purchased 21 three-family homes for $3.4 million in January, as The Real Deal reported.

Nationstar bought the servicing rights to the disputed loan package, known as Residential Accredit Loans, from Aurora Loan Services, in June 2012 for $268 million, the papers say.