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Buyer to "contribute" towards paying off second lender, out of escrow

Posted by Pacita C Dimacali on January 15, 2010 at 12:18pm in Short Sale Discussions
i need help to better understand this.... More and more, I'm seeing this situation (and proposed strategy) to help get the second lien holder to cooperate with the short sale by having the buyer write in an addendum that buyer will agree to contribute up to $XXX to pay off second lien. I represented two buyers on separate and closed transactions. First property had two separate lenders (IndyMac on 1st, Bank of America on 2nd) Second property had two loans, same lender (Wells Fargo) On both, buyers agreed to pay a certain amount as pay off to the second lender. Who else encountered this? What did you do? What are the ramifications of this strategy? (Apologies if this is posted more than once....haven't quite got the hang of posting a question or starting a discussion.)

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Replies

  • Kim Himmel January 11, 2011 at 5:18am

    If the amount that the second mortgage holder is not disclosed on the HUD than that buyer cannot contribute anything outside of closing to the 2nd lien holder it is fraud.  If your first mortgage is a fannie mae loan they dictate what the 2nd mortgage holder is allowed to recieve. Pull the mortgage and see what kind of loan it is or call the first mortgage holder and tell them to send to you there rules regarding funds outside of closing and show that to the 2nd lien holder.  Or ask them if they would like you to call the attorney generals office in your state to let them know what they are trying to pull. That should stop them in there tracks....Go as far up the ladder at the bank as you can get before you tell them that you are going to call the attorney generals office.

     

  • alisa hagner January 8, 2011 at 3:06pm
    http://www.homeflux.com/press/short-sales-bank-fraud-and-kick-backs...
  • Ciro E. Umeres March 30, 2010 at 7:36pm
    I got one where my obstacle is not the banks doing the short sale but the bank financing my buyer. They conditioned for the buyer not to contribute towards any of the seller's shortages. Hence, my previous question as to where can I find? or what agency can confirm that it is allowed as long as the banks agree and it is reflected on the HUD?


    Pacita C Dimacali said:
    Fiinally closed on a short sale after nearly 7 months of going back and forth between the two lenders.

    Got buyer to come back, but buyer offered less. Comps show market values dropped. And, we were able to provide inspection reports that show about $30K worth of work

    Final outcome: 2nd lien holder wanter $13K. 1st will only pay $6K. Buyer agreed to contribute towards the difference.
    We were short on closing costs. Buyer agreed to also pay for the difference. All buyer contributions spelled out on the HUD. Both lenders gave final approval to this arrangement. And we finally closed escrow!
  • Pacita C Dimacali March 30, 2010 at 5:59pm
    Fiinally closed on a short sale after nearly 7 months of going back and forth between the two lenders.

    Got buyer to come back, but buyer offered less. Comps show market values dropped. And, we were able to provide inspection reports that show about $30K worth of work

    Final outcome: 2nd lien holder wanter $13K. 1st will only pay $6K. Buyer agreed to contribute towards the difference.
    We were short on closing costs. Buyer agreed to also pay for the difference. All buyer contributions spelled out on the HUD. Both lenders gave final approval to this arrangement. And we finally closed escrow!
  • Ciro E. Umeres March 30, 2010 at 5:32pm
    Who or what entity regulates this and where can we get it straight from? HUD? What about banks offering financing to buyers are not allowing this even when it's on the HUD? Just curious, I have one like this.


    Terry L. Osburn said:
    Actually this has been happening more and fraud has been committed in many of the cases as it is not shown on the HUD.

    REMEMBER the first lender dictates the total amount that the 2nd can receive.........Now if all is amicable and it is presented as such on the HUD , no issue from what I understand. Buyer would obviously need to agree and should be told this upfront at time of offer submittal that they may need to contribute.

    However if the first dictates total amount 2nd can receive is $10,400 and the 2nd comes back and states they want $15000 and tells you to write out a check after the fact for the difference and the buyer pays the difference or whomever does not really matter, they are asking you to commit fraud... The very thing that has caused so many issues in the past with monies passed after the fact.

    If it is a known up front, part of the HUD statement, then from what I can muster is ok. From what I have seen and been told though, these requests are NOT on the HUD statement and the First lender is unaware that the buyer is paying money to the 2nd after the fact. Therein lies a major problem........
  • Sally K. & David L. Hanson January 21, 2010 at 1:53pm
    Yes....+
    Pacita that is not uncommon in our practice...most of the time the 2nd is a local bank who still can't still short sale or deficiency and thinks the short belongs to the seller....They always start with the whole deficiency...the most we have ever had anyone pay is 20% of it over double or triple the years they asked for initially...and with no interest.
    Hope this helps ....if you have further questions...you know where to find us ! Hansons
  • Pacita C Dimacali January 18, 2010 at 9:24am
    From our attorney:

    Question and Answer Regarding Junior Lienholder’s Demand For Compensation

    Question: I am a listing agent on a short sale with two (2) loans secured against the property. The senior lender has issued an approval of the short sale and specified the amount the senior lienholder is requiring that it be paid. It has also specified the amount which may be paid to the junior lienholder. The junior lienholder is requiring additional amounts be paid to it without notice to the senior lienholder. Is this legal? Does it expose the seller or me to liability? How do I handle this situation? Can I force the junior lienholder to accept less money and close the transaction?

    Answer: A short sale is a voluntary process on the part of the lenders to accept less money than the amounts of the loans. You cannot force any lender to accept a short sale. When a senior lienholder issues an offer to accept a short sale and specifies the terms, those terms must be complied with or there is a breach of contract. If payments are made to the junior lienholder without notice to the senior lienholder, the agents as well as the seller may be exposed to liability for defrauding the senior lienholder. In addition, the title company, to the extent the title company was aware of the payments, also may be held liable to the senior lienholder for not following proper escrow instructions. In order to facilitate a short sale without liability, the senior lender needs to be notified of the amounts paid to the junior and approve those amounts. In addition, all payments to all parties relating to a short sale must be disclosed on the HUD-1 approved by the lenders.
  • Kevin Vitali January 18, 2010 at 8:58am
    I have run into the second lien holder asking for more money than the 1st will pay. It is killing deals. My understanding is that all monies from the sale need to be on the HUD. I am not sure I see any way around it, but if there is a legal way to make everyone happy, I would love to know.
  • Maya Thomas January 18, 2010 at 2:57am
    It's frustrating and unreasonable. I've been told by Aurora, "I don't care where you get the money from." Then National City refused to give the 2nd any more money than the amount they approved and wanted to take the extra money.
  • Bobbie Files January 17, 2010 at 10:10am
    As with all the other responders, ALL and I mean ALL of the money in the transaction MUST be referenced on the HUD. Whether the buyer is paying towards the deficiency or not makes no difference when it comes to the HUD. If the 1st lien holder allows for the buyer to pay towards the difference between what they will pay and what the 2nd wants there should be no reason to "hide" the money. If the 1st lien hold squashes it than it can't happen. It is all about disclosure. If all parties including the lenders know and are in agreement with it and it is memorialized with signatures it is okay.

    It is becoming more commonplace for the 2nd's to refuse the pittance that some of the 1st's are offering. We have legislation for everything else under the sun, so the fact that there is no legislation on such a significant part of our current economy baffles me.
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