How does it get paid?

With all the restrictions on what banks and lenders will and won't do, what Fannie and Freddie will allow and whom HAFA says can or can not contribute, I am utterly confused as to when RESPA rules/law are violated.

Example: We just found out about an unrecorded judgment against the Seller in a HAFA short sale set to close next week. BoA says that HAFA won't pay and no one can pay it on the HUD. No contributions from the Seller, Buyer nor agents. They tell us we have to take care of it outside of closing.

But then I start wondering. If it is paid outside of closing by the Seller, wouldn't that violate RESPA in some way?

It would seem logical to go ahead and find some way for the Seller to borrow some money and get it taken care of. But if that violates RESPA law, then whoa Nelly! At the same time, I can't just sit here with a finger up my @&*% and say... OK, we are not allowed to pay it. See ya.

Something doesn't add up and it bothers me.

As a side: why the heck can't I pay a Seller's judgment out of my commission, and why do the banks continually tell me I can't do something when I know I can??????

FRUSTRATED!

In my opinion, we should not be in the business of attempting to establish interpretations of RESPA for areas that are neither explicitly prohibited nor explicitly permitted. Our guidance should be to help our clients, be fair and ethical, be informed, and work with attorneys and title companies.

There is a process for such opinions and interpretations, thought the regulator/enforcer, previously HUD now CFPB, if you choose to seek an opinion. I called, received a call back, had a long and interesting discussion with an expert attorney on the question I was asking. Summary: For virtually every such short-sale question, there is neither court case nor opinion for guidance.

People sometimes quote a specific section of RESPA, but that may not answer a question, because RESPA has other sections that may imply the other direction, as is the case on this question I think. If there is no formal guidance after five years of short-sales, perhaps the question does not need to be answered.

If it meets my conditions of helping, is ethical, is compliant, and is implemented by the title company/attorney, then we are on acceptably firm ground.

The fact is, Drew, such liens are cleared regularly, I think. How else would such transactions complete, to the mutual benefit of all parties?

Replies

Joseph Alfe April 15, 2012 at 6:52am

The real question is, why are you paying a judgement for the seller? If it's not on title then its not part of the transaction. If it is on title, your title company failed to examine the title properly and you may have some recourse there. Last ditch, you can re submit the lien to the lender and get them to pay it, they can and they will if you do it right.
Michael Schneider April 15, 2012 at 2:17am

In my opinion, we should not be in the business of attempting to establish interpretations of RESPA for areas that are neither explicitly prohibited nor explicitly permitted. Our guidance should be to help our clients, be fair and ethical, be informed, and work with attorneys and title companies.

There is a process for such opinions and interpretations, thought the regulator/enforcer, previously HUD now CFPB, if you choose to seek an opinion. I called, received a call back, had a long and interesting discussion with an expert attorney on the question I was asking. Summary: For virtually every such short-sale question, there is neither court case nor opinion for guidance.

People sometimes quote a specific section of RESPA, but that may not answer a question, because RESPA has other sections that may imply the other direction, as is the case on this question I think. If there is no formal guidance after five years of short-sales, perhaps the question does not need to be answered.

If it meets my conditions of helping, is ethical, is compliant, and is implemented by the title company/attorney, then we are on acceptably firm ground.

The fact is, Drew, such liens are cleared regularly, I think. How else would such transactions complete, to the mutual benefit of all parties?
Sam April 14, 2012 at 4:59am

I could be mistaken, but if it is paid and cleared "prior to closing", then it is non transactional and thus would not be on the HUD in any case?
- Drew Ludlow > Sam April 14, 2012 at 7:53am
  
  Sam,
  
  That could be one way to look at it. However, I know that it is always good practice to put POC items on the HUD for full disclosure anyway. An example would be any type of home or termite inspections. We've always had those paid at the door AND listed on the HUD as POC.
  
  So, really, where does the insanity stop in terms of what we can and can't and what we should and shouldn't put on the HUD as POC?
  
  I like your answer though....
  - Sam > Drew Ludlow April 14, 2012 at 11:05am
    
    If it is paid prior to closing (not same day type thing), it is not a transactional item, it is a lien that was paid off regardless of the transaction, and does not exist any longer. If the lien does not exist at closing, why and how could its payment be recorded, or more importantly, need to be recorded?
    
    Risk to seller is, they settle the judgment lein, and the short sale for some reason does not happen...although if they have the financial warewithall and do not plan on filing bankruptcy, then they probabably plan on paying it at some point in time anyway so what's the difference?
    
    Not a legal opinion, but from a practical perspective, I cannot see what the problem would be.
Bryant Tutas April 13, 2012 at 12:49pm

One tip that may help is to remember that RESPA does not apply to cash transactions.
- Drew Ludlow > Bryant Tutas April 13, 2012 at 1:10pm
  
  Yes, but this one is financed.

This reply was deleted.