Monday Market Myth: Paying Off 2nd Loan Secretly

It is okay to pay off the 2nd lien holder outside of escrow, so the short sale will be approved.

FALSE: If a seller is negotiating a short sale and the first lien holder only allows a certain amount to pay off the second lien holder, than the seller cannot pay anything secretly to the second outside of the transaction to close escrow.  All the funds being transferred in the transaction must be disclosed, otherwise the involved parties can be committed of loan fraud and face 30 years in prison and/or 1 million in fees. Although it is frustrating if the 2nd lien holder will not negotiate terms, a seller does not want to spend the rest of their life behind bars.



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