By Oliver E. Frascona
Special to Denver Real Estate Watch
The short sale has gone well.
You finally get the first lien holder to agree to pay the second $10,000.00 and accept the resulting bigger short sale.
It looks like this one will close.
Then the second lien holder, who is just a spoiler anyway, says “If we don’t get $15,000.00, we will not release our lien. And in addition, we don’t care if that other $5,000.00 comes from the buyer.”
You thought that it all had to be on the HUD-1.
If the first lender sees an additional $5,000.00 payment, they might not sign off on the deal. Don’t worry says the second, it is all OK, go ahead and do it.
Sounds sort of like the devil giving advice, to me.
The second lien holder does not care about the broker or anyone else; they just want to get all the money they can.
Do not listen to the second.
If it is not part of the contract, written, approved by the lenders, and on the HUD-1, you have problems.
You have to go back to the first lender and get approval.
“Well can’t I just put it on the HUD-1 and hope that they don’t notice it?”
No – you can not.
That is an attempt to defraud the first lender.
“What if the first lender will not approve the deal? I mean whatever happens after closing is not my problem, if the buyer wants to pay the second lender money, that is their decision. Right?”
The lender is counting on you to tell them all that is part of this transaction, so that it can make a decision as to how much to accept for their loan in the short-sale.
If there is another $5,000.00 in the deal they have the right to know this.
We are representing to the lender that the contract is what is in the HUD1. There is no way to “slip it in” and hope they do not catch it.
Just wait and see
One of these will come back with a “no release” by the first lender or a letter from an enforcement agency that your attendance is needed in a forum that you do not want to attend.
Do it right.
Use a title company that will not close this kind of deal. If a title company agrees to close this kind of transaction, that raises a red flag and you should seek another title company.
Oliver E. Frascona, Esq. is licensed to practice law in Colorado and is a shareholder in Frascona, Joiner, Goodman and Greenstein, P.C. in Boulder. He can be reached at 303-494-3000 or firstname.lastname@example.org.