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.

Agents and their clients are encouraged to file any complaints regarding fraudulent activities to the proper authorities, including the following agencies:

Attorney General's Office

California Department of Justice

800-952-5225 Phone

http://ag.ca.gov/consumers/mailform.htm

Department of Housing and Urban Development (HUD)

HUD Office of Inspector General Hotline (GFI)

800-347-3735 Phone

http://www.hud.gov/offices/oig/hotline

Federal Bureau of Investigation (FBI)

202-324-3000 Phone

https://tips.fbi.gov

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Comments

Frank Popeleski March 31, 2010 at 10:19am

There is all sorts of stuff floating around these days. In this market it is common on the MLS to see commission stated at X% - $250 ( or other amounts). This is commonly known as the MLS fee. What agents began doing here on REO sale is saying to bring a W-9 with you to closing as the MLS fee may or may not be taken from the HUD1, in any event these folks stated it needed to be paid at closing by some means, generally bringing a check in hand. The State association got a ruling on this that points to this practice as not being legal per RESPA. There are those out there that will go to any lenghts to make a buck.

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