Big banks find another area to be greedy when negotiating a short sale with a second lien
Big banks like Citi Mortgage and JP Morgan Chase find another area to be greedy when negotiating a short sale with a second lien
Just as regulators, lawmakers and all forms of financial oversight boards are talking about new regulations to guard against mortgage fraud and another mortgage meltdown, there appears to be yet a new mortgage fraud out there today, allegedly perpetuated by agents of the big banks.
Jeremy Brandt, the CEO of several companies that bring short sale agents, investors and sellers together, has been receiving all kinds of questions and complaints about trouble with second lien holders over the past several months.
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Piggy back loans or second liens need to drop out in short sales
They also used “piggy back” loans in order to get even lower interest rates on their primary mortgages. Now, many of the borrowers in trouble, and many who are so far underwater on their loans that they don’t qualify for any refinance or modification, are choosing short sales as a way out. About 12 percent of all home sales by the end of 2009 were short sales, according to the National Association of Realtors.
What’s a legal negotiation with the second lien holder
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.
What’s NOT a legal negotiation – and where the greed factor kicks in
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.
“They are pretty clear and pretty upfront about the fact that if the first lender knows they are getting paid, the first lender will kill the short sale,” says Brandt.
“So these second lenders are asking for the payments off the closing documents, off the HUD statement, usually in a cashiers check prior to closing. Once they receive that payment, they will allow the short sale to go through, which according to RESPA laws and the lawyers that we have spoken to on the topic is not legal.”
FYI: RESPA is the Real Estate Settlement Procedures Act, the 2008 law requiring that consumers receive disclosures at various times in the transaction. It outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD.
Brandt said he’s heard from at least 200 agents that they’ve had these requests made by representatives of Citi Mortgage, JP Morgan Chase, Bank of America and other large banks.
Brave real estate agent was whistle-blower
One agent, Kayte Gentry, of Keller Williams Integrity First Realty, was brave enough to blow the whistle.
“I think it’s wrong, and I think somebody needs to hold them accountable, and every time I lose a house in foreclosure because of this, it hurts my client,” says Gentry matter-of-factly. “Aside from being illegal and a violation of RESPA, it’s immoral and truly it’s just sad for the client that it’s hurting.”
Gentry says she has had the requests made three times and claims she lost one sale because of it.
“The big banks that have recently made this request, specifically payments outside of the closing statement have been Citi Mortgage and JP Morgan Chase.”
Banks deny wrongdoing
JP Morgan Chase simply answered, “No Comment,” when the charge was given to their media representative.
Bank of America denied the practice to CNBC in a written statement:
“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 ‘s reply was a bit more complicated:
“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.”
“When we confront the lenders and tell them that this request is illegal and a violation of RESPA, they tell us it’s been cleared through legal and they don’t care. Do it anyway,” charges Gentry.
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Source: http://www.cnbc.com/id/34877347
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Cheryl,
I came across this recent post that provides a good answer to your question on your 2nd lien: http://loanmodificationhomeownerresources.org/2010/01/19/q-how-can-i-get-rid-of-my-second-lien-to-qualify-for-a-hamp-loan-modification/
I would like to negotiate my 2nd lien holder instead of going into a short sale or forclosure. what would I expect to pay on every dollar owed. My property is valued at $425,000 that is recent sales for same home in my neighborhood. My 1st mortgage is $360,000 but my 2nd is $260,000. I cannot afford to stay and cannot sale due to value. What would a good offer be to give my second to go away. I filed Ch 7 bankrupsy 2 years ago and have tried to keep up with payment but I am unable to anymore due to job loss and Pay cuts. Please Advise ASAP. I am 53 years old and would not be able to make up this equity and pay house off within the next 12 years. I would like to negotiate out of the second without walking away from my home.