1st Mortgage investor limits on what can be paid to 2nd mortgage

First mortgage, Bank of America is allowing the second mortgage which is CCO Mortgage,  6% of outstanding second mortgage balance or an allowance of $1,554.40.   Typical. 

 CCO rep tells me the balance is now written off and they want a total of $2,600.00 to release.  Seller agrees to pay the $1,045.60 difference.  Then I get this e-mail from Bank of America negotiator: 

" Please be advised that the investor on this deal will not allow funds exceeding the amount on the approval letter to go toward the second lien. Therefore, we cannot approve a HUD which shows additional funds going toward the second lien, even if those funds are not coming from the sale."

 

First time I have come across this.  Seller pay the difference outside of closing for a release of future liability?????   Or tell CCO tough take the $1,554.40 and be happy???

Anyone encountered this?

Any input appreciated.

 

Thank you,

Bonnie Milstead, CRS, GRI

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Permalink Reply by Michael Schneider on February 17, 2012 at 4:45am

Yes, this is an ever topical issue.  At the same time, the 2nd has the right to collect, and if a payment is made prior to settlement or after settlement, then there is a judgment issue on what constitutes a "settlement cost".  I think the only really clear statement on this is that it really isn't clear.  If a seller is effectively "forced" to make a payment, that could be considered circumventing the "clearly prohibited" in RESPA, and such payment is reasonable and results in settlement of the obligation, I really doubt that anyone is going to be subjected to litigation.  Could be wrong on that, of course.

"We are going to sue you for making/accepting a $2,000 payment for full satisfaction of a $20,000 obligation."  Kinda doubt this.  CFPB is too busy with really important matters, such as the clarity of mortgage statements.

Permalink Reply by Drew Ludlow on February 17, 2012 at 3:48pm

Awesome tangents... thanks for posting.  Just before I read this, I had a moment where I seriously doubted my tactic of the seller simply paying the HOA a few extra bucks before closing to reduce the amount due, so they could be paid in full at closing.

I questioned whether or not this was a RESPA violation and thought whether or not it was worth it.  It is good to know that others see these things as gray areas.

Permalink Reply by Joseph Brooke on February 19, 2012 at 4:14am
CCO will draw up two letters. One for the first lender and one for your seller to pay 10 days in advance of closing as a principle payment. If you want the deficiency waived it will cost you 20% of the balance.

Thanks
Joe

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