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Big Banks Accused of Short Sale Fraud
Second lien holders are demanding side payments (not on HUD) to release liens so short sales can be completed. And their doing it without telling first lien holders.
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facebookPalm Coast, FL – January 15, 2010 – Some large banks are flouting the law by demanding cash payments to release second liens before a short sale can go through. The payments are made outside the settlement documents and without the knowledge of the first lien holder according to a report by CNBC's real estate reporter, Diana Olick.
By: Diana Olick: CNBC Real Estate Reporter
In order for a short sale with two loans to happen, the second lien holder has to drop the lien.
If they don't, and there's no short sale, the home goes to foreclosure and the first lien holder gets the house because second liens are subordinated debt to the primary loan.
In short, the second lien holder gets nothing. In order to get the second lien holder to drop the lien, the first lien holder generally negotiates some partial payment to the second lien holder. The second lien holder doesn't have to agree, but more and more are doing so.
That's all legal.
But here's what's not legal and what's apparently happening quite often recently. Since many second lien holders are getting very little, they are now allegedly requesting money on the side from either real estate agents or the buyers in the short sale. When I say "on the side," I mean in cash, off the HUD settlement statements, so the first lien holder doesn't see it.
Toby's Commentary: Some large banks are alleged to be complicit in several mortgage fraud lawsuits. Criminal investigations are also underway. Is this new twist another link in the chain? Are all the payments actually going to the second lien holder or are some of them going to the individual lender employees empowered to release the lien? We may never know. The investigating and regulatory agencies are too overwhelmed.
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