Big Banks Accused of more Fraud; non-reported cash on side for short sales

CNBC's Diana Olick reports that for homes with two mortgages, the second mortgage holder is often demanding a short sale buyer pay them in cash on the side, and they're not disclosing it. And that's against the law.

Diana Olick from CNBC (see below video) has uncovered evidence of growing fraud surrounding Short sales - when the lender allows the home to be sold for less than the value of the loan. And according to the National Association of Realtors, about 12 percent of all home sales by the end of 2009 were short sales.

Excerpt:

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 hidden -"on the side" from either real estate agents or the buyers in the short sale -clear violation of RESPA disclosure laws.

Read much more here at realtycheck.cnbc.com and from the Source at CNBC

1 Comment

CJ | August 2, 2011 2:24 PM | Reply

I have just had a third short sale fall through. I am disabled and receive only 955. a month in social security disability. No pension. I am 58. I live in the expensive Seattle area, in poverty level, county subsidized housing.

#1 August, 2009 The first short sale I tried (after a divorced where the husband quit his job and lived off his military retirement that he insisted he didn't have until it was final. He now has a high income of almost 100,000. annually) was for the entire amount of the loan minus a penalty. Countrywide insisted on the "penalty" of 6,000. to allow the short sale. I didn't have it so the buyer walked. I had found the buyer myself, no Realtor or other fees were included.

#2 May, 2010 The 2nd short sale took a while to find a buyer. Bank of America wanted me to agree to sign paperwork allowing them to garnish my social security disability for what ever amount and duration that they determined after I signed. They also wanted me to gift them cash at closing in the entire amoun t I had in the bank since they could legally check my bank records at another bank. MY small savings were around 4,500. They wanted all of it as a gift to them plus me signing on a huge loan up to or over 100,000. based on the shorted amount, plus attorneys fees. I didn't get the exact details since they ran it through the Realtor who told me I could try to file bankruptcy to get out of it. When I refused to do what Bank of America wanted, they sent me an email claiming I had refused to do a short sale. When I said no to Bank of America's illegal demands, the buyer walked.

#3 July 2011 The third short sale just fell through due to Bank of America stalling for a whole entire year. The buyer became worried about a double dip in housing, the government's problem with getting the debt bill done and of course, Bank of America's stalling on the paperwork.

In late 2009, I even hired an attorney to help me. He took 2,000. and wrote a letter. He dropped me when he claimed that Bank of America threatened him personally.

I moved out over a year ago in March 2010. I asked Bank of America to take the condo to foreclosure. They won't. I offered to do a deed in lieu. They refused. They now are requiring me to continue to pay maintenance fees or else they will take me to court and attempt to take away my furniture. I wish they would try that since I believe a judge would throw the book at them.

I have to remain anonymous. I am afraid of them.