There is lots of discussion regarding payments to secure release of various subordinate liens. Second mortgage, tax lien, HOA, water etc.
Anyone who works with short sales knows the problem.
And, one hears quite frequently: "It's illegal!! Clearly, a violation of RESPA."
I am not an attorney nor a RESPA expert, by any means, but I have actually read RESPA and parts of the CFR. I find no reference nor have I seen anyone cite a reference to the CFR, or US Code, or RESPA showing the violation.
Let's put an example on the table:
The buyer pays $200,000 for the property. The 1st accepts net-proceeds as full satisfaction of the debt, taking a loss. The 1st offers $3,000 consideration to the second for release.
At the table, the buyer makes an addition $4000 payment to the second to secure release, so the second ends up with $7000, releases its lien and accepts the $7000 as full satisfaction.
The HUD show purchase price of $200,000, the $3000 is listed in section 500. The $4000 additional payment to the second does not appear on the HUD.
As far as I can tell, there is no RESPA violation here. The 2nd is exercising its right to collect on its debt. The $4000 is a payment agreed to between the buyer and the 2nd.
Can anyone cite the section of Code, Regulation or court cases that states that this is a violation?