Tag Archives: CNBC

Short Sale Story Continues

The response to the story we brought CNBC on fraud in short sales has been amazing!

The whole goal of getting this story out there was to change the practice and prevent it from happening in the future.  It’s obvious from the response that this is a major issue, hopefully the authorities will take notice and investigate this practice.

Here is Diana Olick’s follow-up:

CNBC – Short Sale Fraud Follow Up

Our investigation into allegations of short sale fraud by some of the nation’s major lenders certainly struck a nerve in the lending community, but it also served to show me just how uneducated many in that same community still are, even today.

It’s clear from the dozens and dozens of comments on the blog page that many mortgage professionals still aren’t sure how exactly short sales work, and what is and is not legal.

Due to some technical difficulties on air Friday, I was unable to show a couple of MLS listings that were sent to me that clearly, on the public listing, demanded cash to the second lien holder outside of settlement as part of the transaction. Just so you know, that’s illegal. Yes, a second lien holder can demand payment on the loan, but it has to be documented as part of the sale.

And then just a few minutes after the story aired Friday, I received another email from my whistle-blower, Kayte Gentry:

Diana – we thought it funny that this came in about 10 minutes after the 2nd airing of the story…the email is to my Lead Negotiator.

“Linda,

The agent contribution of $500.00 can’t show on the HUD. Have that removed and resend just the HUD.

If it shows on the HUD the investor thinks they are getting it and not the 2nd lien holder.”

The author of the email reportedly works at Citi, as her email address shows. I have to believe/hope that she doesn’t even know what she’s demanding is illegal, otherwise I can’t imagine she would put it in an email. This is clearly fraud.

I also went on another real estate Web site that specializes in Realtor blogs, and there was a huge string/conversation of real estate agents explaining to each other how to keep second lien payments in short sales off the HUD settlement statements. Right there, in black and white, on the web.

I hope someone in regulation land is listening!

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.

—————————–

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.

CNBC Interview with Jeremy

Last Friday CNBC interviewed me on the state of the real estate market as it relates to investors, foreclosures, short sales, and a few other things.  They also spoke with one of our great investors in the Philadelphia area who was able to talk in more detail about what he is doing with short sales, and how the market is for him.

In short, I said that now is a great time for residential real estate investors.  It is separating the serious business-minded investors from the “seminar junkies” who have been following a formula to buy (flip) houses, and don’t know what to do as the market shifts.

For the serious business person, you must change with the times, constantly re-evaluate your strategy, and not get complacent with what works today – because it likely won’t work tomorrow.

With the glut of inexperienced investors being churned out by afternoon TV shows, late night infomercials, and “real estate gurus” – I believe the market shift is a welcome sight for most experienced investors.

Be looking for the CNBC segment sometime later this week!

CNBC Blog Post on 1-800-CashOffer

Short Sale Basics