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Big Banks Suspected In Short Sales Fraud

By Jeffrey Fisher

Banks Accused of Short Sale Fraud

As congressmen establish new laws to prevent mortgage fraud, there seems to be a new sort of behind the scenes mortgage fraud performed by agents from big banks. On Jan 15th 2010, CNBC real estate journalist, Diana Olick wrote a provoking story regarding short-sales and mortgage fraud conducted by agents representing big banks.

Before publishing her story, Diane was alerted by Jeremy Brandt, a CEO of several companies ranging from 1800CashOffer, and These companies arrange marriages between short-sale agents, investors and sellers in order to achieve short-sale transactions. Jeremy Brandt had been getting a lot of complaints with problems arising from second lien holders.

As the housing crisis continue with many homeowners underwater or owing more than their homes are worth coupled with the severe unemployment problem, short-sales have become a popular last resort for many homeowners who have failed to get a loan modification or a refinance. A short-sale is when a lender agrees to sell the home for less than the mortgage amount owed. According to the National Association of Realtors, short-sales accounted for about 12% of all home sales in 2009.

Short-sales are not simple. They get intricate and tricky whenever there are 2 loans concerned. For a short-sale to happen, parties require the authorization of the second lien holder to release the lien. If the second lien holder declines to agree, then there will be no short-sale and the house goes into foreclosure with the first lien holder keeping the home. The second lien holder will receive nothing since its debt is secondary to the first debt ( first lien holder ).

In most cases, the first lien holder will negotiate a partial payment payable to the second lien holder in order to drop the lien thus allowing the short-sale to go through. The second lien holder is not obligated to agree but more are beginning to accept payments as they rather get something rather than nothing at all. All of the above is legal.

For majority of the second lien holders, they may either receive little or less. Because of this, many second lien holders are asking real estate brokers or buyers in a short-sale to pay money ‘under the table’. Under the table interprets to it being not divulged in HUD settlement statements. According to Brandt, second lien holders are pretty direct with their demands meaning that if the first lender realises that the second lien holder is receiving payment, the first lender will destroy the short-sale. These second lenders typically demand a cashier’s check before closing while selecting not to divulge in the closing documents and HUD statements. Once the second lender receives the payment, they will permit the short-sale to go through. According to RESPA laws and the attorneys that Diane Olick consulted, the actions are assumed illegal.

RESPA is the Real Estate Settlement Procedures Act, a law that was enacted in 2008 to protect consumers so that they receive disclosures at various times of a transaction. It is designed to curb and outlaw kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute, enforced by HUD, designed to enhance and protect homebuyers during their home purchase.

Brian Sullivan, a RESPA specialist confirmed that it was clearly illegal. Jeremy Brandt said that he was informed by 200 agents claiming that they’ve had these illegal requests made by representatives of Citi Mortgage, JP Morgan Chase, Bank of America including other major banks. While many of these transactions go undetected and undisclosed, it helps to clock in more short-sales which translate into more home purchases thus benefiting the housing market. Although there has not been any active investigation into this matter, a review of RESPA laws clearly confirm it to be illegal.

CNBC approached all three heavyweight banks about this issue and below are their following replies. JP Morgan refused to comment when CNBC contacted its media department.

Bank of America denied any practice to CNBC and replied with the following 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 Mortgage responded to CNBC with the following statement: “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.

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Article Citation
MLA Style Citation:
Fisher, Jeffrey "Big Banks Suspected In Short Sales Fraud." Big Banks Suspected In Short Sales Fraud. 12 Jul. 2010. 6 Dec 2015 <>.

APA Style Citation:
Fisher, J (2010, July 12). Big Banks Suspected In Short Sales Fraud. Retrieved December 6, 2015, from

Chicago Style Citation:
Fisher, Jeffrey "Big Banks Suspected In Short Sales Fraud"

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