California Specific: Undisclosed Short Sale Payments May Be Illegal

“UNDISCLOSED SHORT SALE PAYMENTS MAY BE ILLEGAL

Undisclosed payments in short sale transactions, especially those paid outside of escrow, may violate the law, including RESPA, laws against loan fraud, and licensing laws. Short sale agents have increasingly reported to C.A.R. about requests for agents and their clients to pay junior lienholders and others, oftentimes outside of escrow.
One common scenario is when a short sale seller’s senior lender authorizes a payment of $3,000, for example, to extinguish a junior lien, but the junior lender demands that the buyer pays an additional $9,000 outside of escrow. Not only would it be risky for a buyer to pay outside of escrow, but concealing this additional payment from a federally-insured senior lender may constitute loan fraud, which is a crime punishable by 30 years imprisonment plus a $1 million fine (18 U.S.C. section 1014). Furthermore, omitting from the HUD-1 Statement any charges paid at settlement by either a buyer or seller may violate the Real Estate Settlement Procedures Act (RESPA) (Appendix A to 24 C.F.R. Part 3500). Depending on the specific circumstances, carrying out these payment requests may also violate other laws and regulations, and an agent’s participation in the scheme may be subject to license revocation by the Department of Real Estate or other disciplinary action.” -sent by California Association of Realtors

I’ve been getting this email from everyone this week. I think this is one of the dumbest things I’ve read professionally in a LONG time. It seems to be an insult to people who actually READ and have been trained.

Do any real estate professionals who take their business seriously really not know you DON’T:
#1 pay money outside escrow when dealing with short sales
#2 Not fully disclose changes or additional contracts to all parties signing them

So yes of course its ILLEGAL to not disclose payments NOT shown on the HUD to a Jr lien or ANYONE else for that matter.

Does this mean you can’t get a fee approved that IS disclosed to both BUYER and SELLER and shown on the final HUD and thereby approved by the lender? Obviously that is LEGAL.

Check back next week I am going to share THE MAGIC BULLET to fresh collections… I still don’t know exactly why it works so well but it does!