California Association of REALTORS; CAR has notified REALTORS of tactics that some lenders are using to extort 'additional' payments outside of escrow in order to release liens and approve short sales. I received this email today:
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 UNDISCLOSED SHORT SALE PAYMENTS MAY BE ILLEGAL
Undisclosed payments in short sale transactions, especially those paid outside of escrow, may violate the law, including RESPA, laws against loan fraud, and licensing laws. Short sale agents have increasingly reported to C.A.R. about requests for agents and their clients to pay junior lienholders and others, oftentimes outside of escrow.
One common scenario is when a short sale seller's senior lender authorizes a payment of $3,000, for example, to extinguish a junior lien, but the junior lender demands that the buyer pays an additional $9,000 outside of escrow. Not only would it be risky for a buyer to pay outside of escrow, but concealing this additional payment from a federally-insured senior lender may constitute loan fraud, which is a crime punishable by 30 years imprisonment plus a $1 million fine (18 U.S.C. section 1014). Furthermore, omitting from the HUD-1 Statement any charges paid at settlement by either a buyer or seller may violate the Real Estate Settlement Procedures Act (RESPA) (Appendix A to 24 C.F.R. Part 3500). Depending on the specific circumstances, carrying out these payment requests may also violate other laws and regulations, and an agent's participation in the scheme may be subject to license revocation by the Department of Real Estate or other disciplinary action.
Agents and their clients are encouraged to file any complaints regarding fraudulent activities to the proper authorities, including the following agencies:
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In one of my deals the collection agency that purchased the 2nd has requested the seller "send a payment to reduce the principal balance" and this will induce the company to accept the payoff on the HUD allowed by the first mortgage holder and release the lien to allow the short sale transaction to be completed.
I first thought that extortion seemed like a really harsh word, however, I want to disclose that I looked up "extortion" and in my opinion I feel like this is the best description of what these lenders are doing.. What do you think??
So the (not so) funny thing is that the lender as the first mortgage holder is the 'victim' of loan fraud being a "Federally Insured Senior Lender", and in the very next transaction they could very well be the perpetrator of the fraud against some other "senior lender". Now if only we could get the government to forbid the 2nd mortgage holders from selling to credit collection agencies...
Deb Espinoza GRI, ABR, ePro, SFR, CNE
Stage Presence Homes
StagePresenceHomes.com
DebSDRealEstatePro@gmail.com
Extortion is the correct word. Make no mistake about it.
Sadly, there is almost no enforcement of the law when it comes to mortgage entities.
It is funny how they have laws on what brokers and agents can do.
Thanks Lenn, I didn't want to seem 'harsh' in my assessment, since I believe extortion is a felony..Oh MY!! Although a lot of our government officials and cronies seem to major in felonies these days.. but that's another topic!
and like Ted said- we, the agents and brokers have laws and consequences, however it seems that the big lenders and investment companies are impervious to the standards that others are being held to. Just look at the big companies that are practicing 'strategic defaults' and then read about how the homeowner should not consider a strategic default or 'walk away' because of their moral obligation. Hogwash!
Thankfully I have been able to avoid this situation but I had heard about these requests as far back as last summer. Good to finally have some clear comments and directions from CAR about this situation.
Junior Liens when handled correctly do not need to tank a short sale transaction. Persistence is key.
I have to disagree with Tony and Suzanne. Our exceptional ability to 'correctly' handle junior liens and our un-ending persistence have little or no effect on incompetent and unwilling Jr or Sr lienholders. If they don't want to cooperate or allow the deal to be done... It doesn't get done. I don't care who you are or what experience, training, and sticktoitiveness you have or lack thereof... And from a recent short sale training course I took the mortgage insurance (MI) companies have a lot to do with short sales not happening.. because the sooner they allow a transaction to be approved the sooner they have to pay up their funds on the insurance.. It's all a sick sham of a program that no one in lending, investing and insurance really thought would ever come.. shame