Banksters?
Not Sure if other Short Sale Agents have been receiving the e-mails from Jeremy Brandt requesting information on your short sales experiences concerning the practice of Second Lienholders requesting the sellers come in with extra money at closing in order for them to approve the short sale. Personally... I have not responded to them..
As Short Sales Agents know... just about every short sale approval letter from a first lienholder that allows a portion of the proceeds going to a second lienholder will specifically state the amount allowed and that "Any Additional Proceeds are to Go to the First Lender".
Chances are... if you've done enough short sales... you've come across a second lienholder that will ask for more. I have one going on right now where the second (Small Servicer) is requesting the seller to bring in an additional $5,000 over what the first is allowing in order for them to sign off on the lien and allow the short sale to close.
Personally... I call this practice -- "Holding the Seller Hostage" or wanting a "Ransom". The second lienholders certainly know they will recieve nothing if the property goes to foreclosure yet they Know the sellers are in financial duress and attempting to salvage their credit. Credit scores are a pretty powerful tool to use... and having the ability to buy another home in three years via a short sale or having to wait much longer if they have a foreclosure on their credit report is a pretty motivating tool.
Some certain Loss Negotiators know this...
I knew from last weeks e-mail from Jeremy Brandt the story was coming and Here it is: (What a Title from CNBC)
Big Banks Accused of Short Sale Fraud
From the Article:
"In order for a short sale with two loans to happen, the second lien holder has to drop the lien.
If they don't, and there's no short sale, the home goes to foreclosure and the first lien holder gets the house because second liens are subordinated debt to the primary loan.
In short, the second lien holder gets nothing. In order to get the second lien holder to drop the lien, the first lien holder generally negotiates some partial payment to the second lien holder. The second lien holder doesn't have to agree, but more and more are doing so.
That's all legal.
"But here's what's not legal and what's apparently happening quite often recently. Since many second lien holders are getting very little, they are now allegedly requesting money on the side from either real estate agents or the buyers in the short sale. When I say "on the side," I mean in cash, off the HUD settlement statements, so the first lien holder doesn't see it."
Diana Olick, a Real Estate Reporter with CNBC, goes on to state:
"I told RESPA specialist Brian Sullivan over at HUD about all this and he replied, "That's a red flag!"
Clearly illegal."
Some Damning Evidence of the Practice Happening stated by Diana:
"I personally heard a recording of a phone conversation between a short sale real estate agent and a second lien lender, during which the second lien lender clearly asked for cash outside of the settlement and threatened to kill the deal without it."
Diana goes on to state:
"I contacted the Treasury Department, HUD, FINCEN (Financial Crimes Enforcement Network) and the Federal Trade Commission, and none of their representatives could tell me of any active investigation into this. The folks at HUD said they'd be very interested to see my story."
So... if Brian Sullivan over at HUD says this practice is Clearly Illegal... what about the practice of second lienholders making sellers sign deficiency agreements and making payments on the determined amount in order for them to release the lien?
Quite a Damning Article on the Banking Industry Already under Significant Fire.
Paul Francis, CRS | Prudential Americana Group - REALTORS | 702.592.3058
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