CNBC real estate reporter Diana Olick broke a story on Jan. 15 about some piggyback lenders – or second lien holders – committing alleged short sale fraud by demanding a cash payment to release their lien in order for a short sale to take place.

Basically, because so many homeowners have taken equity out of their homes, it is not unusual to find two lien holders on a short sale. Of course, for a short sale to go forward, the second lien holder must release the lien, basically in exchange for….nothing. They don’t get paid.

However, just because they’re second lien holders doesn’t mean they are second-class lenders…we’re talking Chase, Citi, Bank of America here. They are going to find a way to get their money.

Olick was alerted to this story by the head of a company that connects short sale agents, investors and sellers. He told her that over 200 of his agents have complained that second lien holders are asking for – and in many cases, getting – a cash settlement to drop their liens in an “under the table” transaction that never shows up as part of the sales paperwork.

And that, they say, is a violation of RESPA, the 2008 law that requires full disclosure on real estate transactions as a consumer protection measure.

We say: maybe.

Like flakes of snow, every transaction is different. If the second lien holder is able to work a deal before the first lien holder does – and the second’s deal has nothing to do with the first’s deal – then it should pass the sniff test as a legal transaction.

Leave a Reply