Replies to This Discussion

Permalink Reply by joe beauchamp on December 27, 2011 at 6:13am

I would not do anything which is NOT on the HUD-1.  The HUD-1 is supposed to show EVERYTHING related to this real estate transaction.  The POC is perfectly legit, although some realtors quake at doing anything that they haven't done 1000 times before.  Since the POC is doing something outside of the HUD-1 but simply logging it, that means to me that anything dealing with the transaction outside the HUD-1 and NOT logging it would be fraud.

There are some fine lines here.  For instance, banks doing a short sale are demanding that you NOT pay your legal obligations to others in the sale.  You know what could happen to you if you said the same thing to the homeowner about his obligation to this same bank.  So, what is to stop you from taking care of that obligation before the sale?  Nothing except that your buyer would want assurance that his money didn't just go down the rabbit hole. -- And, I guess it is a "gift" at that point?  I'm not a lawyer, just thinking through the ramifications..  (I wouldn't go this way, doesn't feel right - the  POC should work just fine.)

I have personally bought properties leaving mortgages and liens in place.  I have never tried that with a short sale, I don't recall any language from the bank prohibiting it - most people don't think of doing that. You should be able to tell the title company that mortgage X stays on the property and they are not insuring against it (their concern), and then buy the house with the 2nd mortgage still in place - then the buyer could pay it off.  As I said, I have not tried this - haven't had the opportunity/need.

[Oh, title companies come in all flavors from intelligent good people to ditzy as can possibly be.  If yours gives you grief, shop around for someone with a few brain cells.  Don't assume that because one company insists on green ink that they all will..]

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Permalink Reply by Teresa Keeler on December 27, 2011 at 6:43am

l I have to admit I too am now struggling with this. I just had a conversation with my real estate attorney.  Apparently it is her opinion that it is not a requirement for all details of the transaction to be reported on the HUD, just all of the RECEIPTS AND DISBURSEMENTS made by the title agent or attorney.  Her example was what if the bank required a new roof or the buyer paid a contractor to do work on the proeprty before closing?  That person in most cases would not accept waiting for payment until closing and therefore would not normally appear on the HUD.  This is true even if it is a condition of the buyer's mortgage approval.  We just had a case like this where mold remediation was required - it was 8K and had to be paid by the buyer UP FRONT before the lender would approve the mortgage.  This payment will not show up on the HUD, yet it directly related to the transaction as the entire mortgage was contingent upon it.

 

I believe in full disclosure 100%.  However I also firmly believe that this is a transaction negotiated between the buyer and seller, and ONCE AGAIN we have banks acting as principals.  If they want the right to dictate terms, they should foreclose and not do a short sale.  If it says in the agreement that the buyer has considered additional payments to clear liens in their purchase price offer, then it has been disclosed. 

 

Again I am struggling with this concept and I am so sick of hearing about fraud it's ridiculous. However I want to stay within the confines of real estate law but I beleive this market is more of the "wild wild west" of real estate law so much that the laws are being made up as we go along, basically to suit the banks who don't want to be held accountable for making bad decisions,  Period.

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Permalink Reply by Bryant Tutas on December 27, 2011 at 7:44am

Teresa. The HUD is a RESPA requirement on financed transactions (there are some exceptions). The HUD is the document used to show the costs related the financing of the purchase and to show the distribution of funds (proceeds) related to the transaction. My guess is that the attorney you spoke to is correct.

RESPA does not apply to cash transactions. Having a cash buyer on a short sale gives us a lot more leeway.

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Permalink Reply by Teresa Keeler on December 27, 2011 at 8:01am

That is exactly what she said - it is a document used to disclose fees associated with the "financing costs" primarily. It is not a requirement that all costs associated with purchasing the property be on it. We have used the promissory note for many years with success when seconds and firsts could not agree.  If you ask me, I still maintain that the first does not have a legal right to dictate the terms of who "else" gets paid, just to approve or decline what THEY get paid.  That's like them saying "well if realtors get a commission we want that to come to us too, along with the mortgage broker, title agent, attorney, "... anyone that isn't a legal requirement or lien.  I belong to a group that has seating in Washington "Jeff Watson, Short Sale Attorney in Ohio",  and they are making some good progress on issues like this.

 

Also - I am closing a first and second short sale with PNC and the Senior VP for the first did tell me that they cannot prevent the seller from making payments on their second before or after the closing even though they will tell you that it's fraud not to disclose this to them. "Duty to disclose" becomes the issue and they are not a legal party to the second lien.  

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Permalink Reply by SE Davis on December 27, 2011 at 8:05am

Teresa Hejna;

What you described is like "Apples VS Oranges".

This topic thread was based on a private subordinate lien holder (with inference of a personal relationship of some sort with the homeowner) making outrageous cash payment demands after and outside of the written approval disbursement amount offered by a sellers first lien holder.

First lien short sale approvals "most of the time" restrict the payment amount to any subordinate lien holder. Any excess payment they are not aware of and did not approve in advance of a closing can most certainly be considered fraud against them.

There are several issues and problems with that situation that could cause blowback for multiple parties to the transaction post closing. Demanding everything be on the Final HUD acts as insulation to the third parties whether legally required or not.

A buyers lender requiring collateral cure items prior to closing is standard procedure especially for FHA or VA loans. It's not the same thing.

The solution is simple. When you see a private lien holder on title or disclosed by the seller start the short sale negotiation right then and there with that private person by calling them on the telephone. Its one person one telephone number and probably a very quick conversation.

If they act like they will hold the transaction hostage on that initial phone call then don't waste any more time on the transaction.

It's really very simple and a lot of experienced and presumably intelligent agents seem to overlook this.

One other thing. 90% of real estate attorneys have never litigated a case in a court room. If the questions we ask them don't frame the argument accurately then we won't get an adequate response.

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Permalink Reply by Teresa Keeler on December 27, 2011 at 8:14am

I think we would all agree that the private lienholder issue is a separate issue.  If you read my previous post it is my opinion that there may very well be collusion between this "private" party and the seller since they require such a large payment. 

 

However the question seemed to centered more around searching for legal and legitimate ways to address the conflicting requirements of senior and junior lien holders. Therefore my responses have been geared more toward that discussion.  If you are dealing with institutional junior liens most will not even talk with you or accept a package without the first lien approval.

 

I think you have sufficiently driven home the concept of the simplicity of your solution and in private transactions I do not disagree that this is an efficient way to handle the deal.  

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Permalink Reply by SE Davis on December 27, 2011 at 8:49am

I had one last year where I suspected the private lien holder and the seller were conspiring to split the cash disbursement.

I processed it and closed it and never knew for sure that that event actually occurred.

The "tell" is large private liens in 2nd or 3rd position recorded within 12 months of any foreclosure or BK filing or proceeding. The 2nd "tell" is that private lien holder acting totally unreasonable suggesting they would rather receive zero dollars and force a foreclosure where they get nothing.

Every transaction is a new learning curve it seems.

 

 

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Permalink Reply by Bryant Tutas on December 27, 2011 at 7:40am

Joe. Remember RESPA doesn't apply to cash purchases. So if the buyer is paying cash for the property then not all figures need to be on the HUD. In fact you don't even have to use a HUD. And just because a HUD1 is being used it doesn't not make the transaction fall under RESPA guidelines.

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Permalink Reply by joe beauchamp on December 27, 2011 at 8:08am

Interesting - if I ever learned that in real estate school, it didn't stick - just thought HUD-1 was a fed thing to make sure that everything in the real estate transaction was noted.

I was going to say that I'll have to think about this - but I don't think so - there are enough screwy things with the banks and this mess that I will just let this one go into the odd facts pile.  I suspect that if you went into a title co. and told them that you don't want a HUD-1, you'd have a heck of an argument on your hands.

So, they are only interested in fraud if you use checks?  HA!

[Yep, I agree with the atty - tain't black and white - and depends upon what your atty is willing to back, methinks..]

I do think of becoming Amish from time to time.  They know nothing of this junk or gas prices or Goldman Sachs... Bliss?

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Permalink Reply by Bryant Tutas on December 27, 2011 at 10:25am

Joe. We have actually closed many REOs where the buyer paid cash and a HUD 1 was not used. Title companies use them out of habit. The HUD1 is a RESPA requirement as is the GFE. RESPA only applies to:

• RESPA covers loans secured with a mortgage placed on a one-to-four family residential property. These include most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. HUD's Office of RESPA and Interstate Land Sales is responsible for enforcing RESPA. (From the HUD.gov site)
  

There are MANY transactions where RESPA doesn't apply:

• The following are kinds of transactions that are not covered: an all cash sale, a sale where the individual home seller takes back the mortgage, a rental property transaction or other business purpose transaction. Some construction loans and loans for properties on 25 or more acres. (From the HUD.gov site)
  

 On the above types of transactions a HUD1 is not required or needed.

Now having said that I never closed a short sale where we didn't use a HUD1. BUT just because we used a HUD does not mean RESPA applied. In fact the majority of my short sales are not RESPA transactions.

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Permalink Reply by SE Davis on December 27, 2011 at 8:27am

Bryan and Joe;

Technically you both are correct.

However a cash buyer would still be wise to buy title insurance on a short sale.That Final HUD is like a controlling document, that should equivocate the language in the title abstract/search and the title policy.

Additionally when a sellers lien holders accept short payoffs that is an extra layer form of financing benefiting  the buyer.

Allow me to assert that a CASH BUYER of a short sale IS STILL a financed transaction.

The Final HUD1 format is the commonly accepted legal document that if "s**t h**s t*e f*n" post closing everyone will wish they had one.

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Permalink Reply by Bryant Tutas on December 27, 2011 at 10:34am

I disagree that a cash buyer of a short sale is still part of a financed transaction. The short sale approval is a "payoff" not a loan, note or mortgage and it has nothing to do with the buyer. The short is a seller to lender transaction.

A buyer does not need a HUD to purchase title insurance. In fact in Florida the owners policy is purchased by the seller and given to the buyer. This too does not require a HUD1.

RESPA is quite clear about when a HUD1 is required. And the FDIC is quite clear that the use of a HUD1 does NOT put RESPA into force if it does not apply.

So stating that: Allow me to assert that a CASH BUYER of a short sale IS STILL a financed transaction.

Really has no meat to back it up. It's just an opinion and it is not true.

***Of course I am not a RESPA expert. Nor am I an attorney. Everybody should seek legal in this matter and work under the restraints they are comfortable with.

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