I am very troubled by the actions of lenders in their encouragement of surreptitious dealing, especially by second lenders, regarding the distribution of proceeds of a short sale to the detriment of first lenders.
Below is a Suntrust Mortgage document recently received from Suntrust that is being provided and required to be signed by the BUYER of the property. The transaction demanded by Suntrust is as follows (the numbers have been changed somewhat to mask the actual transaction):
Purchase Price as stated on the contract is $625,000; Required addendum to the Contract that Buyer will pay to Suntrust in addition to the Purchase Price, $25,000; First Lender authorized $3,000 to Suntrust is in addition to the $25,000; First Lender approved HUD Settlement Statement is devoid of mention of the $25,000 payment by Buyer to Suntrust (because it was not disclosed to them by the seller's attorney; Suntrust approved HUD and First Lender approved HUD show purchase price of $625,000 without mention of the addendum, notwithstanding that Suntrust knows of the additional $25,000 it is receiving from the Buyer.
It has always been my understanding that the HUD Settlement Statement must reflect the transacation and it must be used if there is a federally "related" mortgage. If the First or Second mortgages were federally related and they are being paid off in some compromise, then it would seem to me that even if (as most would assume) there is no new mortgage from a new federally related lender being used for the purchase, the fact that a federally related mortgage is being paid off still triggers use of the HUD settlement statement. (See Rule).
In addition, aren't settlement statements, whether or not governed by RESPA, supposed to be representative of the transaction? In effect, isn't Suntrust saying that TWO settlement statements must be used - one for $625,000 and one for $650,000 purchase price?
My office has dealt with the demands by 2nd lenders in the past and avoided any misrepresentation of the transaction. One way to accomplish that is to have an agreement with the 2nd lender that there is an opportunity for the borrower to "purchase" a full / partial release (as the case may be) by transferring to the 2nd lender specific (additional) consideration within a set timeframe from closing.
But to me, the actions of Suntrust here by twisting the substance of the transacation to make part of the purchase price "hidden" from the first lender, are just plain fraudulent. If the Buyer is paying a total of $650,000 for the house, shouldn't the settlement statement show that total consideration? If it doesn't, isn't the State getting defrauded for not collecting all the transfer taxes? Isn't the First Lender getting defrauded because it is not aware of the total consideration for the transaction? Isn't the IRS getting defrauded because the title company is going to issue a 1099 that is inaccurate? Isn't the Buyer getting damaged because its shown tax acquisition basis is going to be $25,000 too low? Isn't the tax assessor being mislead since they are not aware of the undisclosed additional consideration?
At the bottom of this page is the "Certification and Indemnity Agreement" that the Buyer must sign. This just really "irks" me since Suntrust is now saying the Buyer must be part of the ruse AND indemnify Suntrust from any wrongdoing (how can that be done - the Buyer instead of Suntrust goes to jail?).
I try to represent my client seller or client buyer so they are protected in the transacation - but this document just seem to remind me of those Shakespearean words given to Juliet when she said, "
'Tis but thy name that is my enemy;
Thou art thyself, though not a Montague.
What's Montague? it is nor hand, nor foot,
Nor arm, nor face, nor any other part
Belonging to a man. O, be some other name!
What's in a name? that which we call a rose
By any other name would smell as sweet;
So Romeo would, were he not Romeo call'd,
Retain that dear perfection which he owes
Without that title. Romeo, doff thy name,
And for that name which is no part of thee
Take all myself.
Copyright 2010 Richard P. Zaretsky, Esq.
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Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.
Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 email: RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com New Website www.Florida-Counsel.com .
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