Profile picture for DoTheRightThing

What constitutes short sale fraud?

I am a prospective buyer for a property that turned into a short sale. I complied with all requests including one to increase in my offer.  I was headed to the closing when I got a call from my realtor stating that the settlement was not going to occur at the scheduled time. The settlement agent had sent out a last minute email notifying all parties that Wells Fargo would not accept the HUD1 because the Jr lien holder had not released the seller from the debt owed. Upon further questioning it was revealed that the loan was serviced by Wells Fargo but owned by Fannie Mae and that Fannie Mae clearly stipulates that the seller must be released from the remaining debt if the Jr lien holder accepts the $6000 payment that is offered by Wells Fargo. The Jr lien holder refuses to budge unless they receive $6000 more so I am about to become the loser of the money and time I have already invested as the sale will not close. Shouldn't at least one of the short sale experts involved in this transaction have known that this condition was not allowed? I feel like I have been duped. Does this constitute short sale fraud, negligence or just plain incompetence?

  • May 19 2013 - Alexandria
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Answers (12)

Profile picture for DoTheRightThing
The short sale agreement from the Jr Lien Holder expires today.  The case still has not been submitted to Fannie Mae for assistance through HomePath.  The settlement agent handling the short sale tells me she is not approved to submit the case to HomePathForShortSales.com but that they have spoken with Fannie Mae.  I have emailed all 4 real estate agents that were involved with this listing and contract asking one of them to submit it to HomePath, as Fannie Mae is telling me that you must be a licensed Real Estate agent to use the HomePathForShortSales.  I am told by the settlement agent that the seller wants to move forward but it is the Jr. Lien Holder that is stopping the process.  Fannie Mae is suppose to provide help for "an issue with an offer under negotiation".  I can't get help from Fannie Mae because I'm not the realtor nor the seller, and round and round we go.  How do I get off this Merry-Go-Round and get reasonable, best practice action.
  • May 24 2013
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Profile picture for DoTheRightThing
Jill, Thank you so much for at least some glimmer of hope that this issue might be resolved with patience and persistance.  I finally heard back from the settlement agent after escalating the issue to another realtor and she has now verified that the loan is in fact backed by Fannie Mae and is now trying to work with Fannie Mae HomePath.  I called Wells Fargo myself.  They were very nice but will not provide me with any information with out permission from the seller.  I'm keeping my fingers crossed and hoping that maybe it will all work out.  Even if it does I lost my interest rate lock today and am waiting to hear what rate my lender can now offer. Thanks to everyone for your responses and suggestions.  I greatly appreciate your support.
  • May 21 2013
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I closed Wells ss deals before. If you & your agent want to fight them, understand they don't feel they owe anyone anything. I faced the giant when I took them on, and eventually I "won" for my seller client in the end, but not without throwing back everything that they threw at me, and making it known that my deal was not to be ignored. It costed me a tremendous amount of stress, arguing, calling them out on their "oops" moments, and repeatedly calling them over and over and over to make them explain themselves... especially when they contradicted themselves. 

The HUD-1 thing is a joke. They should have absolutely caught that. It happened to me with my last Wells deal but the sellers attorney was able to pull it together and close later that day. The listing agent may have to kick up their game and fight them. It can be done. On another deal, Wells held the second, and actually sent the seller a letter (regarding the 2nd mortgage) basically saying, "you owe us nothing... we are releasing you of this debt". I had not even contacted the 2nd lien holder as of that point. They offered to release the debt for the seller.

You can check out "short sale superstars" online. They are awesome on that site. If it starts to cause you too much stress though, walk... because it's not worth risking your health with excessive worry and frustration. I truly wish you the best of luck. Please keep us posted as to how it goes. Very sorry that you are going through this.
  • May 21 2013
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When you actually have two sellers (people, and a Bank) and one of them owns the government (the Bank), and makes up the rules as they go (the bank), this kind of crap can happen. Sue Wells Fargo! That'll be fun. A human seller wouldn't do this because you could sue them. Wells Fargo isn't human. They don't care if you sue them. They have no conscience either. Sorry to hear you've been through this. Live and learn. And, vote for some human people.
  • May 20 2013
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At this point, it's the seller's decision. 
It's either the lenders not approving the short sale or the seller not agreeing to the conditions of the short sale. You cannot force the seller to sell their home against their will.
You do not know personal and financial situation of the seller. It's up to the seller to decide what is best for them. 
Short sale approval is a contingency on the seller's side, the same way home inspection, HOA docs, etc. are contingencies on the buyer side. 
  • May 20 2013
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Profile picture for DoTheRightThing
I asked the settlement agent to provide proof that this is a Fannie Mae loan.  She says she does not think the lender will provide this and that she may not be allowed to provide me with this information.  I told her there is an online lookup on the Fannie Mae website to verify that Fannie Mae is the owner and that she can redact any information that I should not see. I also asked them to escelate it to the Fannie Mae www.HomePathForShortSales.com.  I have heard nothing back.  I called Fannie Mae but they won't help me unless the case is submitted.  I guess there is nothing else for me to do but cry.
  • May 20 2013
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Clearly, there was miscommunication and the case was not processed properly. 
At this point, it does not matter who is at fault - the federal law rules. 

Truthfully, there was NO short sale approved because the seller was not released from the remaining debt by the second lender. 
Even IF the first lender was not Fannie Mae, the second lender's refusal to release the debt, would give the SELLER the right NOT to agree to the short sale and cancel the sale. 
Legally, the seller is under no obligation to accept the short sale conditions as many sellers have other options: stay in the home, bring money to the table, bankruptcy, renting out, etc. 

I am surprised the transaction survived undetected to the settlement day. 
Most short sales are never easy and never short.
Learn from it and better luck with the next contract :-) 

  • May 20 2013
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Well, you were going to be out the money, and time is just something you risk in a short sale.

To my mind, this constitutes "none of the above," it's just one of the perils of a short sale. 
  • May 19 2013
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I don't see fraud. Rather I see incompetence. It's possible that the loan was owned by Wells (or someone else) and it was determined they would be able to assign the debt to Fannie Mae (something that can only be done under certain circumstances). Once that occurs, you're playing by Fannies rules.

What's irksome is that in the event of a foreclosure, the 2nd may not get a dime if the homeowner files for bankruptcy. This way they would've gotten 50 cents on the dollar, which is pretty good for 2nd mortgages (typically 10 cents on the dollar).
  • May 19 2013
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Profile picture for DoTheRightThing
The Jr lien was known about from the start of the short sale.  The Jr Lien holder wrote in their short sale acceptance letter that they would take the $6000, release the interest in the property but still hold the seller responsible for the remaining debt. The fact that the primary loan was owned by Fannie Mae was not disclosed until after the HUD1 was rejected.  I was not told ablut this until the day of the scheduled closing.. No where on the short sale acceptance leter from the loan servicer does it state that the loan is owned by Fannie Mae.This piece of information is critical to how the payoff of the Jr Lien holder is handled and whether the Jr lien holder is allowed to accept additional money from the buyer or seller.
  • May 19 2013
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Profile picture for Outer Banks N C
Welcome to the frustrating world of short sales. People try to buy them because they can be good deals and can be bought for a good price, but it is risky and you never know what will happen. They are not guaranteed and they can go on for months and never close at all. No guarantees at all with them. You place an offer and you take your chances, that is the way it is with short sales. I am not a lawyer but I don't see fraud here at all. I wish I had a dollar for each short sale I got involved in where another lien was discovered in the process no one knew about (maybe the seller but he does not care at all since he is getting nothing in the sale) .
  • May 19 2013
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You can always consult an attorney.
  • May 19 2013
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