Real Estate + Technology + Business
CNBC – Big Banks, Short Sales, Kick Backs and Fraud
This morning CNBC aired the story we brought them regarding short sales, bank fraud and kick-backs to banks.
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Diana Olick — CNBC Real Estate Reporter
Big Banks Accused of Short Sale Fraud
Just as regulators, lawmakers and all forms of financial oversight boards are talking about new regulations to guard against mortgage fraud and another mortgage meltdown, there appears to be yet a new mortgage fraud out there today, allegedly perpetuated by agents of, yes, the big banks.
I was first alerted to this by Jeremy Brandt, the CEO of several companies that bring short sale agents, investors and sellers together.
His companies include 1-800-CashOffer, HomeFlux.com and FastHomeOffer.com. Brandt has a huge network of short sale real estate agents, and over the past several months he’s been receiving all kinds of questions and complaints about trouble with second lien holders.
As we all know, during the housing boom, millions of Americans pulled cash out of their homes in the form of home equity loans and lines of credit. They also used “piggy back” loans in order to get even lower interest rates on their primary mortgages. Now, many of the borrowers in trouble, and many who are so far underwater on their loans that they don’t qualify for any refi or modification, are choosing short sales as a way out. (Short sales are when the lender allows the home to be sold for less than the value of the loan). About 12 percent of all home sales by the end of 2009 were short sales, according to the National Association of Realtors.
In order for a short sale with two loans to happen, the second lien holder has to drop the lien.
If they don’t, and there’s no short sale, the home goes to foreclosure and the first lien holder gets the house because second liens are subordinated debt to the primary loan.
In short, the second lien holder gets nothing. In order to get the second lien holder to drop the lien, the first lien holder generally negotiates some partial payment to the second lien holder. The second lien holder doesn’t have to agree, but more and more are doing so.
That’s all legal.
But here’s what’s not legal and what’s apparently happening quite often recently. Since many second lien holders are getting very little, they are now allegedly requesting money on the side from either real estate agents or the buyers in the short sale. When I say “on the side,” I mean in cash, off the HUD settlement statements, so the first lien holder doesn’t see it.
“They are pretty clear and pretty upfront about the fact that if the first lender knows they are getting paid, the first lender will kill the short sale,” says Brandt. “So these second lenders are asking for the payments off the closing documents, off the HUD statement, usually in a cashiers check prior to closing. Once they receive that payment, they will allow the short sale to go through, which according to RESPA laws and the lawyers that we have spoken to on the topic is not legal.”
(RESPA is the Real Estate Settlement Procedures Act, the 2008 law requiring that consumers receive disclosures at various times in the transaction. It outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD. Read more about it here.).
I told RESPA specialist Brian Sullivan over at HUD about all this and he replied, “That’s a red flag!”
Clearly illegal.
Brandt told me he’s heard from at least 200 agents that they’ve had these requests made by representatives of Citi Mortgage, JP Morgan Chase, Bank of America and other large banks.
Most agents wouldn’t go on the record with me, for fear of retribution by the banks with whom they have to work every day. But one agent, Kayte Gentry, of Keller Williams Integrity First Realty, was brave enough to blow the whistle.
“I think it’s wrong, and I think somebody needs to hold them accountable, and every time I lose a house in foreclosure because of this, it hurts my client,” says Gentry matter-of-factly. “Aside from being illegal and a violation of RESPA, it’s immoral and truly it’s just sad for the client that it’s hurting.”
Gentry says she has had the requests made three times and claims she lost one sale because of it.
“The big banks that have recently made this request, specifically payments outside of the closing statement have been Citi Mortgage and JP Morgan Chase.”
JP Morgan Chase simply answered, “No Comment,” when I relayed the charge to their media representative.
Bank of America denied the practice to CNBC in a written statement:
“Bank of America enforces a policy that all disbursements are documented on the settlement statement for short sales. When we are servicing a first mortgage with a second lien held by another investor, if the second lien holder asks for off-HUD payments, we will not approve the transaction (if we have knowledge of it). It is also against Bank of America’s policy to accept off-HUD payments on its second liens.”
Citi ‘s reply was a bit more complicated:
“We work very hard to help distressed homeowners find solutions for their financial challenges. In our attempt to amicably resolve the debt, we will generally negotiate a reduced settlement with the homeowner in order to release a second lien. Unlike some lenders who refuse to reduce the payoffs on second liens, we choose to reduce the payoff amounts in some situations to assist the borrower. We do not provide instructions to settlement agents on how to fill out the settlement statement or any other closing documents, and we certainly do not require settlement agents or any other parties to violate applicable laws.”
“When we confront the lenders and tell them that this request is illegal and a violation of RESPA, they tell us it’s been cleared through legal and they don’t care. Do it anyway,” charges Gentry.
I personally heard a recording of a phone conversation between a short sale real estate agent and a second lien lender, during which the second lien lender clearly asked for cash outside of the settlement and threatened to kill the deal without it.
The real estate agent was rightly concerned and reluctant (the recording was given to me by Brandt who got it from the agent. The agent would provide no information on the lender, for fear of retribution):
AGENT: Well yes, I don’t want to lose my license, go to jail, I mean, I have to sign…
LENDER: You’re not going to lose your license – we have plenty of realtors who do this, who actually understand how this whole process goes – and they realize that OK, if I want to get this done, this will take place.”
I contacted the Treasury Department, HUD, FINCEN (Financial Crimes Enforcement Network) and the Federal Trade Commission, and none of their representatives could tell me of any active investigation into this. The folks at HUD said they’d be very interested to see my story.
| Print article | This entry was posted by Jeremy on January 15, 2010 at 5:41 pm, and is filed under Foreclosure/Short Sales, Fraud/Scams, Law, Media, Real Estate. Follow any responses to this post through RSS 2.0. You can leave a response or trackback from your own site. |
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about 2 years ago
Thanks for the effort on this one Jeremy. This is a huge issue for us out here in Northern Virginia. And I will echo what your story stated, that Chase and Citi are at the top of the list for pulling this.
Sellers are doing all they can and feel beaten down after all of their financial and emotional issues tied to the ecoomy. When they finally find a solution that might help in even the slightest way, a short sale, they are then penalized and bullied. There’s no need for this.
And oh yeah – It’s a violation of Federal Law!
We recently had a bank representative tell our home owner that he was only a file to him and if the seller didn’t bring the additional money outside the HUD then he would just deny the file out right. He went as far as sending us two separate approval letters; one to show the first and the second to be included with the forwarded funds. Thankfully we tracked down his supervisor and got this ‘straightened’ out.
Keep up the good fight!
about 2 years ago
Excellent article, I too had this happen to me with Citi-Mortgage. They actually turned the file over to an attorney that was representing them. The attorney wanted the seller to sign a $30,000.00 promissory note and keep this off the HUD stating she would repay the loan. It started off at $10,000.00 and they continued to raise it to $30,000.00. The seller of the home did not even have a job, Citi’s attorney stated “well she will have a job someday and who knows she may come into some money”. The deal fell apart as I explained to my seller that this was not legal. Citi’s attorney stated they would just “come after her for as long as it took to get their money”. This was after being in negotiations for over 90 days as well. The seller lost the house in foreclosure due to this and the buyer that had made the offer had to start over to find another home. I will not do business with Citi Mortgage or anyone affiliated with them.
about 2 years ago
I had this problem w/Chase on a short sale of MY OWN HOME! Chase forced me and my husband into foreclosure and bankruptcy!
I have successfully negotiated 5 short sales to date with other banks and secondary lenders without ANY problems. Only Chase has tried this “sneaky” tactic.
about 2 years ago
I would not hesitate to report the name of any lender that would use this tactic with one of my clients. These people are trying to keep from drowning and yet when the second lien holder sees the arm above the water calling for help, they choose to ignore it. If I lose that bank’s business, I am sure one with integrity will come along and fill their spot. My intention is to help people. I will not encourage this greed.
about 2 years ago
This is great. I head up the short sale division at Keller Williams in Destin, and have closed quite a number over the past few years. I recently had a bank representative tell me “I will control this deal, let them foreclose, I don’t care…” further he said “We want $22,000 on the HUD and another $62,000 from the seller to make this work.” Later he said if the seller would make a payment to them first, they could accept less. When I told him it was illegal, he countered with “It’s not illegal for a seller to repay his loan.” I think these guys must work on comission. I finally tracked down his supervisor (the original negotiator was very angry by the way) and they settled on $10,800 to do the deal. The first would only come up with $3,000 so everyone had to contribute something to make up the difference, me, the title company, buyer and seller. We are still waiting on approval from the first at this point. Hopefully together we can make a difference.
about 2 years ago
Citi bank is threating to “transfere” the file on a short sale that they are the second on unless they get a payment in advance of the closing. They have pushed the closing time too short by 4 days to comply to with the new TILL and RESPA laws that went into effect Jan 2010. Is this move by CITI intentional? I think it is a means of extortion. Very frustating for the buyers and the sellers
about 2 years ago
In 2009 I lost $6M worth of volume business because the banks do not havce their s&^% together. There is 15 different account reps working the same account with 15 different perceptions on how the deal has to go down.
While no lender has asked to have their cash off hte HUD, no two lenders (a first and second) are willing to work together to offload one more distressed property. The “negotiatiors”(is THAT what they are called?) have no room to move, have no authority, and ultimately do not approve deals due to something happening in the crevices of bank management.
What was the point of Obama’s incentive to pay banks a bonus each time they work out a deal to either short sale or renegotiate the bank terms if the banks aren’t being accountable to doing so?
In the area of relocation, this is truly a hardship. I am counseling more and more candidates, and their V-andC-level management on how to best approach transfers when it comes to banks out of compliance, and I can tell you that it isn’t pretty!
We are in for quite a long haul regarding the offloading of distressed inventory, and flow of credit in the housing market.
about 2 years ago
Pardon the typos! I was typing furiously!
about 2 years ago
I had US Bank rep asking me for extra $3,000 on the 2nd. The 1st was giving them $3,000 only as per Freddie Mac guidelines, this is the max they’d allow, but US bank wanted $6,000. So, the rep told me to get creative – to get the money from sellers, buyers or my commission. On my counter claim that the 1st will take the difference either way and US bank won’t see the extra funds, US bank rep told me not to put it on the HUD and send them a cashier’s check prior to COE. After I told him that I don’t agree with his “shady” tactics, he hang up on me and did not answer my calls ever since. Had to call his super.
about 2 years ago
This does not surprised me. I have a comment. Why is it when you call loan Modifications they have no solutions, they let you foreclose and sell the house for 75% less than the what original owner owes. Tell me why they do not negoiate with the home owner and reduce their debt by 10-25% and and keep the original owner in the home. By not doing this it brings down the whole neighbor with foreclosed property sales and vacant homes. The banks encouraged home owners to borrow and to purchase these homes, that are now about half the value. Yet they do not have solutions and they make home owner jump threw hoops and bundles of paperwork, just to say no about modifing the loan. The equity lines and the mortgage department do not work together.
Sound familar, I am talking of course Bank of America they are the worst. Why can they not stream line the foreclosure situation and have quick solutions. Most my listings go into foreclosure because banks are painfully slow and seem to not care or be motivatied to find effective solutions that is a win win for everyone.
about 2 years ago
I HAVE NOT RAN INTO THE CASH ON THE SIDE SENARIO, HOWEVER I HAVE WORKED 6+ MONTHS ON A SHORT SALE THAT HAS BEEN COMPLETELY NEGLECTED BY THE 1ST LIEN HOLDER. WE HAD THE REDUCED AMOUNT ACCEPTABLE FROM THE 2ND LIEN HOLDER-MET THE TERMS OF THE 1ST TO COMPLETE THE SHORT SALE MET AND THE 1ST LIEN HOLDER STILL TOOK IT TO SHERIFF SALE AND BOUGHT IT BACK.
THIS WAS EVEN AFTER WE HAD SHORT SALE ACCEPTANCE FROM THE FORCLOSURE ATTORNEY’S ON TOP OF THE AGREEMENT IN TERMS BETWEEN-SELLER-BUYER-1ST LIEN HOLDER AND 2ND LIEN HOLDER! –THEY GAVE US 6 DAYS TO CLOSE IN A MARKET THAT DOESNT SEE CLOSING OFTEN WITHIN 30 DAYS ANY MORE!!!!!!! THIS IS ABSURD AND VERY FRUSTRATING.
THE LENDERS ARE NOT LOOKING OUT FOR HELPING THEIR BORROWERS IN MOST CASES AND MOST OF THE LENDING ENTITIES PUSH THE PROCESS OFF TO THE SIDE AND TAKE WAY TO LONG TO RESPOND.
SOMETHING HAS TO BE DONE TO ASSIST IN THIS PROCESS.
REALTORS ARE REALLY PUTTING A GREAT DEAL OF WORK INTO THIS TYPE OF TRANSACTION AND ARE WILLING TO ALL THEY CAN TO HELP THE STRUGGLING HOME OWNER——–THE LENDERS TIE OUR HANDS TOGETHER AND ASK US TO JUMP THROUGH HOOPS THAT ARE UNNECASSARY TO TROW US TO THE BACK BURNER.
THERE IS NO SENSE IN A SHORT SALE BEING PUT OFF AND NOT ACCEPTING AN OFFER THAT WILL ONLY CAUSE THE 1ST LIEN HOLDER TO LOSE MAYBE $1,000 AT THE CLOSING TABLE. AND FOR WHAT? SO THAT THEY CAN BUY IT BACK AT SHERIFF SALE FOR $20,000 LESS THAN A CURRENT SHORT SALE BUYER IS WILLING TO PAY, LEAVE IT SIT IN 20 DEGREE WEATHER WITHOUT ATTENDING TO IT AND ALL THE PIPES FREEZE AND BREAK DAMAGING THE HOUSE AND LOSING EVEN MORE MONEY.–DO THEY GET HUGE TAX BREAKS FOR LARGE LOSSES? I JUST DO NOT UNDERSTAND.
-ONLY TRYING TO HELP THE PUBLIC AND DO MY JOB DILIGENTLY
about 2 years ago
Yesterday, I was told that an offer in place for a buyer client of a ‘short-sale’ property for over 90 days was bought back in foreclosure by Citi even though their negotiator thought they would have a decision for us this week. What a disservice to both the buyer and the seller. Now, our only hope is to start over with the new foreclosure agent.
By the way, it’s a double-contract when funds are transferred between parties to the transaction that don’t show on the HUD statement. This is certainly illegal in all 50 States, a violation of real estate licensing law in Idaho and the Professional Standards of all Realtor members of NAR.
about 2 years ago
I had a short sale with Citi Bank earlier this year that ended up being foreclosed on. The negotiator for the short sale insisted that the seller needed to sign a promissory note to the PMI company for $9,000. or they wouldn’t even consider reviewing the file/offer to purchase. In this case the PMI company appeared to be, in essence, the second lein holder. They told me that they were taking too many hits on these types of losses, and that unless the seller signed the promissory note, we could go no further with the file. I thought that was what PMI companies were paid for ( to insure the first 20% of the loan) The seller was unable to guarantee an additional $9,000., so she refused to sign the promissory note. In the meantime, I received another offer on the property for $9,000. more. When that was presented, the negotiator then said that the amount of the offer to purchase was irrelevent and that the seller still needed to sign the promissory note first before negotiations could begin. They also made it very clear on several occasions that even if the seller signed the promissory note, there was no guarantee that the offer to purchase would be accepted. So in a sense the PMI company was the gate keeper in this transaction. Nothing could go through until they were paid first. In the end we all parted company, the home was foreclosed on, and later sold for $25,000. less than my offer to the bank 6 months earlier. I do believe there must be some sort of a government incentive for these banks to foreclose on these properties, when selling them as a short sale would clearly cost them less.
about 2 years ago
Absolutely is happening here in Las Vegas with JP Morgan Chase
about 2 years ago
As a Real Estate Agent, I got so disgusted dealing with these Banks and their greed, corruption and inadequacy, that I left the housing market and went into the rental market. It’s so much easier dealing with apartment homes now as an Apartment Locator, and many of the clients who lost their homes due to foreclosure and due to the unwillingness of Banks to cooperate with them, are now the clients I am assisting to find a rental home. That foreclosure is a mark on their credit that remains for a long time, and even many apartment communities will not accept a potential renter if they have this on their credit. Thankfully, I have learned which communities can and which cannot accept this type of record. The banks don’t realize how they are affecting real people’s lives. They aren’t just another file. They are a real family, and that foreclosure will follow them for years! If I couldn’t make a difference beforehand to help prevent the foreclosures from happening (due to the unethical bank practices and greed), I’m happy that at least I can make a small difference helping these families AFTER the fact to find a nice rental home.
about 2 years ago
Representing a buyer last year on a shortsale this exact scenario came up only the first and second lienholders were both the same institution. (Think stage coaches.) The buyer was unwilling to pay this amount outside of escrow and we were in a Mexican standoff. Suddenly another buyer came in and agreed to make the payoff and we were kicked to the curb. The story doesn’t end there but the payoff was made and the shortsale did close.
about 2 years ago
Jeremy, Awesome job! I am so sorry that I couldn’t help you with this, but as you are aware, I could not affort any retaliation. I currently have 32 short sale listings and many of them are with the above mentioned offenders. We have been asked to arrange for undocumented payments so many times that we don’t even keep track of it anymore. I have had those types of requests from each of the lenders that you have listed. It has gotten so bad with Citi that we have changed our entire negotiating strategy when working files in which they are involved. This is a real travesty for the families who are involved. The 2nd lien holders have taken this foolish stand thinking that they can bully sellers, buyers, and agents into breaking the law. Something needs to happen and it needs to happen before our real estate market gets even more saturated with bank owned homes and devalues even further. Thanks for fighting a good fight!
about 2 years ago
Thank you HomeFlux and CNBC for publishing this story. After all of the hard work by the Realtor(s), the title companies, and even the service departments of both lienholder’s companies, it is a obsurtity that a second leinholder would deny the transaction that will get them something and instead allow the home to go into foreclosure, where they will get nothing. Absolutely, they should deny any transaction that does not satisfy their financial requirements, however, I feel that the second lienholders should state that at the beginning of the transaction and not hold a sale up and ‘extort’ money from an already distressed seller at the end.
about 2 years ago
I really like the fact that someone has responded to what the banks are doing. They want to nickel and dime the agent at the table or forfeit the sale. They request the buyer to spend their monies toward the seller’s debt if they want to purchase the homes. Ridiculous. I’ve been very successful with the short sales going to settlement but it has really taken a hit with the monies I know I have provided at the table to seal the deal so to speak. Thanks for your article. Prayerfully this underhanded mess will stop.
about 2 years ago
Though I’ve had my frustrations (esp. with CW/BOA), I’ve not seen this yet. Maybe it’s because I don’t usually use a Realtor in my negotiations. If I am asked for an off-HUD payment–and I record my conversations–I’ll simply explain that unless they agree to zero payoff and sign off on the SS, I’ll be presenting the recording to FHA for prosecution. May kill the deal, but it’s better than getting my own ass in trouble for omissions on the HUD.
about 2 years ago
I’ve dealt with several short sales (listing and buying) and each is a nightmare. Have not specifically had this scenario of kickbacks.
But just throwing out for thought, how after 2-3 years of short sales, the banks still do not have their act together and have a working system set up to handle the process with some efficiency and credibility, just screams of institutional malfeasance across the banking industry. Banks are back to scamming and making money hand over fist and however it works accounting wise to ignore short sales, they are doing it. They have no interest in short sales even though their payout would be far more sizable than in foreclosure. I don’t under stand it, but I’m a lowly real estate agent.
It’s to bad the Obama administration let the banks go back to slimy business practices as usual (upping fees, creating new fees, tripling+ credit card rates, etc.) and did not really crack down on them to eliminate so many of these predatory and corrupt practices.
Well, thank god, Yippeee – at least we’re quickly back to hundreds of billions of dollars of banking bonuses on the shoulders of the American consumer. Wouldn’t want those handful to suffer too mightily.
about 2 years ago
I too am a real estate agent in Michigan. I currently am in the process of getting a short sale accepted by the bank but a PMI company is stepping in the picture and wanting my seller to pay over $18,000 at closing. I have talked to the PMI company and they’ve agreed to draw up a promissary note for $14,000 over 10 years with zero interest rate. My question is… is this legal? And can the PMI company kill the Short Sale transaction if my seller cannot take on this debt?
I have had this happen on a Short Sale I had last year as well and they did kill the deal. But now after this article about a second mortgage not being able to do this, I’m wondering if the PMI company also falls into this category as a second would and maybe don’t have the right to kill the deal or demand payoff or promissary notes from my seller. What do you think?
about 2 years ago
Thank you Jeremy for exposing this practice. This isn’t just on 2nd liens. My current short sale with BofA has only 1 loan. They asked for a $20,000 promissory note or $10,000 cashier’s check from the seller to make the sale go through. I hope their Loss Mitigation department sees this story!
about 2 years ago
This is a huge problem when negotiating short sales with a piggyback mortgage. The Seller is put between a rock and a hard place where the 1st lienholder limits or disallows a payment to the 2nd lienholder and the 2nd lienholder won’t accept a short payoff in line with the 1st lienholder’s approval.
While RESPA does prohibit kickbacks and so forth, remember not every transaction is covered. If a Purchaser is buying cash, it is not applicable:
# What kinds of transactions are covered
under RESPA?
Transactions involving a federally related mortgage loan, which includes most loans secured by a lien (first or subordinate position) on residential property. This includes: home purchase loans, refinances, lender approved assumptions, property improvement loans, equity lines of credit, and reverse mortgages.
# What types of transactions are generally not covered?
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.
http://www.hud.gov/offices/hsg/ramh/res/resindus.cfm
about 2 years ago
I have not had this occur with any of the sales I have been involved in Northern Michigan. My concern is who is regulating these banks???? The banks here seem to be foreclosing rather than trying to work on short sales. Correct me if I am wrong, but when the bank forecloses does the government not give them a write off for the original mortgage??? And then when they sell the home that is pure profit for them!!! They should be made to pay that to the government who bailed them out!!!! AS well as the second mortgage company are they not also getting either a write off or money from the government for that full amount??? Hope someone can answer these for me? I think it is all a big SCAM!!!
about 2 years ago
thanks to those who work hard to keep these bank in line.
i am afraid however that we are faced with a larger scam than this one. Most recently i have had several loans with one of the large financially secure banks. they are stalling the short sale for months on end and then transferring it to a third party negotiator to complete the short sale on their terms. not only are they transferring the short sale they are transfering the title. the third party is “buying the loan lock stock and barrell and reselling as a short sale. talk about fraud! you are loosing short sales because of this little trick.
about 2 years ago
We just lost a short sale to foreclosure over 20K. Had 2 Buyers, bank wanted 400K (according to an appraisal done 4 months earlier in a declining market) and we had a buyer for 380K. Bank of America negotiator was absolutely awful, never returned calls or emails. Sent him proof of why he should accept the offer and nothing. Now the seller took all the appliances, BOA will spend over 20k for sure to foreclose, pay overdue condo fees and taxes and if they are lucky will get 350K. 100′s of hours spent trying to bring to closing and $0.00 earned! If in fact the goverment is giving them full credit as stated earlier then the goverment is at fault for the situation we are in. These banks are ill prepared and really don’t care about the human lives they are destroying. What goes around comes around, next time they are close to going belly up, I think, us the tax payers should let them! We work a secondary beach market and have over 25 months of inventory with more and more arriving every day.
about 2 years ago
Great work, thank you for the effort.I never had that happen but I know other agents complained about it.
Good job!
about 2 years ago
Thank you for bringing this problem to the public. I hope you will not allow those who are benefiting from this fraud to squash the story. Thank you to all that contributed – please continue the fight!
Follow the money. This statement was true when this “mess” began and it is true today! Not only do we have short sale fraud being committed by the banks and mortgage companies but we have fraud being committed by the PMI and MIP companies. I have not heard anyone address the fact that most of the loans that were foreclosed did have MIP or PMI insurance. The mortgage insurance premiums were paid by the homeowner to the insurance company chosen by the lender for “foreclosure insurance” that protected the lender’s investment if the homeowner’s mortgage went into default.
The MIP/PMI is extorting money from the homeowner or killing the short sale deal by threatening not to sign off. The second lien holder is doing the same. Our government is protecting the lender’s investment in side deals as much as 95% of the original loan if the lender forecloses on the property (courtesy of taxpayers’ trillion dollars of bailout money). Plus the lender sells the property and makes money – and the beat goes on and on and on!
As a real estate company owner I tried to warn our local lenders and board of fraud when this first started – no one cared. My agents and I walked away from crooked deals but they still closed. There never seems to be a shortage of greedy lenders, loan originators, buyers, sellers, agents, title companies, closing attorneys, appraisers, etc. When people want to cheat – they seem to have no problem finding the opportunity. We were called poor business people & agents because we wouldn’t fold to their emotional blackmail. Now, we will not bend to the lenders with this fraud and the name calling continues. “If you will not do it we will find someone who will” is the basic statement that was made that started all of the mortgage crisis and what continues it.
Very few lenders are trying to help homeowners who are in financial distress. They make little to no effort to help a homeowner. Our bailout money was supposed to aid the homeowners but got stuck in the lenders’ pockets!
Lenders seem to be considering a short sale offer but use ridiculous ways to retard and delay the process all the while continuing with the foreclosure process. The homeowners are so tired and frustrated with the whole process they give up and move. The homeowners are angry and in many cases destroy the property. The lender got what they wanted – the homeowner out.
In other cases, the lender continues to delay the process then tells the homeowner they have run out of time and the foreclosure procedure has gone too far to terminate and the homeowner will loses their home.
Yes, it is true many of the homeowners that have or will face foreclosure really should have never been qualified for the property in the first place. Whose fault is that? Many had interest only loans and/or ARMs with zero investment in the property. They received 100+% loans with the seller paying their closing costs. The value of the property was puffed up to cover the costs. These homeowners are people, they have families – children, they are someone’s mother, father, sister or brother. We should be outraged at those who have hijacked our industry! Our industry did this and we must stop it! Vultures are still preying on desperate homeowners trying to save their dream.
Now the market has changed and the properties are worth half what they were – if that. The homeowners thought they were making wise decisions when they refinanced their homes and took their equity out because that is what the “experts” advised them to do. Mortgage reps guided the homeowners into loans above their property values and up to 125+% or more loans. The homeowners are so upside down on their mortgages and property value there is absolutely no hope to climb out of the hole.
I had a lady come to me for help. She had a mobile home. She had refinanced and owes more than three times what the property is worth. The lender offered no help at all and frankly, didn’t care. So a company from Miami sent her an email. They “sounded” like they were honest and helpful, much more than the current lender. They told her not to pay her mortgage. Instead make payments to them and she did. In return the Miami lender would repair her credit score and refinance her trailer under Obama’s new laws to bail out homeowners. They paid this company $1,700. Needless to say they didn’t refinance her property, kept her money, her credit score is worse and the lender foreclosed. This couple with children lost everything. Sure, they should have never received the original loan. They did not have the income then or now and the trailer didn’t ever have the value. The refinance should have never taken place for the same reasons. Add another crooked “prey on the homeowner” company and it is a disaster.
We have some wonderful people in this industry. We need step up and be counted. When we see something that is fraudulent, report it. I know you are reluctant to be involved because the greedy people do retaliate and threaten to put us out of business. There must be a way we can help these homeowners, report & improve our industry and send the crooks to jail! I vote for hiring real estate brokers to audit mortgage companies, closing agents and appraisers! At the very minimum real estate agents need a “whistle blower” department where agents and brokers will be protected from retaliation. A department staffed with practitioners who would have the power to investigate and forward results to area Realtor boards, state and federal agencies and the district attorney when necessary.
Instead of any more “government” bail outs for Wall Street, banks and other industries who obviously squander the money for their personal use – let the future bailout funds go to the American citizens who pay taxes! Even $30,000 per person would do an enormous amount to shore up our economy and stabilize our industry. Homeowners could pay mortgages, some people would save it, some people would spend it, some people start companies, rehire workers, hire new ones, etc. Frankly, it doesn’t take a mental giant to realize those trillions of dollars used to “bail out” companies would have been better spent in Americans’ pockets!
If we are not part of the answer then we are part of the problem!
about 2 years ago
The owners as I understand it bowered money from a bank for a second mortgage or to get the money get into their home to begin with. Now if I loan someone money I see no problem in asking them to pay me back at least some of that money. If they are negotiating a pay off directly with the homeowner, I do feel the 2nd lien holder has a right to negotiate a settlement, if they are blatantly asking the realtor and attorney to turn a blind eye and killing the sale prior to closing sale that is a different story!
They made the loan in good faith that it would be paid back. I am a Realtor and I do understand the complexity of this, but here are two sides!
about 2 years ago
Very distressing state of affairs indeed.
Hats off to those who posted their experiences
and views. I was wondering if someone can
approach FINCEN (Financial Crimes Enforcement
Network) or even the FBI with the first person account of that brave Keller William Agent. I
understand that law enforcement agencies are
overworked and may not like to deal with undocumented versions. Some of our large
brokers can step in and pursue such prosecutions
in public interest. Even one conviction, will put enough fear that this corrupt practice will end, as bankers do not want to go to jail either!
about 2 years ago
A lot of people saying things don’t make sense. That’s a clue something is going on behind the scenes. I read something a couple of months ago that will definitely sshed some light on the problem. Google “Active Rain short sales loss share agreements – it will definitely make more sense and make you even angrier and sicker about the situation – the banks are sitting pretty due to loss share agreements with the FDIC. Either way they win but sometimes they are better off with a loss share on a foreclosure than on a short sale and they WILL do what is best for them. The blog will explain calculations and even provide links to copies on the web of these agreements. Something does need to be done.
about 2 years ago
I myself was also approached by a collection agency who is handeling files for one of the BIG BANKs on my client’s short sale. Stating that they wanted a 30% pay-off, and to take it from the Realtor’s commission and to either pay it outside escrow, or to not show it on the HUD, so the 1st lien holder would pay a full 6%, while the Broker’s commission was truly receiving 4%. Otherwise, no deal! I chose the legal and ethical thing, and showed all monies on the HUD. As a result, all parties know where the monies are coming & going. Verbal approval is in (written should arrive anyday), and we are scheduled to close next week. I was shocked, but the truth shall prevail!
about 2 years ago
I work for a mortgage lender and this just happened last week. Not one of the realtors told me the 2nd wanted 6000 and the 1st said 3000. Nothing was in contract about either.
This went to closing and I saw it on HUD. My closing department would not let it close. They then took off HUD and I know realtor paid and was reimbursed by buyer just to get deal done. To be honest I really didnt know illegal. I thought if buyer was willing to pay then it was okay. On other loans it was disclosed to the 1st mtg but this one wasnt. I will be sure to report this going forward because this needs to be stopped. The problem is if it stops then these short sales will not happen most of the time they will just go into foreclosure.
about 2 years ago
This story is just the tip of the fraud. We are doing forensic loan audits and the fraud starts when the broker meets the prospect for the loan. Then it continues at closing when material facts were not disclosedsuch as “our loans were sold into bondage. That we would never be able to know who our lender or lender were not to mention speak with them. The fraud then dives deep into the securitization. Trustees of the pooling agreements swore that they had in posession the deed, note and all appropriate assignments, when infact a strawman named MERS was holding them if they had not been destroyed or lost. The Fraud is deep. What Bernie Maddof did was small potatoes compared to the power brokers of Wall Street. Isn’t Bernie in Jail now???
about 2 years ago
The people at the banks are not “bad” people, even though you will feel as if you need a bath after discussing settlements on short sale request with them. It is simple, when someone pays you a salary, you do as you are told or else. It is the people at the top of the short sale departments that have come up with these and many other ideas to make the bank more money, but the people at the top that have to give approval to proceed. I have often said banks and insurance companies are the cigarette companies of the 21 century. They would kill us over money! You can look for this type of dishonest activity, and more, as we proceed to try and clean up this mess the banks and insurance companie’s greed have created. Let there be no doubt whatsoever, banks and insurance companies are totally the cause……. and if you are a “under water” home owner, they are not your friends. Wake up! Fight fire with fire.
Robby
about 2 years ago
I worked for eight months on a short sale representing the seller, getting the house out of bankruptcy to sell, staying in the office until 9 pm every night to talk to the mortgage holder in California. After putting $3700 into the house for the HVAC system and several other minor repairs so the buyers were not walk away, and being told by the lst mortgage holder that they would repay me, and with both 1st and 2nd mortgage holders being on the same page, thee days before settlement the 1st mortgage holder reneged on the transaction and would not settle.
The contract was for $520,000; the bank would have netted $480,000. They cancelled on a Wednesday; Friday was to have been settlement; Monday it went to the courthouse for $469,000 and did not sell. Three months later the house was sold at foreclosure for $521,000 to the same buyer. Who won on this won, and I never was reimbursed for my $3700.
In the last two years it has even gotten worse, except that I learned my lesson.
about 2 years ago
Thank you. I have been doing short sales for over two years and they all have been a nightmere.
These lenders are not trying to help the homepwner with either agreeing to the short sale or offering them a way to keep their homes.
These lenders act like there are long lines of people waiting to purchase these homes once they go into foreclosure. Not so!
I tryed for over eight months to save a client’s home. The lender or the investor would not agree to the short sale or a modification. Instead they foreclosured on the property last week.
My client’s and I are devastated. This housing situation is so one sided.
about 2 years ago
Here is the link to the blog I was talking about regarding the loss share agreements. http://activerain.com/blogsview/1243528/is-the-fdic-killing-short-sales
I was on my mobile and couldn’t copy and paste it. Read this and a lot of things that don’t make sense will start to make sense as you realize that the banks are doing what will make them the most money and sometimes they make more with the loss share agreements on a foreclosure than a loss share agreement on a short sale. Either way the FDIC is helping them out so the are making money on these deals. And We the People are paying for it.
about 2 years ago
I noticed Citi’s reply above. Most interesting they decided not to lie. They asked me to send them $10,000 to get approval on a Short Sale in which they held the 2nd mortgage. My buyer sent the money, but later canceled. It took about 3 weeks to get the money back and no one would achkowledge anything. But we got the money back. There was a back up buyer willing to pay the $10k and the home closed about 6 weeks later.
I told them it was bank fraud and they said, “if the buyer chose to pay down the seller’s mortgage by $10,000 they would not stop them.” Let me be clear, this was their idea, their suggestion and their instruction it was to be out of escrow. But they would put nothing in writing!
about 2 years ago
It’s murder. I’ve had negotiators scream and call sellers names I would never repeat. Laid of school teachers, cops in divorce, 79 year old cancer patients, people who have been laid off and can not get another job, people who have been hurt and are totally disabled. I had a bed ridden disabled man and the banks wanted him to sign a $60,000 note to close the deal. Good people with serious hardships and the negotiators think they are scum and I’m scum for being a Realtor.
Aurora and CW / BoA are at the top of every single Realtor’s list of The Worst of the Worst. I don’t know why anyone sends a buyer to get a loan from them. Wells Fargo has been organized and totally professional. There are a few banks that you can work with and it’s all about the numbers and whether they add up which makes sense and anyone can work like that. With other banks you can tell them and show them that loosing this buyer is going to cost $30,000 or $100,000 and they couldn’t care less because it’s not their money.
Chase and Citi have been difficult and time consuming. You could loose 5 buyers waiting for an answer just to have the home go to foreclosure and sell for 50% less 2 years later.
The shareholders and tax payers are the big loosers. You can easily invest 500 hours dealing with a short sale. Then, particularly Aurora, doesn’t feel you deserve a nickle for holding the deal together.
Some of my sellers ask for a Loan Modification. None of them get it. Some would pay off the full loan if they could get the interest rate down to 0% or 2%. Instead the bank would rather take that 1 million dollar loan or that $600,000 loan and sell the house for 1/2 off to a new buyer.
It’s heart breaking to watch sellers suffer. It’s frustrating to get a call every 2 or 3 days from a buyers agent asking when we are going to close when the process takes 4 months if it’s quick and 9 months or more if you are dealing with one of the dreaded banks. A house I made an offer on 3 years ago is still on the market for what I offered 3 years ago.
Thank you for shedding the light on this horrible condition. I know dozens of Realtors who have lost their homes. One hard working agent lost her husband to a heart attack and worked on 12 sales when this short sale market first started and every one of the contracts was rejected by the bank. She had to go in to a psychiatrist. She has lost every thing she has.
I have friends who owned 5 homes and they have lost all of them because they can’t make a living working 14 hour days 7 days a week for years on end dealing with unresponsive and uncaring banks.
I have heard, “I don’t care, I’ll foreclose on this house!” so many times it almost doesn’t hurt to hear it anymore. The negotiators don’t care about anything except getting a pay check at the end of the week. They have no concept how a hard Realtors work and how important our work is to our economy. Thank goodness someone had the guts to shine the light on this subject. Keep up the good work.
about 2 years ago
There is obviously bad-faith dealing going on – but there are also some good intentions, backed by improving systems, as evidenced by the increasing success of short sales. We recently came across this very problem – a request for additional funds to the second. Our approach was to put in writing our dilemma:
“The seller has no funds, as evidenced by the short sale documentation. The first lien position has mandated that no additional funds be reflected on the HUD-1. Therefore, for us to even ask the buyer to come up with additional funds, and pay them off the HUD, we would be recommending that the buyer commit loan fraud, as her loan documents include a certification that no outside monies have been paid, not on the HUD. Surely, your institution is not suggesting that we ask the client to commit loan fraud. Considering the situation, we would respectfully like to ask your department to reconsider the $3,000 pay off, as allowed by the first lender as payment in full.”
48 hours later we received full written approval for the $3,000 from the 2nd lender.
Our next approach, had this not been the case, would be to escalate with the above information to a “higher power” within the institution. This has worked for us before as well. The higher up in the food chain, the less likely that they will overlook potentially volatile liability issues like this. Push it. Don’t fold. We, as Realtors have to be the first line of defense for our clients. If we ask them to simply cave in at the first push back, what do they need us for?
about 2 years ago
Great Content and I’m definitely going to look into it with the agents in my Association. Take care and definitely keep in touch… Ryan
about 2 years ago
When I forwarded your article to the 2nd mortgagee that is asking for an extra $1,000 on the side and for it NOT to be shown on the HUD at CHASE, he said “do not send me any correspondence that doesn’t pertain to this short sale”!!!
Like this doesn’t?
He acts like I am being a goody two shoes for objecting. I’m going to ask for his supervisor next.
about 2 years ago
Great Job!! I was wondering if you could add one of those buttons that allows me to easily post your articles to my facebook account. Everyone should know the downside to allowing these Banks to survive (TARP funds). We give them our tax money, they give bonuses to their higher-ups, and they blackmail people in financial desperation. I’m not OK with that!
about 2 years ago
Yes, there is incentive with the government and banks. I only know this. Indymac and the gov’t agreement when One West purchased the failed lender called for the U.S. tax payer dollar to guarantee up to 80% of their loans therefore, the investors of One West, with such written agreement went forth and bought Indymac. This, of course, led to a change in the culture of Indymac as it is now less urgent for them to modify or short sale properties when regardless of the outcome, they will receive 80% of the loss in guaranteed tax payer dollars.
I can only presume other lenders have similar agreements. The biggest problem i see is that the media, HUD, FCC and any entity or departmetn that exists to protect the people do nothing to help the people. You can call them and do not help. i have contacted and emailed the U.S. Department of the Treasury and they have never returned my calls, emails or resolved anything i have asked them. The media does report, but rarely tries to expose these big banks. I imagine it is because they are not allowed to do so. I have come to see a country fall into the warnings of our founding fathers.
It is shameless. There around 530 representatives of our country. Only about 10 of them are any good. The rest should be fired.
about 2 years ago
I negotiated a short sale with nationstar I found out the offer and the BPO came in at about the same the banks negotiator said it was a good offer then it went to MGIC and they came back with the owners coming to closing with $5000. and signing a note for $75,000 paying $417.00 monthly when we showed them the owners cannot afford it they said they are sending the file to the Deed in Lieu department and they are not willing to work with us anymore. I don’t understand why they would do that when we have a solid buyer maybe you can help us to understand.
about 2 years ago
In response, BOA consistently requests or better demands for a note over and beyond the 2nd mortgage payment to release the lien. this is quite proveable and probably as illegal!
about 2 years ago
I have worked dozens of short sales and every one has been different. The banks have no consistent guidelines. I always advised my client to first try to get a loan modification. One home owner has been trying since Sept, he is on his 9th contact phone number and still no answer. I have not seen a single successful modification. The President’s Plan is a joke. The bank “negotiators” are mostly inaccessible or rude. One has a voice mail that says “do not leave a message on the phone, I will contact you if I need more information”, of course she does not call. I called a supervisor who said the file is incomplete and they need current pay stubs from the borrower (which are not current by the time they review them). I have had three deals actualy go to foreclosure when I had good offers on the table. All three were put back on market for considerably less than the offers I presented. When borrowers/buyers are asked to pay additional blood money, they often just throw in the towel. BofA is, by far, the worst with Chase close behind. Does anyone care that it is a blood bath out here?
about 2 years ago
Jeremy, great start, now for some action!
Fellow Realtors, we must awaken to this reality: These practices are illegal, and destructive to our livelihood and the Entire US economy. Amongst our allied industries there surely must be litigation specialists in these markets whom our Associations can, as a class, engage to bring suit against these thug companies? Also, turn these companies in the the Federal Trade Commission. Also, send letters (as well as emails… though they are easily deleted) to your Congressmen, and Senators! Send copies of the tapes!
When 100,000 of us raise enough racket and send enough paper to Washington, the Bureaucrats will act, if only to save trees and their hairy behinds!
The Obama Administration is the throne of corruption, and inept as it is corrupt. You will have to bludgeon it into ‘change’, and you’d better get your stick out and start swinging…now!