Replies to This Discussion

Permalink Reply by Wendy Rulnick on April 26, 2011 at 1:23am

Paul - The borrower (seller) can pay off a junior lien unrelated to a closing...  I don't understand US Bank's stance "it will be disclosed".  What if there were no contract, or what if the contract fell apart?  What if the seller won the lotto, or received an inheritance, or for whatever reason, and decided to pay the junior lien off just "because"?  I've had many sellers settle on junior liens prior to or unrelated to a sale of the property.  The junior lien does not then send letters out to the senior lien or any other lienholder.

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Permalink Reply by Smitty on April 26, 2011 at 1:42am

I agree with Wendy.  Have the seller contribute the $2000 and have a separate contract with US bank that that amount will satisfy what they want on the short sale along with the $3000 THEN add a POC(paid outside closing) line on the HUD to DISCLOSE IT was paid out.

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Permalink Reply by Paul Aceto on April 26, 2011 at 4:34am

I agree Wendy. It is absurd. US Bank acts as if they want to kill the deal.  Howevery, this manager will not settle.  I need to escalate again over her head.  I am submitting a new HUD with $2000 POC to jr lien holder. Thank you for that suggestion Smitty. .

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Permalink Reply by Steve Early on April 27, 2011 at 2:04pm

Paul:

It's not Bank of America that is the culprit... it's Freddie. Freddie's policy is to tell the second how much they can get, and that's all they can receive from anyone. I suspect your HUD with the $2,000 POC will get rejected as well by BofA because they are following the investor's guidelines. To resolve this you would have to go over the servicer's head - directly to Freddie and ask them if they really want to eat another house over $2,000.

Try calling Freddie Mac Borrower Outreach at 877.518.8429 and pose this question to them. Let them know that BofA is the servicer and they are insisting that nobody can contribute the additional $2,000 that the second lien is demanding to lift their lien. You can try to submit the POC HUD first to see what BofA says, but if they deny it going to Freddie will be your last ditch effort I'm afraid. I don't know what makes Freddie Mac so powerful that they can tell someone else what they are allowed to receive for lien release even though it isn't coming out of their pocket. Never made sense to me.

Good luck with it.

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Permalink Reply by Paul Aceto on April 27, 2011 at 2:35pm

You are absolutely correct. My request of BofA to allow a POC toward US Bank was denied.

I had tried to contact Freddie and they reiterated their guidelines.  I will retain the number provided for future reference.

After emailing a custom letter to 6 people at US Bank, they approved the fill for lien release and full satisfaction for only $3000.  It was very difficult to get this accomplished. I was successful by initially using the email addresses provided by short sale superstars.  Thank you.  I have some new addresses to provide to the US Bank forum.

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Permalink Reply by Wendy Rulnick on April 28, 2011 at 12:58am

I would like to hear comments about placing a POC on a HUD when the funds are paid ahead of closing.  I still assert the seller can pay a junior lien off any time, unrelated to closing, thus question the use of POC.  Thank you for bringing up your situation, Paul, and congratulations on solving your issue!

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Permalink Reply by Smitty on April 28, 2011 at 1:44am

I agree with you Wendy.  I think the seller CAN and should be able to pay a junior lien holder at any time.  This is my thought though.  The seller SHOULD get in writing that with the submission of that $2000 that the junior lien holder will release the lien with the $2000 and then the issuance of the $3000 at closing in writing BEFORE they get the approval. It should be a separate letter.   

I guess I feel THAT now makes the payment of the $2000 related to closing, so it should go on the HUD.  I mean they can make the $2000 payment, but if they don't get some sort of gaurantee that the lien will be released if they do it this way, they could be in serious trouble. 

Therefore the $2000 is required technically to close, even though it's not part of the proceeds of the transaction.

 

I could be wrong.  I'd love to hear what people's thoughts are.  It's obviously not a common occurence.

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Permalink Reply by Steve Early on April 28, 2011 at 1:45am

Hi Wendy:

I agree with your comments on what the seller should be able to do. It is a separate mortgage, and they should have the right to pay it off (or pay some portion of it off) at any time. It should be nobody's business but their own.

Now here is the "but" ...

I think in a case where the first lien has made it known that as part of their short sale approval the seller cannot contribute to the second lien, you can run into problems if they discover the seller ignored their wishes. I am no attorney, but have read opinions where some think this could constitute mortgage fraud. The first lien holder, being in first position they would argue, has been cheated out of $2,000. If the seller had $2,000 it should have gone to the first lien holder to offset their losses.

Putting a seller contribution to the second lien on the HUD as a POC (or even paid at closing) allows the first lien holder to deny the HUD. Even if the HUD doesn't need to be approved prior to closing, if they explicitly stated that there can be no contribution from the seller to the second lien, they could reverse the transaction after closing. I have never seen language in an approval letter stating that the seller cannot contribute to the second lien, but it has been communicated to us via emails from negotiators or closers.

Making the contribution to the second lien and NOT putting it on the HUD at all would essentially be hiding a payment that was integral to the completion of the short sale. This, I believe, would violate RESPA laws.

What I have a real issue with is those situations where someone other than the seller ... the buyer, realtors, and Autie Em, are willing to contribute to the second and the first says nobody can give anything to the second over and above what we are giving them. That, to me, seems totally wrong.

The one additional problem with the seller (or someone else) making a payment to the second in advance is, as we all know, all kinds of things can happen to derail a short sale. I would hate to be the person who paid several thousand dollars to the second lien in advance of closing only to find that some unforeseen circumstance keeps the short sale from going through.

If the second lien wants money over and above what the first will pay, then we always ask the first if they are going to have a problem with that.Investor guidelines typically dictate the answer. Fannie usually doesn't have a problem with it, but it seems that Freddie does.

Steve

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Permalink Reply by Wendy Rulnick on April 28, 2011 at 2:15am

Steve - Thank you for expounding.  I understand your thought process.  I think the question really is - does the senior lien have a right to say what a seller can or cannot pay?  Can they tell a seller to reduce their credit card payment, pay the minimum, for two months, or they won't approve a short sale?  I guess they could say anything they wanted, and make those the terms of a short sale approval.  I still think a seller can decide to pay a junior lien any time, regardless of whether a sale was going to close or not. 

 

Smitty - I see your thought process, too.  The seller can make partial or extra payments any time to the junior lien.  Another point - what if the seller had a JUDGMENT - not a junior lien? In FL, a judgment in the county of the property must be released or paid prior to any real estate closing in that county.  Could the senior lien say - you cannot pay the judgment?  ALSO - if the seller pays the JUDGMENT before closing, does that need to be on the HUD?  I've had sellers pay credit card and loan judgments in order to get a sale closed BEFORE closing, the title company is aware, and it did not go on the HUD. Argument - they can pay it ANY TIME they desire, closing or not.

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Permalink Reply by Ron Margolis, RA on November 4, 2011 at 9:50am

Wendy,

Do you have any escalation contacts within the molasses of US Bank. I see you commenting on threads involving them. I need to escalate but have not yet found any escalation contacts.

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Permalink Reply by Smitty on April 28, 2011 at 6:59am

Wendy, I agree again with you.  In Massachusetts judgments must be paid prior to closing as well.  I tend to be a lot more liberal than other Realtors and to be truthful, I think a lender's only job is to approve their NET amount.  Any other "restrictions" seems unlawful to me.  It seems every month though lenders are making more rules, restrictions, addendums, etc.  IMO their only job is to say yes or no to the NET amount, but I can dream can't I ;) LOL

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Permalink Reply by SE Davis on November 6, 2011 at 1:43am

Paul;

I just closed a similar scenario.

I sent an appeal letter to the second lien holder (who also has signed first lien agreements with Freddie Mac) that their Bank would be violating their first lien contracts with Freddie Mac if they insisted on demanding more than Freddie Mac allows for second lien holders in a short sale.

The file negotiator grunted and groaned then my approval for the $3000 came back a few days later. NO DJ, no post closing collections all in writing in a new subordinate lien short sale approval letter.

Carefully construct and compose your appeal letter and include supporting documents from the first lien holder. I.e. an e-mail from the first lien reviewer that prohibits higher disbursements for any and all parties will be a violation of Freddie Mac guidelines worked in my case.

GOOD LUCK.

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