Doesn't sound legal to me...but banks seem to get away with almost anything.  I will be interested in seeing other comments to this.

Duane - I'd run this by your company attorney...   better safe the sorry.

I have done several short sales and it sounds like the listing agent does not understand the process. I am actually working on a short sale right now with a first and a second. The timeline should be 2 weeks for the banks to do BPO's and another week to do an appraisal and 1 week to make a decision. The second mortgage company is in a tough situation, if the seller claims bankruptsy they get nothing. If the house is foreclosed they have to decide if they wish to bid higher than the first.

Which first lender has the problem? The new loan or the one accepting the short? The lenders should send a payoff statement to the title company for the amount they are willing to accept say 250,000, and the second should do the same, say 3,500. So as for the HUD 1 should just have an adjustment for the commissions and the closing fees. All this should just change the balance for money owed by both buyer & seller. If the buyer is willing to bring say $1000 more than you might need to adjust the sales price to properly show that money. There is no reason why you should need to pay the second outside of closing unless someone at the first knows that their boss wouldn't accept the payoff if they knew that there was an extra $3500 on the table. I hope that helps. Email me if you have other questions.

Hi Duane,

Bottom line, doesn't pass the smell test to me! I've done lot's of short-sales myself, and written on the same thing. Never once have I heard the lender suggesting something that's not on the closing statement. Guess that says something for the lender itself.

Anyway, whether or not the 2nd t.d. holder gets anything at all depends of the value vs. existing loans, that's it. That's something you can figure yourself in a minute or two. And please keep in mind foreclosure laws vary depending on your state laws. So all your info/advice here may not be applicable in your state.

Good luck!

I agree something smells rotten and I would be talking to your company attorney! Everyone who is involved could get in trouble if this transaction if it is ever audited. To me it just doesn't sound like something you should be involved in. When mortgages are involved and signing things outside closing that says mortgage fraud to me. But, I'm not a lawyer.