Big Banks Accused of more Fraud; non-reported cash on side for short sales

CNBC's Diana Olick reports that for homes with two mortgages, the second mortgage holder is often demanding a short sale buyer pay them in cash on the side, and they're not disclosing it. And that's against the law.

Diana Olick from CNBC (see below video) has uncovered evidence of growing fraud surrounding Short sales - when the lender allows the home to be sold for less than the value of the loan. And according to the National Association of Realtors, about 12 percent of all home sales by the end of 2009 were short sales.

Excerpt:

In order for a short sale with two loans to happen, the second lien holder has to drop the lien. If they don't, and there's no short sale, the home goes to foreclosure and the first lien holder gets the house because second liens are subordinated debt to the primary loan.

In short, the second lien holder gets nothing. In order to get the second lien holder to drop the lien, the first lien holder generally negotiates some partial payment to the second lien holder. The second lien holder doesn't have to agree, but more and more are doing so.

That's all legal. But here's what's not legal and what's apparently happening quite often recently. Since many second lien holders are getting very little, they are now allegedly requesting money hidden -"on the side" from either real estate agents or the buyers in the short sale -clear violation of RESPA disclosure laws.

Read much more here at  realtycheck.cnbc.com  and from the Source at CNBC