The legalities and illegalities of short sales

Recently it has been noticed that taking advantage of the situation some of the mega banks have got involved in short sale fraud and have been accused of the same. This is a new type of mortgage fraud that has emerged just at a time when regulators, legislators and financial experts are discussing means of clamping down new regulations.
In a short sale the second lien holder does not get anything. Even when the house goes into foreclosure the second lien holder is left out in the cold as the amount recovered is below the original loan balance. Most of the second lien holders are banks. They are now asking surreptitiously for dollars either from the realtors negotiating the deals or the purchasers of the item. These are side deals ignoring HUD statements on settlements so that the first lien holder is kept in the dark about it.
The fear is that if the first lender comes to hear of it then the short sale will be stalled in the middle. Thus the second lenders want money off the record, ignoring HUD rules prior to the closing. Once they pocket the payment they will permit the short sale to proceed but according to legal experts it contravenes the RESPA laws and is not legal.
The Real Estate Settlement Procedures Act of 2008 requires that the consumers are informed in each step of the transaction. It makes kickbacks illegal as it increases settlement costs. RESPA is a statute dealing with protection for the consumer under HUD. It was planned to help the purchasers of homes to shop in a better manner without incurring any loss.
From reliable sources it has been learnt that 200 representatives of mega banks like Citi Mortgage, JPMorgan Chase and Bank of America have made these requests. Majority of the agents were reluctant to officially say this, afraid of retribution from these powerful financial entities.
One agent however was ready to blow the whistle – Kayte Gentry of Keller Williams Integrity First Reality. Gentry said “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. 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.” She says that these illegal requests were made three times. In one instance she failed to push through a short sale deal. She concluded, “The big banks that have recently made this request, specifically payments outside of the closing statement have been Citi Mortgage and JP Morgan Chase.”