C.A.R Says: Undisclosed Short Sale Payments May Be Illegal
Junior lenders demanding under the table, "secret", payoffs has become quite the rage of late in the short sale business. This has now become a very common issue for buyers who hope to purchase a home from an unfortunate homeowner who is hoping to sell their home on a short sale to stave off a foreclosure.
Theoretically, under the new Obama approved Short Sale program, each of the "Junior" note holders is entitled to up to $3,000 from the holder of the first note in exchange for a release of their lien. However, many of the holders of junior notes (some of which have insured their liens for as much as 80% of the note value) have been "demanding" money, "secret payments", usually $9,000, from the buyers of short sale homes in exchange for the release their liens. The holders of these junior notes have been refusing to approve the short sale without this "secret payment" in the form of a cashier's check, prior to closing.
Some short sale mitigation advisors and lenders in these transactions, as well as some of the Realtors and escrow officers, have been recommending that the buyers make this "payment" as an unfortunate necessity in the short sale files and escrows they are processing.
Wells Fargo Mtg. (HELOCS), Citibank, Chase and many other Major lenders may be violating Federal RESPA Laws by demanding allowing/forcing the Buyers to pay the $9,000 un-insured part of their note balance, "secretly", in exchange for their short sale releases.
Hopefully, while demanding these payments the folks at these lending institutions will also receive adjoining cells in Federal or State Prison along with the Realtors, Buyers, Sellers and short sale processors, escrow officers and mitigation specialists...and also contribute their fair share of the possible Million Dollar fine.
Perhaps this notice from CAR will assist a lot of Sellers in getting their Junior Note Lenders to come back to the bargaining table and do the legal and right thing.
Undisclosed Short Sale Payments May Be Illegal
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Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS® |
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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: Attorney General's Office Department of Housing and Urban Development (HUD) Federal Bureau of Investigation (FBI) SIGN UP FOR APRIL'S LEGAL WEBINAR: Join us on April 5, 2010 from 1 to 2 p.m. for a Legal Live Webinar on the newly revised C.A.R. Residential Purchase Agreement (RPA-CA). C.A.R.'s Assistant General Counsel Neil Kalin will discuss the upcoming changes to the RPA-CA, which are scheduled to be released on April 28, 2010. He will also provide REALTORS® with valuable insight and effective practice tips for using the revised form. Registration is simple, but space is limited, so sign up now at www.car.org/legal/legal-live-webinars. |
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Realegal® is published by the CALIFORNIA ASSOCIATION OF REALTORS®, a trade association representing more than 175,000 REALTORS® statewide. |
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Copyright © 2010 CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) |
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