Big Banks Accused of Short Sale Fraud

Posted on January 17, 2010 by http://LivingLies.Wordpress.com

Wall
Street didn’t merely siphon off unearned money, wealth and guarantees
from homeowners, bank depositors and taxpayers. They screwed up title
on what appears to be more than 60 million transactions — so even
refi’s might now have rendered the title to be uninsurable or
unmarketable.

Big Banks Accused of Short Sale Fraud

No surprise here. Brad Keiser points out that many of the
“intermediaries” or “pretender lenders” are actually owned by these big
banks. So the servicers and others turn out to be owned and/or
controlled by the big players. No surprise there either. But what is
good about this article is that the noose is tightening around those
necks that should be in a noose — extracting NEW fees and profits to
the detriment of both homeowners and investors and to the detriment of
the taxpayer.

The second point is that I don’t want to sound like a broken record
but if you don’t get a satisfaction of the note and mortgage from the
actual creditor what do you have? NOTHING except perhaps some equitable
claim that the company executing the satisfaction was authorized by the
creditors. The problem with that is that the creditors (investors,
Uncle Sam or subsequent purchasers of mortgage backed securities don’t
even KNOW the transaction occurred, much less see the proceeds.

So if your satisfaction of mortgage is invalid (for the same reason
that the foreclosure was invalid, which might also include the mortgage
or deed of trust being invalid) what is the result? I think the result
is that the homeowner still owns the property, OR that the original
mortgage is still an encumbrance, OR that the Note is not satisfied OR
that the obligation still exists. Or all of those. If any one of those
things are true then you have both a cloud on title and a defect in
title rendering the title to the property unmarketable.

We’ve written in these pages about how this will end up. The “Toxic
Title Problem” is highlighted in neon letters in these transactions.
Down the road (and not so far in the future) the title insurers and
potential buyers are not going to accept title without exceptions,
which means at best that there will be a flood of quiet title suits
filed (millions of them) and at worst, a complete standstill in the
transfer of title on any house with a securitized note and encumbrance.

Wall
Street didn’t merely siphon off unearned money, wealth and guarantees
from homeowners, bank depositors and taxpayers. They screwed up title
on what appears to be more than 60 million transactions — so even
refi’s might now have rendered the title to be uninsurable or
unmarketable.

Big Banks Accused of Short Sale Fraud

cnbc

On Friday January 15, 2010, 12:55 pm EST

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 1800CashOffer, 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 (NYSE: c), JP
Morgan Chase (NYSE: jpm), Bank of America (NYSE: bac) 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.

  • Read All My Stories on Realty Check
  • Slideshow: Housing Markets Most Likely to Have Hit Bottom

Questions? Comments? RealtyCheck@cnbc.com

Filed under: CDO, CORRUPTION, Eviction, GTC | Honor, Investor, Mortgage, bubble, currency, foreclosure, securities fraud | Tagged: , , , , , , , , , ,

Advertisements