From the C.A.R.
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
California Department of Justice
800-952-5225 Phone
http://ag.ca.gov/consumers/mailform.htm
Department of Housing and Urban Development (HUD)
HUD Office of Inspector General Hotline (GFI)
800-347-3735 Phone
http://www.hud.gov/offices/oig/hotline
Federal Bureau of Investigation (FBI)
202-324-3000 Phone
https://tips.fbi.gov
Thanks for those links. Buying nowadays is hard enough w/out having to bribe the second under the table.
Short Sale fraud how-to
http://www.thetruthaboutmortgage.com/how-short-sale-fraud-works/
30 years in prison. That would be a waste of time and money.
Laws? Being Broken?? LOL that’s a good one.
No doubt, R/E is the Mexico of “professions”
Present company excluded….. 🙂
Interesting that the Department of Real Estate is not one of the agencies listed to file a complaint with.
And while it is appropriate for CAR legal to put its agents on notice about the downside of short sale shennanigans, IMHO, it may be a bit of a stretch to cite 18 U.S.C. section 1014(knowingly making any false statement or report in connection with loan and credit applications) and the RESPA reg X provisions under 24 C.F.R. Part 3500. A junior lienholder does not owe the senior lender a fiduciary duty and is generally free to try to get the best deal it can. I don’t think RESPA specifically requires discounted interest or principal payments to be listed on a HUD1 in all cases “as a charge paid at settlement”. This is a grey area, and the determinative test is probably how it is done, not whether it is done.
But it is true that the agents/brokers who make it a practice to try to hit only the buyer with 11th hour outside of escrow junior lien charges because it is the easiest way to get the transaction closed are playing with fire.
Not all the second lien holders will be willing to blindly accept what the first allocates to them in the HUD-1, HAFA or no HAFA. This should be an interesting evolution. IMHO, the law is not all that clear.
Kingside,
The Second can always block the lien extinguishment and foreclose… that’s what it’s there for.
Chuck
“Interesting that the Department of Real Estate is not one of the agencies listed to file a complaint with.”
The DRE can pull a realtor’s license. That’s it.
Is it ethical or legal to bypass the sellers agent for a short sale and go directly to the seller?
REG,
Doesn’t matter. Seller is obligated to pay commissions on sales to the agent. That’s what the listing agreement is for.
You try to bypass that and the agent might have a claim against you.
Chuck
This is really funny. When payments were going the other way (money to buyer from seller as “seller concessions,” artificially raising prices for comps), nobody bothered to say anything. Now, when prices might be artificially understated, the jail threats come out.
Just thought that was interesting.
This was some pretty interesting reading on the underlying importance the government is placing on housing prices…
http://www.thebigmoney.com/articles/judgments/2009/09/24/biggest-government-bailout-yet-come?page=0,0
I love it when you go to a short sale and the agent says something along the lines.. IF you ” X ” then we will look more favorably on your offer.
And X being any number of crazy things… now they are getting a little more smart, but just as annoying such as X= Pull your agent out of the equation, meaning the listing agent gets a double dip… we will look more favorably at your offer.