Undisclosed Short Sale Payments May Be Illegal

Published by Kartik Subramaniam

Reading Time : 2 minutes


Short sale sign on top of for sale sign outside of home

Just got this email from CAR. Glad our industry is keeping an eye on things.

UNDISCLOSED SHORT SALE PAYMENTS MAY BE ILLEGAL

Undisclosed payments in short sale transactions, especially those paid outside of escrow, may violate the law, including RESPA, laws against loan fraud, and licensing laws. Short sale agents have increasingly reported to C.A.R. about requests for agents and their clients to pay junior lienholders and others, oftentimes outside of escrow.

One common scenario is when a short sale seller's senior lender authorizes a payment of $3,000, for example, to extinguish a junior lien, but the junior lender demands that the buyer pays an additional $9,000 outside of escrow. Not only would it be risky for a buyer to pay outside of escrow, but concealing this additional payment from a federally-insured senior lender may constitute loan fraud, which is a crime punishable by 30 years imprisonment plus a $1 million fine (18 U.S.C. section 1014). Furthermore, omitting from the HUD-1 Statement any charges paid at settlement by either a buyer or seller may violate the Real Estate Settlement Procedures Act (RESPA) (Appendix A to 24 C.F.R. Part 3500). Depending on the specific circumstances, carrying out these payment requests may also violate other laws and regulations, and an agent's participation in the scheme may be subject to license revocation by the Bureau of Real Estate or other disciplinary action.

Agents and their clients are encouraged to file any complaints regarding fraudulent activities to the proper authorities, including the following agencies:

Attorney General's Office
California Department of Justice
800-952-5225 Phone
https://ag.ca.gov/consumers/mailform.htm
Department of Housing and Urban Development (HUD)
HUD Office of Inspector General Hotline (GFI)
800-347-3735 Phone
http://www.hud.gov/offices/oig/hotline
Federal Bureau of Investigation (FBI)
202-324-3000 Phone
https://tips.fbi.gov

Kartik Subramaniam

Founder, Adhi Schools

Kartik Subramaniam is the Founder and CEO of ADHI Real Estate Schools, a leader in real estate education throughout California. Holding a degree from Cal Poly University, Subramaniam brings a wealth of experience in real estate sales, property management, and investment transactions. He is the author of nine books on real estate and countless real estate articles. With a track record of successfully completing hundreds of real estate transactions, he has equipped countless professionals to thrive in the industry.

Enjoy what you read?

Sign up for our newsletter and get weekly updates on our latest articles

Real estate market analysis

Is the Real Estate Market Going to Crash in 2025?

Is the Real Estate Market Going to Crash in 2025? In recent years, the real estate market has been a

Read more...

Real estate market analysis

Understanding California's Mortgage-Free Challenges

Understanding California's Mortgage-Free Challenges In California, a place famous for its sunshine, cool tech, and lively culture, there's a

Read more...

Real estate market analysis

The Real Estate Market: Why Homeownership is More Crucial Than Ever

Homeownership Benefits and Financial Stability through Real Estate Back in 2002, right after I got my real estate license,

Read more...