Replies to This Discussion

Permalink Reply by SE Davis on December 18, 2011 at 7:39am

Sam;

It appears that you didn't position yourself with this scenario properly.

Anytime their is a third lien holder or any position subordinate private lien holder I start my negotiation with them before any buyer contract is even acquired. 

If I detect collusion on the part of the seller and that private lien holder OR if that private lien holder is going to be unreasonable in their demands I simply won't accept the file using the PURE Arms Length transaction argument.

I force the private second lien holder to approve in writing a reasonable disbursement (10% of the default balance as a maximum) PRIOR TO any package submission to the first lender and before you spend any time or money marketing that property. 

In your case by processing everything with the first lien holder and gaining a written approval you've handed the proverbial  position of strength negotiating position to that private lien holder on a silver platter. HE KNOWS THIS!

You need to unravel yourself from your processing error.

I would just say NO it's not going to happen and tell the private second to accept the cash disbursement terms of the first lien holder or you must decline the file because of the possible felony fraud implications post closing. Frame the criminal felony argument using the straw man method. Most violations of RESPA are usually a felony.

An alternative would be to put the ONUS entirely on the sellers agreement to a promissory note to their private lien holder "friend" to waive any post closing collection. 

Contemplating a buyers payment of $20,000 in advance of closing to induce final settlement of a real estate purchase transaction is BEGGING for post closing litigation from both the buyer and the title insurance company. The title ins company can sue the buyer and the closing attorney and that will auto-cascade down to you in a heartbeat.

You've made a critical processing mistake Sam.

The question is Sam do you DOUBLE DOWN on your own error or do you walk away?

My advice is if it can't be unraveled to a pure ALL ON THE FINAL HUD closing I would decline the file, terminate the listing agreement and get as far away from that transaction as possible.

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Permalink Reply by Samuel Hilbert on December 18, 2011 at 7:46am

You should understand that every short sale is different before you attack my methods. I understand the risks and I'm not going to perform any fraud. I'm looking for ideas...not attacks on my methods. My methods have proved very successful over the course of the past few years but with every file being different I handle everyone differently. You shouldn't attack someone's methods in a forum when you know you can't fully understand the unique situation.

I haven't made processing errors...I'm using these forums to make sure that I'm not missing any options before I tell this seller that I can't be successful in the completion of her sale. I believe that my job is to best serve my client's needs in a non-fraudulent manner...and this is how I can ensure that I am doing that.

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Permalink Reply by Samuel Hilbert on December 18, 2011 at 7:54am

On another side note...it's interesting on this one that the actual bank (who is just the servicer on this file) actually has encouraged me to try this but told me "it can't show up on the HUD or I have to make sure Fannie Mae sees it"

Also, our in house attorney has told me on a few Fannie Mae short sales recently with similar problems he fully disclosed this issue (as it seems is the most likely way to accomplish this) and Fannie Mae ended up accepting the deal anyways even though they said they weren't going to.

I'm leaning towards going this route...if it ends up getting rejected then basically saying goodbye to the file but then knowing I have done everything I can for this seller. Apparently this has been in the past 2 months for him but never before...has anyone had similar recent experiences?

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Permalink Reply by Thom Colby CA Brkr 888-391-5245 on December 18, 2011 at 8:07am

 

Sam -  I'm sure you are doing everything possible to help your client and that's admirable.  Having said that, your statement.... " the actual bank (who is just the servicer on this file) actually has encouraged me to try this but told me "it can't show up on the HUD or I have to make sure Fannie Mae sees it"....  Let me tell you, unless you have that statement in an e-mail or on tape, you would be standing alone trying to defend that action.

I think your in-house attorney is probably correct, disclose it, put it on the HUD and let the lender accept or deny it - then you're in the clear.

 

It's a tough one but as I said earlier, your gut is telling you what you should be doing.....

 

Best of luck,

Thom Colby

Broker

Palm Desert & Newport Beach, CA

 

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Permalink Reply by Samuel Hilbert on December 18, 2011 at 8:17am

You're dead on here in this response...still interested if anyone has actually pushed and had success on this. Our attorney is the only person I've ever heard actually say they've had luck getting Fannie Mae to accept this even though they say they won't.

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Permalink Reply by Kevin - Greenville, SC on December 18, 2011 at 2:54pm

Sam, I've had success on getting Fannie Mae (non-HAFA) to allow the Buyer to pay a small amount to the 2nd on the HUD-1 to get the deal done.  It did add a couple of months to the transaction.

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Permalink Reply by SE Davis on December 18, 2011 at 8:02am

Sam you shouldn't be so thin skinned.

You screwed this one up royally Sam and you've wasted a lot of peoples time in the process. Mainly your own.

A $20,000 payment outside of the HUD may be considered both SHORT SALE FRAUD and very likely a RESPA violation felony. All fingers will be pointing at you.

I gave you the solution in my last post.

Tell the private second holder to accept the terms of the first lien holder OR go fly a kite in a hurricane.

NEXT TIME when you see a private lien holder on title PICK UP THE PHONE and call them before you even take the listing.

 

 

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Permalink Reply by Samuel Hilbert on December 18, 2011 at 8:11am

I've already done that...many times. Trust me...you should stop telling people what they've done wrong when you can't understand the entire situation. There is a lot more to this story then could ever be explained in an online forum...and frankly isn't your business.

As I said, I posted in this forum to simply make sure I'm not missing any ideas...if you don't have any ideas to add to this than I don't need your responses.

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Permalink Reply by Bryant Tutas on December 18, 2011 at 8:30am

Samuel. Let me give you a few things to think about that may help.

First, if the buyer is paying cash then RESPA does not apply and this gives you leeway with what needs to be on the HUD. In fact if RESPA doesn't apply you don't even have to use a HUD! (of course I'm not an attorney or a RESPA expert But...RESPA is pretty clear that it only applies to financed deals.) Therefore the payment does NOT Have to be on the HUD.

If it's a financed deal falling under RESPA guidelines then the private 2nd could very well accept a note from the buyer for the $20,000 with a balloon payment due in says 2 weeks (or 12 hours). This would also not have to be on the HUD as it's not related to the financing or the proceeds of the sale.

Again I am not an attorney so seek legal advice.

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Permalink Reply by SE Davis on December 19, 2011 at 1:42am

Sam some people do not like my style, but everybody loves me at closing.

If this buyer is determined to pay more for this property than the first lien holder has determined it is worth and you have fully vetted the post-closing risks of that then try this:

1. Have the closing attorney prepare an updated Prelim HUD1 reflecting everything on the short sale approval from the first lien holder and then showing the sellers contribution to the second lien of $20,000 on line 603 of the Prelim HUD-1. Send that to the first lien holder negotiator for their approval prior to closing to see if they will bite. If allowed and approved by the first lien holder than the buyers will have to bring 2 cashier’s checks or 2 separate wires to the closing. The first one for the buyer’s side of the HUD line 303 and the second for the seller’s side contribution line 603 on the HUD. I closed a short sale exactly this way earlier this month approved by both the seller’s two lien holders (Chase and SunTrust) and the buyers FHA underwriter.

If that does not work then you could try this, I believe that there is a 30-day window for POC payment transactions to facilitate compliance with most states and fed regulatory rules and statutes.

2. Go back to the private second lien holder and have him write an “unsigned” written approval that matches the first lien holder’s disbursement offering and any other terms. Then have that person write a payment invoice outlining the exact default balance and a $20,000 payment due by the seller. Have the buyer make that seller’s payment and then after the payment is received request that the private lien holder sign the written approval that matches the terms of the first lien holder then submit that to the closing attorney. Then 31 days after the $20,000 was tendered, CLOSE the transaction with all transaction dollars (within that 30-day exclusion period) pertinent to the Final HUD appears on the HUD and should be totally compliant and legal. I closed one using this method a couple of months ago.

GOOD LUCK SAM!

 

 

 

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Permalink Reply by Teresa Keeler on December 19, 2011 at 4:48pm

Your instincts are your best guide to right and wrong.  IMHO - 30K is excessive I don't know what the principal balance is on the second, but with the relationship between the parties I would bet there is a good possibility that there could be money going back to the seller.  When was the second taken out?  If it was recent perhaps it was done in an attempt to recover money.

 

I have personally reported bank negotiators to the OCC who have insisted I pay them off of the HUD.  This is nothing more than a greedy attempt to bully all involved and get more for their investor, and who knows perhaps a bonus.  The banks rely on the percentage of people who, unlike you, don't know better and will do whatever they tell them.  I have personally not tried the POC and may do this with success, but I would never, EVER have money floating around, especially to someone who is knows to have some sort of relationship with the seller, outside of the HUD. 

 

I totally understand that you want to do what is right fror your seller, and I also believe that if the banks are going to run around and toss out the "F" word every time we blink, they should examine their own practices.

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Permalink Reply by Kimberley Kelly on December 20, 2011 at 3:26am

After reading this stream, I still think I would steer clear of this..at least in California as Thom says.  If they accept the POC on the HUD, then you are golden, if not, close the file.  Sounds too murky to me..

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