I have had many conversation over the last 10 years with agents that are contacted by companies that state the agent will get their full commission and the bank will pay the negotiation fee. I have even contacted some myself and they stated how they use a different name so that the lender is not aware that it is a negotiation company
Here is an interesting article of a company doing this and now the principles will be facing jail time
TM Short Sales Consulting
The FRAUD occurred because he didn't disclose what he was doing. Fannie mae actually states that a third party negotiator can be paid out of commissions. This guy was also transfixing HUDS etc. SO there is more to the story. Bottom line, DISCLOSE DISCLOSE DISCLOSE
Had they disclosed that they were asking for a credit and that credit was going for short sale negotiations then the bank would decline. Paying out of commissions has always been acceptable as it is not an additional loss
Not necessarily true. Freddie and Fannie did not allow third party negotiation fees until recently. I believe this year. Somewhere around 2013 - 2015 they prohibited 3rd party negotiation fees out of proceeds. I believe it was around the same time they prohibited non-mortgage debt negotiated and paid on the huds, so then suddenly third party fees are charged to the buyer, whether it was a short sale fee or execution, judgement, IRS lien, mechanics lien, etc.
Other lenders made their own rules. Like I said, if it's disclosed, you will rarely see fraud. It's those that are trying to get a payment out of proceeds without disclosing what they did, work they did etc.