Unfortunately in short sales this some times does happen. I can't speak to the legal aspect of this issue, however. It all boils down to do you want the house or not? I have sucessfully closed several short sales and we alwasy worked it out through escrow. As long as booth lenders are aware of what is going on, you can have escrow draw an addendum to pay the extra money to the 2nd lender in escrow.

This will protect you from any kind of fraud, hopefully you resolved it.

It is my understanding that this situation is a form of loan fraud. I am not a person who tends to be an alarmist, but I am aware of one particular case where the 2nd bank....although a huge nationally known bank.....was asking the buyer to pay money outside of escrow. In this instance, it became a fairly big issue and ended up being investigated by the FBI as loan fraud. I would have to agree with some of the other agents, in that you should contact California Association Realtors, Escrow, an attorney who specializes in these sort of things, and of course other professionals in the loan business. I would also say that contrary to what some may think, even if it is "common", it is not necessarily legal or ethical. Good luck...feel free to let me know if I can help you in any other way.

Never give money outside of escrow! There would be no protection for you or your funds. This is a practice that could border on lender fraud.
I have successful completed many short sales for my Buyers and everything was handled through the escrow. Please consult with your Realtor or a Realtor that is trained and has successfully completed short sales.

Let me know how this turns out for you. I am concerned.

The first bank won't like it if the second bank is getting money without their knowledge. It's a very risky move. Good luck!

I see this more and more. It is my opinion to NEVER pay anything outside of escrow. Especially if deal is not approved yet. Even if it is approved, they often have clauses to allow them to cancel on you at their discretion - after taking your payment. Please be sure your agent is well versed in short sale transactions. If not, get someone who is!

Gb -

Have your REALTOR consult the CAR (California Attorney Hotline). This borders on what could be considered participating in lender fraud if not done correctly. I have heard of things like this and with proper disclosure it might be okay but you do need to do a proper investigation to protect your interests.

Best of Luck,

Marcie Sands, REALTOR
Simply The Best Real Estate Company, Inc.
Rancho Bernardo
760-644-1562

Are you working with a Realtor?

Before hiring just any 'Agent' to assist you in a Short Sale, make sure they are qualified and understand all the work that is required to see you through to the end. A properly trained Short Sale Agent knows how to qualify you for a Short Sale transaction and therefore has a very high success rate. Most Realtors®, Investors and Real Estate Agents do not understand how to qualify you and your lender for a Short Sale Transaction. This is one of the reasons they often have such low success rates when it comes to closing a Short Sale. Investors have around a 10% success rate. Most other so called 'Real Estate Experts' don't do much better.

See more at the link below.

Greetings,
2nd mortgages get MAYBE $500 - $2000 on short sales. They are trying to say, alright, we'll let it go through but you've got to pay us off because the 1st mortgage isn't.

I can't speak on the legitimacy. Do you have anything in writing. Have they agreed to release the lien?

Have a lawyer friend look it over with your Realtor.

Good Luck,