I'm struggling a little and feel like I'm going to be on the verge of fraud if I'm not careful. I have a first and second on a short sale. The first is a Fannie Mae loan and we've gotten approval.
The second lienholder is a private individual with some personal ties to my seller. After all is said and done I have got the second to agree to a $30,000 payoff to release the lien and remove the deficiency on my seller. I've done everything I can to get this lower and believe this is as low as I can get.
To get this cash my hope is the following: 1) $3000 from the first lienholder, 2) Seller "promissory note" contribution of $7000, 3) The buyer may be willing to offer $20,000 to the second lien.
My problem is how to report that $20,000 as it isn't allowed to show up on the HUD. Also, I feel like I'm on the verge of fraud which I always steer very clear from. Is this still a possibility and if so how would you suggest working out the way to get the $20,000 to my second lienholder without being fraudulent since I can't report it on the HUD.
Can you put it as a POC on the buyers side of the HUD? It would be fully disclosed then.
How about a promissory note to the second for $27,000 with a balloon in 2 months, 6 months, 1 year?
I've toyed with a Promissory note and know that works on the seller's contribution but not sure if that will work on the $20,000 from a buyer. The POC might work though...I'll have to explore that option.
what kind of financing does the buyer have? if it's fha that may not fly with their lender...
I agree with Jeff. A POC is the safest bet. Bryant had a great thread about this before. I'll look for it and try to post it back.
Sorry, have to ask the stupid question: What does POC stand for?
POC stands for Paid Outside of Closing. However it is a HUD item. It just goes off to the side and is not a debit or credit item. You'll it quite often with hazard insurance and tax payments. POC items are paid at closing and are on the HUD but are not included in the purchase price or deducted from the proceeds of the sale.
I was googling this issue as I don't feel comfortable with it very much and my current escrow company won't do it...or at best will do it and likely disclose so much what is happening that Fannie Mae won't allow the deal.
Anyways, while googling I came across an old blog post of yours dealing with this from over a year ago: http://brokerbryant.com/2010/short-sale-info/funds-paid-outside-of-...
With that said...it sounds like you are anti-POC and I somewhat agree with your viewpoints brought forth in this blog. Obviously I'm not wanting to be fraudulent like almost everyone in these forums but I also want to do everything I can to get the deal done and best meet my seller's needs.
Have you changed your viewpoint on this since writing that blog post? I'm very very hesitant to transfer money on the back end but also don't want the deal to die. The servicer on my first mortgage has basically just said "do whatever I want just make sure she doesn't find out so she doesn't have to tell Fannie Mae."
Anyways, I'm mainly just interested on how your viewpoint may have changed in the last year since writing that blog post. Thanks!
Samuel. A POC item IS on the HUD and is fully disclosed to all parties. We never transfer closing funds off the HUD. However liens can be paid off PRIOR to closing and therefore do not need to be on the HUD. Also, if the buyer is purchasing using cash then RESPA does not apply at all.
My stance is exactly the same as it was when I what the referenced article. My previous comment on this thread is also stating that POC items ARE on the HUD and fully disclosed.
I have a transaction right now where the buyer is contributing $10,000 to the 1st lien on behalf of the seller. The $10,000 shows up on line 104 as "Cash contribution to Suntrust on behalf of the seller" then on the seller side it is on line 404 as the same and then is added to the mtg payoff amount. It is not included in the purchase price.
I have two short sales with similar situation. First is HAFA. First mortgage with Fannie Mae, Second Chase. Fannie Mae will give to second $3500 which is 6% of unpaid balance. Chase wants $6000. What Chase is telling me ? Pay the difference before closing ( and that would have to be few weeks before) and they will give us approval for the $3500.Second deal is regular short sale. First is giving $1800 to second, but second ( BoA) has MI and MI wants $3000. In this case actually negotiator from first suggested to pay difference before closing. It is a little bit complicated, because of MI, but..........I think you are in a little bit different situation, because it is buyer that has to pay this difference and they may not like doing it before closing. But if they are OK with that, I think it is not illegal. I see it all the time and I think the most important thing is that this payment will be made few weeks before closing. There is no law that says that seller can't make payments while working on short sale. This is not part of closing. And you know what.........? When I see how banks are twisting the rules so everything works their way ( and I see it more and more often) I do not care if I have to bend rules also, Of course doing something illegal is a different story.
I had a similar incident with two Bank of America loans. It was like two different departments in the same bank were at war with each other because different investors had conflicting demands. Fannie Mae guidelines restrict a maximum payoff to the second. They will not allow any additional proceeds (POC or otherwise) to reflect on the HUD-1 over and above the amount specified (regardless of who pays). First we tried to remit the balance requested by the second in advance of closing and have them revise their approval letter to coincide with the payoff by Fannie Mae. They would not do this as they said ALL monies owed must show on the HUD-1 (which was more than the maximum amount allotted). The ONLY way we were able to resolve this (and believe me we tried everything!) was to have the second issue a promissory note for the balance owed which is not reflected on the HUD-1 and gets paid after the fact outside of closing. Whether the buyer or seller pays the balance makes no difference as ultimately, the seller is on the hook for the difference. The way the second worded the promissory note was that the seller agreed to pay double what the bank was willing to accept with the understanding that the balance would be reduced by half (amount actually agreed to) if paid within thirty days. I believe the reason for this was that the bank would only be able to collect 50% if the seller defaulted. Regardless, we got it closed and the buyer paid the balance to the lender on the seller's behalf. All parties were satisfied and signed off on the deal... Finally!
The mere fact that you feel uncomfortable is your "gut instinct". Looking for loopholes or for a way around just further solidifies your concern. Full Disclosure is the ONLY way to handle this. As Bryant said - you can try the POC route but I truly expect the lender will reject it. If a buyer is willing to pay an additional $20,000 for the home, then it is likely WORTH $20,000 more than what the bank is receiving - people don't pay more than something is worth - especially $20,000 ! If I were the lender and saw $20,000 POC on the HUD, I would call you up and tell you to add that $20K to the payoff for the 1st. Tread carefully.
Two more thoughts;
1) Is your E&O Paid ?
2) Better Lawyer-up.....