I came across a very interesting article on CNBC’s Web site. Writer Diana Olick was alerted that some big banks were taking bribes to get short sales closed. The lenders were asking for cash “under the table” from buyers of short sales and/or their Realtors.
How it’s working is if there’s two loans on the property, the second lienholder has to drop the lien for the short sale to go through. If they don’t, the house goes into foreclosure and it’s owned by the first lienholder. If that happens, the second lienholder doesn’t get any money from the deal. Some banks/lenders are negotiating with the second lienholders to drop the lien by offering them some partial payment. This whole process is completely legal.
What’s not legal is that they are now requesting money under the table to drop that lien since they are generally getting nothing or very little from the first lienholder. If you’ve bought a house before, you’re familiar with the HUD-1 statement or RESPA that you get at the end of closing that details what the buyer is paying in fees, what the seller is paying in fees, and who ends up with what. Everything needs to be reported on the RESPA. So the second lienholders are asking for money that doesn’t show up on the RESPA to allow the short sale to go through.
Olick’s source said he’s heard from over 200 agents that have requested this illegal deal from representatives at Bank of America, JP Morgan Chase, and Citi Mortgage. When confronted with these accusations, JP Morgan Chase had no comment.
Bank of America said, “Bank of America enforces a policy that all disbursements are documented on the settlement statement for short sales. When we are servicing a first mortgage with a second lien held by another investor, if the second lien holder asks for off-HUD payments, we will not approve the transaction (if we have knowledge of it). It is also against Bank of America’s policy to accept off-HUD payments on its second liens.“
Citi Mortgage said, “We work very hard to help distressed homeowners find solutions for their financial challenges. In our attempt to amicably resolve the debt, we will generally negotiate a reduced settlement with the homeowner in order to release a second lien. Unlike some lenders who refuse to reduce the payoffs on second liens, we choose to reduce the payoff amounts in some situations to assist the borrower. We do not provide instructions to settlement agents on how to fill out the settlement statement or any other closing documents, and we certainly do not require settlement agents or any other parties to violate applicable laws.”
Olick writes, “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 now the lenders want bribes to get rid of homes? They haven’t gotten in enough trouble by approving loans for borrowers that didn’t have the money to pay them in the past? That’s how we got into this mess in the first place. We’re stuck with all these short sales because the lenders got greedy. This is going to create a whole slew of problems. Realtors could lose their licenses over it. Buyers could end up having to bring even more money to the table to close.
What is the solution? How can we prevent this from happening? Is it something we should consider making legal? Let me know your thoughts. Leave me a comment or visit me online.