IMHO, this is fraud, plain and simple, and should NEVER happen. If a second m'ee is allowed to do this on one deal, then what's to stop that m'ee from doing it on all its deals? The 2nd m'ee may argue that they are "as entitled" to their "share of the pie" as the 1st m'ee is.
In my state, the 2nd has the opportunity to foreclose on its lien the same way the 1st does. But, of course, the 2nd will have to pay off the 1st position in order to do that (which can be negotiated, but rarely is approved by the 1st). They don't want to pay that price, so instead they ask us as Realtors to hold the bag for them by committing fraud and putting ourselves at risk.
The 1st (as the foreclosing lender) is driving the bus. The 2nd has remedies if they care to use them. In my daily reading of real estate news, I see more and more licensees getting in trouble for this kind of stuff. Just say "no" and go on to the next deal. I know it's hard to walk away from that commission check, but would you rather have no license (and therefore no more commission checks) in your future. It's not worth it to me!
My 2 cents.
Keller Williams Realty Downtown
Pacita check out this link.....How timely for this question........
Great reply, Pattilynn. We just had a $40,000 fine for a similar circumstance, and permanent revocation of the license (a broker in business for many years who should certainly have known better). The short answer should be, "If it's outside the HUD, then it's fraud to the parties." Don't do it.
I don't see this as a gray area at all -- it's right there in black and white: The HUD must reflect the entire transaction, down to the penny.
As Kent said, you can still get deals done and keep it on the HUD, if ALL parties are in agreement. It takes a little more negotiating, and a lot of patience, but it can be done. We as listing agents must do everything we can to keep the iffy deals clean. I don't want to hear from some lawyer in two or three years saying that I allowed it to be done outside the closing and therefore I am responsible.