by: Marge Lindsay

When I hear things that aren’t good, or right, I often say “bad doggie”. Well, with some of the calls, and stories I am hearing about some lenders right now I say “bad doggies”! As an example, I just had a call from one of our sales associates. She said she is representing buyers who are suppose to close on their home purchase this next week.

There is a first and a second on the property. The first lender agreed to terms and provisions for a short sale and the second lender just came back and said they would agree for a specific dollar pay off, which is higher than they expected.

The buyer still likes the house and is willing to pay the increased amount to the second lender because the seller doesn’t have the money to do it. That all sounded good, until the lender who is working with our buyer said we needed to make a few changes. The lender said the buyer cannot pay the difference because it is prohibited by FHA rules on this particular loan. (I don’t know the specifics as to why it is prohibited.) The lender told our associate to pay the money to the second lender out of her commissions. She then suggested we get a Buyer Broker Exclusive Employment Agreement form signed by the buyer to repay this amount to our associate at the closing. The comment was you can then do this and not get in trouble.

I disagree. If it is prohibited by FHA regulations, how does coming in the back door, calling it a front door make it okay?

My immediate suggestion was to rewrite the contract, increasing the sales price by the additional amount needed. The seller could then pay whatever is needed by the lenders for approval. In addition it is fully disclosing what monies the buyer is putting down and how it will be disbursed.

Our associate even suggested something like this but the lender discouraged it because it will drag this out longer causing unnecessary delays.

My second suggestion was for our associate to have the lender give her something in writing that very specifically stated that although FHA regulations prohibit this, our company and our underwriter suggest you pay the money to the second lender out of your commissions and get reimbursed by the buyer with a Buyer Broker Agreement. I also said the lender needs to add words that give our associate and John Hall & Associates release and indemnification language for our protection.

I suspect the lender will not put anything like this in writing. I suspect we will end up requesting an extension to work out the details to properly handle this situation. I recommend you read this article: http://www.cnbc.com/id/34877347

I fully understand the need to earn money, to close transactions and to satisfy our clients needs when we can. I also fully understand staying out of trouble, not needing to defend myself in a legal action and not going to jail. If you can’t disclose the whole, true picture on the HUD 1, don’t play. We don’t want bad doggies here!