Short Sale Supervisor Talks to a Real Estate Agent – Recorded Conversation

The Short Sales and Bank Fraud story continues to gain traction. After CNBC aired the story we brought them, dozens of other media outlets, bloggers and authorities have contacted me to discuss this topic.

Here is the story of how this fraud initially came to our attention, along with the evidence to back it up.

Last year, I was contacted by an experienced real estate agent in our network who negotiates many short sales. She had recorded a conversation between her and a supervisor in the loss-mitigation department at a major national lender, who she felt was trying to get her to do something illegal.

Here is the audio of that recording, along with the transcript. The names have been removed at the request of the agent to prevent backlash from the bank.

Listen: Recorded Conversation with Bank Supervisor

AGENT: OK, so the only way to settle with *LENDER* then is to get money from somebody else and pay it prior to – that’s what *LENDER-EMPLOYEE* suggested – pay it prior to close of escrow, outside of…. <unintelligible> Pardon me?

LENDER: That is something you can do.

AGENT: Pay it outside of escrow, off the HUD, prior to close.

LENDER: Right, that’s something you could do.

AGENT: And is that something you guys do regularly or you see people doing?

LENDER: Yes, that happens – we have people that send us money outside if they need approval letters <unintelligible> from the first, and once we receive the additional funds, the approval letter can be sent for what the first actually offered – so it happens.

AGENT: OK and what about the fact that the first says that, no more than you know, a certain percent is to go to the second?

LENDER: OK, if the first… Here’s the thing, if you’re asking what this is about – the first is saying “well here’s what I’m going to allow” and the first is saying “this is what we’re willing to pay out.”  If there’s a contribution, if you don’t want to be able to come up with the additional that we’re asking for – the first has already gave their approval on what they’re doing – what someone just comes up with has nothing to do with the first.

AGENT: Even if on this letter it says that “the second is not to receive any more than a certain amount”?

LENDER: The first can not dictate what we receive. The first is saying what they are only going to allow. That’s the amount that they’re allowing to us. If someone out there – the buyer – or a family member puts more money and says here’s what I want to give for you because here’s the additionally requested funds – that has nothing to do with the first.
You’re not asking the first to come out of their pocket any extra than what they are willing to give. So that that’s not any information that might have to be required on the HUD.
Hold on one second please.  <long pause>

LENDER: So I need to have the information – you’ve had the opportunity to go over this with *LENDER-EMPLOYEE* – did he explain all this to you on how this takes place?

AGENT: Well he does but I’m having a tough time, ******, I’m licensed and everybody else…

LENDER: It’s not illegal; it’s not a hard thing, this thing that has happened. The information that you’ve actually received from us – we’re actually trying to help you get this deal closed. If you choose to go back and tell the first what’s going on – you’re going to kill the deal.
So what actually happens prior to closing has nothing to do with the first. What happens at closing – that is information you can provide to them. If you are able to come up with additional funds not to get this deal closed prior to closing, then that’s fine – that’s irrelevant for the first. If you go ahead and you want to let the first know “well, here’s all the information that I have – here’s what’s going on” you will be the one to actually kill this deal. I’m trying to actually give you a way to go about getting this resolved. If you take our suggestion – you take the information that *LENDER-EMPLOYEE* has given you – you can have this done.
If not, then you know, those guys are going to foreclose on it and it’s a done deal. But it’s not like we’re holding up this process.

AGENT: Well, what about the form that the buyer’s lender puts out that there are – that everybody has to sign that says there are no side deals?  <long pause>
I mean that… How do I get around that?

LENDER: What you need to take care of actually is not going to be a problem. What they submit to us – there is $****** they are giving us – the only thing you have to worry about – I mean it sounds like you’re scared that you’re going to be fined for something because you are doing something you are not supposed to. This is what we do all day.

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. Nobody’s losing their license and nobody’s going to jail, nobody’s receiving a fine…
So and here’s the thing too, I’ll be really honest with you, if you are uncomfortable about working it, you can probably assign it over to someone else, where they would be able to do this – if it makes you feel that uncomfortable – you should probably just assign it over to someone else. Someone who’s actually been able you know – who’s done this before, who’s more familiar with it.
Not to be disrespectful or rude to you or anything like that, but we deal with this every day all the time, this is not something out of the norm. But if you feel like you are doing something that’s against your morals, please assign it to someone else who’s been able to do deals like this so they can get it done, and you can have a happy buyer and a happy seller.

AGENT: Well, how do I get, I mean what’s the logic or if I could understand – when I’m signing a paper put out by FHA that says there are no side deals – this is a side deal.

LENDER: This is a contribution. <long pause> You guys are able to come up with money in order to get this deal closed.


LENDER: OK. So the offer that we have it still stands – you can call *LENDER-EMPLOYEE* back and let him know if, what you’re going to do, and if you guys foreclose, we understand. If you’re not comfortable with this – go ahead and assign it over to someone else.

AGENT: <sigh> OK, well thank you for your time.

LENDER: No Problem

134 thoughts on “Short Sale Supervisor Talks to a Real Estate Agent – Recorded Conversation”

  1. Short sale don’t work the 2nd mortgage companies are asking for way too much I have 3 right now they want between 20 and 40% of the balance. If Washington doesn’t allow 7 and 13bankrupticy to modify the terms of notes and decide on short payoffs we’re going to see and lot of problems.

  2. The HUD 1 is a statement of the money dispursed on a real estate purchase transaction. A material misrepresentation of the facts contained on the HUD is fraud.

    When googling Mortgage Fraud Penalties an article came up by Shauna Zamarripa, with this information: “The Fraud Enforcement and Recovery Act was signed into law by President Barack Obama in May 2009. It increased the penalties for a federal conviction for mortgage fraud to a maximum of 30 years in prison and a fine of up to $1 million. FERA also increased the statute of limitations for mortgage fraud from five years to 10 years.”

    The very nature of this “deal” is trying to hide facts… this will catch up and the people involved who will be paying high prices for the consequences – not just morally and ethically.

  3. Not sure why this is fraud. If the 2nd had said ‘Get your account up to date and we will be willing to accept the terms that the 1st is presenting for this deal’ … certainly getting your account up to date would not be part of the ‘deal’ … it is part of the owners obligation to the note. In fact both banks should expect homeowners to continue paying the mortgages until a deal is underway (we don’t though 😛 ) So … if the 2nd is saying we would be more willing to consider the offer from the first if your balance was not so high – how is it illegal or fraud for the home owner to make a payment to their legal obligation on the 2nd prior to the deal being signed? I can make additional payments to my 2nd all day long right?

  4. the first lender has a right to be paid before any money goes to the second lender…that’s the point of being in first position. For the second lender to try to circumvent that is wrong. The first lender has 100% right to dictate what the second lender gets when the first lender is not being paid in full.

  5. I was recently involved in a short sale that took one year to close (my listing). The lender (Chase) refused the first 2 offers from the buyer. They didn’t counter, but rejected. By the time I got the third offer accepted, the second loan had been sold to a collection agency, LCS Financial in Colorado. Their negotiator was rude, intimidating and threatening. He kept making greater and greater demands (reduce my commission, refuse to pay fees and demand more money from the borrower). He demanded the borrower withdraw funds from his 401K or he would not release the lien. He (very cleverly) worked the system by having this large payment noted on the HUD as POC. Thus, it was disclosed. The second lien holder ended up receiving $8000 on a $30,000 note.

  6. I would like to respond to #38 {Jim}. You are as ignorant as your horrible, lack of education in spelling and grammer, proves. Most realtors are highly educated as well as diligent and hard working. To single out one group and lay an industry issue at the door of realtors is ridiculous. What is it you do for a living Jim? Other then spew idiotic,baised, comment on an industry you now absolutaly nothing about.

  7. Murray, if you don’t understand why off the HUD payments are illegal you are part of the problem. Perhaps you should be in an industry that you can more easily understand the regulations.

  8. First, I have negotiated and closed many short sales. This agent is way too timid and lacks any real negotiating skills. Having a clear understanding of the process and a desire to look out for your clients best interest and not your commission gives you much more leverage. The first can dictate the payoff to the second and if the second doesn’t like it than just tell your second lien holder that you will recommend that your client not take the deal and allow the first to foreclose and wipe the second out. It’s worked for me every time. Of course, you have to explain to your client that may be the best course of action especially if he has no money or is not willing to part with any money. Move on to the next deal.

  9. Listen, legal or not legal, moral or not moral… ethical or not ethical….

    … none of that matters! (at least not to this argument)

    When these reps say, “we do this all the time” it’s because they’re finding agents who will give in to their tactics and negotiations. The kind of agents that don’t know negotiations or how to close a sale. They will tell you lies and try to throw you off because they don’t have regulations and such. They just want their money. Most will tell you that YOU’RE the problem and try to turn things around. Don’t believe it for a minute!!

    If you cave into their shenanigans, then THEY win and this problem gets worse and worse.

    You don’t need to give in. If you do, then the legal, ethical and moral thing is on your shoulders.

    BUT, if you don’t, then you just have to live with telling your buyer that they might need to find another house to buy. Sure, they’ll be crushed, but that’s only because you didn’t educate them on this market and what is currently happening in our economy with lenders.

    *TIP* – If a buyer shows interest in a Short Sale or Pre-Forclosure… tell them this, “Listen, the market is full of homes and, sure, you can get a great deal on these short sales (and help a seller out of a sticky situation), but let me tell you what… if you pursue this house, then you’re in for a bumpy ride that could end with NO house at all even after spending your own money on inspections, appraisals, etc.”

    And, if you’re dealing with a Seller, then you’ve done your job. You brought a ready, willing and able buyer to the table and they (their lender) could not get the deal together. I think that constitutes as a sale (technically) if I remember correctly from licensing class, but I’m no lawyer and should never be listened to.

    Anyway, lesson is: Don’t give in to their shenanigans! It only makes the problem worse and gives them ammunition to continue to do this under the guise of “we do this all the time”. `:/


    , LENDER ONE PAID, SELLER FREED OF THIS VERY LARGE OBLIGATION, AND 2ND POSITION BANK HAPPY TO GET PAID SOMETHING (BETTER) THAN THE OFFER FROM THE BANK ONE. TOTAL CRAziness, but in the end all were satisfied.. I did however had to lose 1% from first mortgage bank.

  11. If REALTORS conducted themselves in business as the banking industry has in relation to Short Sales- we would lose our licenses! My assistant and I faxed a 70 page document – a package for a family that had SUFFERED 4 qualifying hardships- in request for approval for a Short Sale. WE faxed the document 50 times to the FAX they provided and the bank would NEVER acknowledge they had received the package. I researched and found out who the Attorney for the bank was and FAXED it to their office… then and only then did the bank acknowledge receipt. Banks treat REALTORS with ZERO business respect. I had a FULLY UNDERWRITTEN buyer that offered $4,000 less than what was owed on that property- the bank did not accept. (My listing and I also found a buyer for it)
    I watched an innocent family that SUFFERED four qualifying hardships go UNNECESSARAILY throughd FULL Foreclosure proceedings.
    Again.. as I said before… if REALTORS did not respond to offers as “Time is of the essence” we could lose our licenses to do business in Real Estate… why the HELL do banks not need to respond. They are arrogant, unprofessional and act with TOTAL disregard towards clients, REALTORS and anyone else they FEEL like treating that way… SHAME ON THEM!
    I could go on about other horrendous Short Sale experiences and know COUNTLESS Veteran REALTORS who have had equally disheartening experiences with, unresponsive, unprofessional, arrogant Banks- but guess that’s what we are all here to share.
    Don’t see much about SarBanes Oxley in regards to Short Sales– it is an element which has had a huge impact and virtually no press???
    I encourage my Buyers away from short sale properties- prefer to do business with professional REALTORS who understand in a Real Estate Contract- TIME IS OF THE ESSENCE.

  12. Anytime anyone says these things,
    1) “we do it all the time” as a response to the question of legality, there is one red flag.
    2) “if you are uncomfortable” … just let someone else do it – as htough comfort was an indicator of legality. 2 red flags…
    3) “if you tell” the first, or your parents, or your husband, or your bank… then you will “kill the deal” .. 3 red flags…
    Honey, you have fraud right here up front!

  13. I am the first tohackle at the thought of any type of fraud but after reading everyone’s comments I see nothing but he said she said type material. For those of you talking about FRAUD can we see some PROOF? I’m not taking the side of the lenders, just playing devils advocate. I always want to do the right and legal thing and we really need to get to the bottom LEGAL line on this. Anyone?

  14. Short sale were approved by Aurora Financial the 1st TD, 2nd was Bank of America. The Approval from
    1st. Aurora said only 3,000 to be paid in the 2nd./
    But Bank of America refuse the 3,000 he set on 12,000 not less. (BofA) are horrible to negotiate short sales or modification. We ask Aurora that if we
    from our commission help to paid the 12,000. It was totally a disaster she said that if any monies were going to be paid were to Aurora. We wanted to close. The two agents and the seller got together and raise the 12,000 paid outside. Obtain a release for 3,000 from BofA so we can close the transaction. The Government should make banks to paid a penalty when they refuse to cooperate with short sales and modifications. Bank of America is horrible to deal in short sales and Modifications. Your web page is great congratulations…Keep it up…….

  15. Line 505 of the HUD 1 is where you show the payoff to the the 2nd mortgage holder. Its not there to fill in if you feel like it, its there to be filled in if its part of the sale of the property.

    If the idea is that this is a payment on a debt, no matter who is making it, ask yourself, would the payment be made if the sale ddn’t close? If the answer is no, the answer to whether the payment should be shown on the HUD is clear.

  16. It’s never a bad thing to play it safe. Without all the details in this case we can’t tell what amount of “payment” to the second lien holder is being discussed but a wise Realtor will not participate in anything that makes them feel uncomfortable. There are many things there were OK 40 or 50 years ago In Real Estate that are now illegal. Even when they were legal, many chose not to participate in these activities. They’re likely still in business today.

  17. The problem is that not everyone in the real estate industry is held to the same standards of accountability. New regulations should be put into place for lenders. As part of those regulations, second lien holders should be entitled to a fair percentage of a short sale. This will continue to encourage them to make loans, such as an 80% first, 20% second mortgage situation. If the home went into a short sale, the second lien holder should be entitled to 20% of the proceeds.

  18. Wow…did this sound like conversations I’ve been having with the 2nd. My advice…go with you gut or use the red flag test as described earlier. They make it all sound ok but deep down you know it’s wrong. After thinking about all the 2nd said and speaking with the title company we all agreed it was fraud and should be disclosed to the 1st. Guess what the 1st said…”We have already stated what we will pay the 2nd. ‘If the seller should happen to make a payment to the 2nd, that’s not really our business’ “. In this case “the payment” would have been the amount the second wanted in addition to the amount from the 1st. My comment to the 1st…”So you take a see no evil, hear no evil attitude.” The 1st promptly denied that.

    Long story short…as much as it pained me to let let a seller down or participate in something I felt wasn’t on the up and up…I came to terms that the sale will probably fall through.

  19. I work as a facilitator who helps deal directly with the bank on behalf of the Realtor. We have been successful at many of these but not without having to correct the bank several times as to what they can or can’t do. Those stories are endless…

    I did have one recently that brought up some questions in my mind related to all of this. I had one that the 2nd wouldn’t release without the seller signing an “Acknowledgment of Service of Summons & Complaint as legal action”. It was assigned to an attorney for collections. This would allow the 2nd to go after the seller for a judgment after the closing. How is that appropriate when the 1st has to “take what they can” and the 2nd who took a higher risk of not being repaid would have the option to pursue a judgment? They took a month of going back an forth before giving this response and at that time they knew the seller either had to do it or the house would foreclose. The house ultimately foreclosed.

    On another note…this conversation sounds exactly like what our wholesale reps would say to justify why we should should “white out” or “play with the numbers” regarding stated loans and resubmit several years ago. Just because someone tells you it’s OK, everyone is doing it, etc…doesn’t mean it’s OK. You have to find out for yourself. This was not alright and why we are in this predicament. What I find difficult is getting “good information” when I have an issue. Thank you, for having this site and for everyone sharing their experiences.

  20. Not sure I buy it.
    A second can negotiate for a payoff (or paydown) simultaneously with the first. Indeed, if the first blocks the second, the first can be liable for an interference with contractual relationship claim.
    Off HUD payoff? That’s a problem; IF the second’s payoff is generated from the HUD-Statement related transaction. If the second is being paid in a separate transation? No HUD.
    The devil is in the details. Always.

  21. My dad taught me the Golden Rule of business 40 years ago, he said: “those who have the gold make the rules!”

    This is a no brained – it’s clearly fraud. All of us should record our calls & report them to the appropriate authorities. Ask them to respond to an email you generate that outlines their fraudulant request.

    They can & will get away with it if we do nothing.

  22. Sounds like they have been dealing with GMAC mortgage. Almost verbatim a conversation I had with their “specialists”

  23. It is our opinion that Short Sales will become the blood line of the industry for the next few years. Attorney will be out in force trying to sue agents for mistakes to make their living. Lenders created the problem and now they need agents to help them sell the toxic assets. They try to milk the agent by asking them to do all the work investing hundreds of man hours at a reduce rate. Agents commissions should be agreed upfront when the short sale offer is send. If the banks do not pay the full 6% commission, in my opinion the short sale should be terminated. We are a part of the solution, not the problem. We are professionals and should be treated with the respect a reverence that our hard work, knowledge and service to our communities deserves.

  24. It seems to go better if you hire a professional negotiator on your side, I have one that I pay 30% of the listing commission to, and I never give up a dime. If the 2nd lien holder is not talking to the person that can fork over the cash, it puts them in a ‘take it or leave it’ position.

    Either way, short sales are not binding for the seller/buyer, have the 2nd lienholder put it in writing what they will take, and ask the buyer to come up a little higher in the price, or put it back on the market as an approved short sale at the higher price and you will probably get it if you close quickly.

    Have the first lienholder issue their approval indicating a “net proceeds to first lienholder” then if you get a little in that area, the contract price just needs to come up a little to accommodate it or the buyer needs to come in with some more cash, or whatever. The real estate agents need to stay out of it, and it all has to go through the HUD.

    As for being “illegal”, it is probably not, if paid in advance of closing. The note is an amount owed to the second and we know half of these people probably “have” the money to make their payments, or at least a payment on the 2nd for heaven sake. If it is 15 days before closing and the borrower makes a “regular” or at least a big payment on an open loan that they legitimately owe the money and the payment on, there isn’t anything wrong with that. It can easily be stated as “have the borrower pay down their balance to ‘x’ and we’ll approve the remaining $8k or whatever from the first as fine. There isn’t anything wrong with that at all, it’s called paying their obligation they committed contractually to do. It doesn’t matter either whether its the borrower, mom, dad, or the man on the moon, but if they haven’t made a payment in 7 months, its a legitimate request.

  25. I just had that happen on a short sale condo listing in Seattle. Bank of America is the servicing unit for the first. The loan was through Countrywide and there is a second that BofA owns. I believe the first is owned by either Freddie or Fannie – BofA won’t release that info however.

    So here’s the deal. Evidently Old Republic wanted a $6,000 payoff from the investor in order to move forward – I’m assuming they insured the loan. Well, the investor will only give them $3,000 and has also agreed to pay the errant HOA dues to the association, which is roughly another $3,000.

    I got a call from the BofA short sale rep two weeks ago saying that Old Republic wanted $3,000 out of the agent’s commissions in order to proceed. Now the sale is $186,900 so the commissions are not that big to begin with. I asked him if the first position creditor would agree to that since they refused to give more but I could not get an answer back from him. Instead, he sent me a secured email stating that the short sale was declined after 7 months of effort on my part. Yet they (BofA and the investor) had only worked on the file for 2 weeks – they had been ignoring me the whole time prior to this taking place.

    So I’m not sure if they were going to disclose to the investor or not but it sounded a bit fishy.

    Cheers and good job on your reporting guys!

  26. Help I am getting scammed as we speak.We were sold on short sale and it has become a tool smoke screen so they can forclose on us.

    Please call 1-413-531-5030

  27. I can not believe that some agents think this is OK. the second has a longer period to pursue the short than the first and should be made to do so subject to the terms of the note signed by the borrower. Instead they try to get money out of people who did NOT borrow the money in the first place. The borrower is the only one who signed the note agreeing to pay back the loan. The only way to bring the big banks down is to stop doing business with them. TAKE YOUR MONEY OUT TODAY! there are enough secure banks and credit unions to deposit your money in. convenient and free ATM’s? I will gladly pay not to support the big arrogant banking industry. DO NOT allow them to continue their nasty behavior. Stop doing business with them.

  28. Last year when I lost my job and asked wells afrgo for help it took 10 months to get a loan mod. 10k added to my already upside down mortage , and the mortgage payment was more than my original. yes everyone i should have gotten out then right. but then they would have won. The conversation i had with lss mitigation was not much unlike that one. she told me if i do not want to sign the mortgage modification then either short sale your house, hmmm now we know why, or foreclose, now we know why she told me that. no mention to help me saty in my home. i told her you have by my b–ls and i dont even have any i have ovarys and they are 47 yrs old and i have 3 kids that live in my house that woul dbe psychologically damageing to make us move. i am so applalled. i cppied this coversation and will present it to the judge as to the reason why i did not short sale last year . truly everyone i am getting scared but i hoe not enough to walk away i want to fight these dogs to what they did or doing to all of us.

  29. The context of the language seems to be that the lender representative is counseling the Agent of how to go about receiving multiple financing through “side deals” on what by law is clearly defined to be a one time deal.
    It is unethical to receive payment multiple times through financing schemes on mortgages. Especially as it represents gouging and racqueteering in its most obvious manifestation.

  30. I say keep detailed records and forward complaints to the FDIC, OCC, HUD and Treasury Department as well as State Attorneys. If done enmasse it will likely eventually get the attention of law makers and the media, thus propelling change.

  31. This is bank fraud, pure and simple. The second lender states that once they get an approval letter, they can get paid outside of close, and thereby put a short payoff the first will allow on the HUD1. That is a side deal. Everyone has knowledge that the lender who paid to be in a first lien position will allow $X to go to the second. Whether it’s on the HUD1 or not at that point is irrelevant, the first has tendered it’s short sale approval.

    The litmus test for this is the same as for everything: Transparency. The second keeps telling the realtor, if you tell the first the deal is done…they’ll foreclose….you’ll kill the deal. The FBI is starting to investigate this form of bank fraud. Most buyers dont want to put up the money to the second before closing day, so there will be evidence that the second wasn’t innocently “paid down’ prior to close.

    Watch your licenses people. Realtors, attorneys, everybody.

    I’m not going to argue that the banks are stealing money from Americans. Goldman Sachs and others have. But I saw a lot of people “buy” a house they couldn’t afford and GET CASH BACK on a no doc loan. I wanted a house and free money too. But I chose to be responsible instead.

  32. I am a CA Broker that specializes in short sales and I did the first one in 2006 in my area. Thank God for the late night real estate investing infomercials or I would be a starving now!

    I don’t see this as being fraud. The second lien position is correct. The problem agents have is that they are dealing with a debt settlement and looking through this with the eyes of a real estate transaction.

    Whether you do a double wire or payment contribution, it is perfectly fine.

    Here’s one for the agents:
    If a buyer makes a contribution to the 2nd lien holder and if that contribution is on the buyer’s side HUD as a buyer expense, is the seller’s lender entitled to see the buyer side HUD? The answer is NO, but they request it anyways. Now go tell the seller’s lender that you are conducting a real estate transaction and that they (and you) are not entitled to the buyer’s side of the HUD.

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