Very strange Short Pay/Sale clause in banks agreement

Very strange Short Pay/Sale clause in banks agreement

Specialist · Boston, MA · Member since 2018 · 75 posts · 7 votes

Has anyone ever seen such a clause in a contract(approval letter with terms) for a hardship based Short Pay, or even for a Short Sale?)

"Dear Customer(s):

Select Portfolio Servicing, Inc. (SPS), the mortgage servicer on the above referenced account, received your request

to accept a compromised payoff from the proceeds of the refinance of the above referenced property, or “Short

Payoff.......

****

.1. SPS must receive the net proceeds from the Short Payoff in an amount not less than [redacted] no later

than [redacted] (the Closing Date). The net proceeds must be in the form of wired funds or certified

funds, and must be made payable to Select Portfolio Servicing, Inc. No personal checks will be accepted.

Wiring funds is the preferred method of payment, and instructions are attached.....

***

3. In consideration for SPS’s agreement to accept the Short Payoff, in no event shall you receive any funds from

the Short Payoff (unless otherwise approved in advance by SPS). Any surplus funds above the agreed upon

net proceeds at the time of closing are the exclusive property of SPS, and you agree that any such funds will

be remitted to SPS, made payable to Select Portfolio Servicing, Inc........

***

...Provided that all terms and conditions set forth above have been satisfied, written confirmation that the payoff funds are in

Escrow along with a final HUD-1 Settlement Statement/Closing Disclosure shall remove all conditions of approval for

this Short Payoff. Upon satisfaction of all terms of this approval, the mortgage will be discharged in its entirety with any deficiency rights

waived, and a lien release document will be forwarded to the appropriate county for recording......

”

Am i crazy, or does this contract ,(The two sections that are underlined) in effect, contradict itself? Verbally I told them I absolutely would like to profit from this, and they said no problem at all. "We just want our $XXX,XXX".

I am NOT trying to solicit legal consul, and will not treat any response as such. But my lawyer already said I need to make them change this contract. And so far the reps have only said the exact opposite of what was promised(verbally) from the start.

Any advice? Is the first underlined clause just a formality that never gets enforced?

A thousand thank you's for any ideas or insights!

Cheers.

-Greg

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Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 633 votes

This is a very standard SPS approval letter and I don’t see you getting it changed. What’s the problem exactly? This is addressed to the seller- seller can’t profit. I assume you are the buyer?

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Minna Reid
Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 633 votes
7y
This is a very standard SPS approval letter and I don’t see you getting it changed. What’s the problem exactly? This is addressed to the seller- seller can’t profit. I assume you are the buyer?
2 Reply
Greg K.
OP
Specialist · Boston, MA · Member since 2018 · 75 posts · 7 votes
7y
@Minna Reid,
That's VERY good to know that this is standard/boilerplate wording. I am actually related to the seller, and negotiating on her behalf, but also intent on making a profit from the transaction. I listed the property yesterday and am having trouble coming up with a way of phrasing a P&S to allow for this. Even though I expressly informed SPS of my intention, and they verbally stated it was ok. For me to make a profit, and also to incorporate all the moving parts into one P&S.
I just thought it odd how broad of a scope the contract was covering by stating "ANY surplus funds shall be the exclusive property of SPS"
Thank you for the response
0 Reply
Minna Reid
Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 633 votes
7y
How do you intend to make a profit?
The fact you are related will likely become an issue.
0 Reply
Greg K.
OP
Specialist · Boston, MA · Member since 2018 · 75 posts · 7 votes
7y
Precisely so. Hence it is a 'Short Pay' not a "Short Sale'. They verbally stated that as long as the money is sent, they don't care to know, nor want to know what happens with the property.
Although nervous at first, I chose to take the route of absolute transparency. I told them their BPO's were offly low. And the rep said "Well that will work in your favor". I have been continuously reminding them of my intentions. I have no interest in fraud charges or deficiency judgments. And they clearly just want to liquidate this asset
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Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
7y
Originally posted by @Greg K.:

@Minna Reid,
That's VERY good to know that this is standard/boilerplate wording. I am actually related to the seller, and negotiating on her behalf, but also intent on making a profit from the transaction. I listed the property yesterday and am having trouble coming up with a way of phrasing a P&S to allow for this. Even though I expressly informed SPS of my intention, and they verbally stated it was ok. For me to make a profit, and also to incorporate all the moving parts into one P&S.
I just thought it odd how broad of a scope the contract was covering by stating "ANY surplus funds shall be the exclusive property of SPS"
Thank you for the response
If you are the one buying (in the first instance), then "surplus funds" are obviously not an issue, because then it wouldn't be a short sale after all. Mind you, if the "owner" was able to sell it to you for more than they owe, then they should have issue with the "shall be the exclusive property of SPS" wording!
Question: As well as your "intention", did you tell the SPS that you're related to the owner?
ie. Isn't there an "arm's length" requirement with these sort of sales, which would preclude you buying?
[Note: you just posted while I was drafting, so I hadn't seen your post above]. Good luck...
0 Reply
Greg K.
OP
Specialist · Boston, MA · Member since 2018 · 75 posts · 7 votes
7y
The owner is in fact my mother. I'm not sure how or why, or if this is specific to the note holder they represent(HSBC), but after the most minor legal tiff, where I was able to obtain a stay on the foreclosure sale, I called them and they informed me of this Short Pay program, which was previously not even a visible option on their web portal. One of the reps, advised me as follows:
I should obtain the funding needed to 'Short' pay off the mess of a balance. Then gift it to my mother. Then have her wire the reduced amount to them. And then, if she wants, she can record title of the property over to me, or keep it, they didn't care. But he said this was just one example of what I could do
0 Reply
Minna Reid
Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 633 votes
7y
This has mortgage fraud written all over it. There is about a 99% chance that an arms length addendum is going to be issued making everything that you’re trying to do illegal.
2 Reply
Greg K.
OP
Specialist · Boston, MA · Member since 2018 · 75 posts · 7 votes
7y
Originally posted by @Brent Coombs:

If you are the one buying (in the first instance), then "surplus funds" are obviously not an issue, because then it wouldn't be a short sale after all. Mind you, if the "owner" was able to sell it to you for more than they owe, then they should have issue with the "shall be the exclusive property of SPS" wording!
Sorry but they in this case refers to SPS? My concern is that I am not buying the property. But rather, negotiating the sale of it, between her and my best MLS bidder(yet another thing they verbally said would not be a problem). US dollars are my endgame for this deal, not a property. Thus, I post this story on here, that I'd probably be better off keeping to myself, but I really can't tell what is happening or what they plan to do.
I can't even think of what sort of specialist to hire to aid in this. A broker savvy with short sales? A very 'creativity' friendly attorney? I havent found one yet in my area
0 Reply
Greg K.
OP
Specialist · Boston, MA · Member since 2018 · 75 posts · 7 votes
7y
Originally posted by @Minna Reid:

This has mortgage fraud written all over it. There is about a 99% chance that an arms length addendum is going to be issued making everything that you’re trying to do illegal.
I don't blame you at all for thinking this! And actually appreciate you stating it clearly. But at this moment, I have a legally binding agreement. The program has been approved. No arms-length mention. Definitely no affidavit. They said unless the funds are obtained through traditional financing , a HUD-1 isn't even needed.
I absolutely refuse to engage in illegal transactions. Even if I did want to, do you think I would be posting for advice about it on this forum?
I'm trying to be triply sure that I'm doing things by the book. And you might say "Hire an attorney", well, my Attorney advised me already, and SPS isn't being cooperative. Really just in the dark at this point
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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
7y
Those two lines do not contradict each other. In one case it says if you sell it for more than is owed, any surplus funds above net proceeds go to the bank (ie after any expenses that are agreed to). The second says after the sale, the mortgage will be considered paid in full.
0 Reply
Minna Reid
Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 633 votes
7y
@Greg K. once in a while you don’t get an arms length addendum. Without one I don’t see the conflict here that it is your mother. So sounds like you are getting a fee or something above the approval amount, and want them to change the letter? I’ve never had any success getting letters changed, but if there’s a questionable fee we put it on a final hud (whether lender is asking for final hud or not) and get approval for that hud. My lawyers have always been satisfied that even if a fee was not specifically on an approval letter, if they got a final hud approved with it on there, they’ve would move forward. Just an idea.
Lenders are not bound by your P&S so seems a waste to try that route.
0 Reply
Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
7y
@Greg K. As mentioned, there is nothing contradictory in the two phrases. Also, you keep contradicting yourself.....you mention Refinance (short Pay) and you mention listing it for sale on the MLS(short Sale).
In a short sale, SPS will have to approve the hud-1, not only the Net proceeds. Any “fee” to you will be rejected.
So, just help your mother, without insisting on making a fee from it.
1 Reply
Greg K.
OP
Specialist · Boston, MA · Member since 2018 · 75 posts · 7 votes
7y
@Minna Reid , @Theresa Harris, @Brent Coombs, it took me a little while to mull all of this over, just re-read. This thread has been tremendously helpful. Thank you!
@Wayne Brooks with no 'fee' I'll have no way to care for my elderly mother. That's the point. Sure, could be just a sob story, could be true.
Yes, I am in fact contradicting myself. At least in the sense that I am comparing two similar, but not quite identical types of niche RE transactions. At one point I was told, that all Short Sales are by definiton Short Pays, only that a Short Sale would have additional requirements, require Arms-Length, etc.
Regardless, thank you everybody for your help.
0 Reply
Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
7y
Originally posted by @Greg K.:

Originally posted by @Brent Coombs:
If you are the one buying (in the first instance), then "surplus funds" are obviously not an issue, because then it wouldn't be a short sale after all. Mind you, if the "owner" was able to sell it to you for more than they owe, then they should have issue with the "shall be the exclusive property of SPS" wording!
Sorry but they in this case refers to SPS? My concern is that I am not buying the property. But rather, negotiating the sale of it, between her and my best MLS bidder(yet another thing they verbally said would not be a problem). US dollars are my endgame for this deal, not a property. Thus, I post this story on here, that I'd probably be better off keeping to myself, but I really can't tell what is happening or what they plan to do.
I can't even think of what sort of specialist to hire to aid in this. A broker savvy with short sales? A very 'creativity' friendly attorney? I havent found one yet in my area
No, the "they" I was referring to was the owner/s (you since mentioned it's your Mother). ie. Why wouldn't she be entitled to any left-over funds, instead of SPS? It looks as though both you and SPS already know that there will be a "short-pay"?
And the way you describe it, SPS won't mind in the least if your mother wanted to buy back the home herself, for less than she owes them? [You get where I'm going with that inference?] Good luck...
0 Reply
Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
7y
@Greg K. Well, if you’re Selling it, just call it a short Sale.....while that technically is a Short Pay (Short Pay Off), a Short Pay implies paying it off Without a sale involved. And yes, if the lender, Any lender, is taking less than owed, the owner is not allowed to receive any funds from the sale, except for relocation costs, if approved.
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Brett Goldsmith
Investor · Los Angeles, CA · Member since 2012 · 1k+ posts · 500 votes
7y
If the bank knows you are related to seller they likely wouldn't allow money to you. Do you and the seller have the same last name?
A first mortgage settlement is when seller brings funds to settle and retains ownership. ( extremely uncommon program ). A short sale or short pay is when the home changes ownership through a settlement approved by servicer and they are interchangeable terms.
0 Reply
Maryann L.
Specialist · MA · Member since 2009 · 858 posts · 306 votes
7y
This is a sample of SPS closing letter - How are you intending to be compensated for this? Are you taking a commission? Any money above what she owes, would go back to her, but if it's a short sale and you are trying to take a fee on the sellers side above the approved short payoff price, then SPS will want that money.
Closing Instructions
(To be completed at closing)
• Closing must take place on or before March 25, 2019 or this approval will be void. If an extension is requested
and/or approved, our approval may result in per diem interest being charged through the closing.
• The approved buyer for this transaction is XXXXXXXXXX & XXXXXXX and the gross sales price of the
property is $150,000.00.
• Another buyer cannot be substituted without prior written approval from SPS.
• The following closing costs that have been negotiated and agreed upon are:
- Maximum Real Estate commission/fees paid: $9,000.00
(See guidelines outlined in Section 7)
- Maximum cash for cooperation incentive to seller (if approved by SPS): $0.00
(See guidelines outlined in Section 8)
- Maximum proceeds allowed to additional mortgage lien(s): $16,000.00
• Please be aware that any additional fees or costs that are not approved as of the date of this letter will not be
covered by SPS. Any changes requested to fees or costs must be approved by SPS prior to closing. SPS in under
no obligation to approve additional fees or costs.
• Minimum Net proceeds to SPS can be no less than $118,326.00 and must be remitted via certified funds so that
our office is in receipt on or before March 25, 2019.
• If the real estate agent voluntarily changes the commission amount not to exceed 6%, the real estate agent must
provide an addendum to the listing agreement or contract. Any additional real estate agent fees, broker fees or
transaction cost being paid to the realty company must be deducted from commissions and may not be paid by
either buyer or seller.
• If the closing of the short sale occurs in accordance with this agreement the seller may be eligible to receive
assistance of up to $10,000 to assist with relocation expenses. Relocation assistance may be considered income
and may be reported to the IRS on Form 1099C.
• The property is being sold in “AS-IS” condition. As a result no repairs will be made nor will repair costs be paid out
of the proceeds, unless specifically requested and approved.
• The Buyer and Seller represent that the transaction is an “arm’s length” transaction and neither party is related by family, marriage or commercial enterprise.
• All required closing documents can be emailed to SPS at XXXXXXXXXX within one (1) business
day of closing.
- A final Certified HUD-1/Closing Disclosure must be executed by both the Buyer(s) and Seller(s) represented in
the transaction.
- Final proof of funding for the total closing transaction which includes all supporting documentation to support
new loan amount and cash paid at settlement.
- All Purchase Contracts and/or addendums consistent with the final closing transaction.

By signing this document, you state that you understand and agree to comply with the terms and conditions
outlined above. Additionally, you are certifying that this document and any other documents that have been
used in conjunction with obtaining our approval and the closing of this transaction have been signed with
your consent and are true and correct. Any misrepresentation and/or misstatement will void our approval of
the sale and may subject you to potential criminal investigation and prosecution.
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Greg K.
OP
Specialist · Boston, MA · Member since 2018 · 75 posts · 7 votes
7y
Yes this is absolutely not a Short Sale. I am very familliar with the SPS Short Sale arrangement. This is a Short Pay. Once pending, if access to their portal is obtained, clicking :
Assistance Program-> Check on Progress-> New page with dropdown menu to once again select the account number from the drop down, and the words
Short Pay
appear in blue as a hyperlink.
It actually is one of the Assistance Programs they offer(have been forced to offer)
Committing Short Sale Fraud , for me at least, is absolutely out of the question.
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Greg K.
OP
Specialist · Boston, MA · Member since 2018 · 75 posts · 7 votes
7y
Dear Customer(s):
Select Portfolio Servicing, Inc. (SPS), the mortgage servicer on the above referenced account, received your request
to accept a compromised payoff from the proceeds of the refinance of the above referenced property, or “Short
Payoff.” If you were being considered under the Making Home Affordable (MHA) Home Affordable Foreclosure
Alternatives (HAFA) program, this program expired on December 30, 2016 and is no longer available. All program
decisions will be for our proprietary programs.
Please be advised that SPS agrees to accept your proposed Short Payoff and will release the lien on the property,
contingent upon the following terms:
1. SPS must receive the net proceeds from the Short Payoff in an amount not less than $XXX,XXX.XX no later
than XXXXXXXXXXXX (the Closing Date). The net proceeds must be in the form of wired funds or certified
funds, and must be made payable to Select Portfolio Servicing, Inc. No personal checks will be accepted.
Wiring funds is the preferred method of payment, and instructions are attached. Any extension of the Closing
Date requires SPS’s prior written approval.
2. If Short Payoff funds are being obtained through financing, a copy of the final HUD-1 Settlement
Statement/Closing Disclosure must be faxed to SPS at XXXXXXXXXXXX within two (2) business days of the
closing. There must not be any change in the terms between the proposed HUD-1/Closing Disclosure and the
final HUD-1/Closing Disclosure, and the funds remitted must agree with the final HUD-1/Closing Disclosure. As
long as these terms are met, pre-approval of the proposed HUD-1/Closing Disclosure is not required.
3. In consideration for SPS’s agreement to accept the Short Payoff, in no event shall you receive any funds from
the Short Payoff (unless otherwise approved in advance by SPS). Any surplus funds above the agreed upon
net proceeds at the time of closing are the exclusive property of SPS, and you agree that any such funds will
be remitted to SPS, made payable to Select Portfolio Servicing, Inc. You agree to waive your rights to any
escrowed funds or refunds from expenses. You also agree that any proceeds from pending hazard insurance
claims will be sent to, and retained by, SPS as additional recovery toward the Short Payoff loss. If SPS
receives/retains proceeds in excess of the amount that, combined with the net proceeds, would have satisfied
the lien in full, such surplus funds will be returned to you.
4. If you are currently in bankruptcy or you file bankruptcy prior to closing, you must obtain any required consent
or approval of the Bankruptcy Court.
5. You must have completed all applicable property registrations and inspections, as may be required by any
federal, state, or municipal laws.
XXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
6. All parties who have an interest in this transaction must approve the transaction.
If any of the above conditions are not timely met, this approval will be void and the lien will not be released. Provided
that all terms and conditions set forth above have been satisfied, written confirmation that the payoff funds are in
Escrow along with a final HUD-1 Settlement Statement/Closing Disclosure shall remove all conditions of approval for
this Short Payoff.
Upon satisfaction of all terms of this approval, the mortgage will be discharged in its entirety with any deficiency rights
waived, and a lien release document will be forwarded to the appropriate county for recording. The release document
is an indication that the loan debt is considered satisfied by SPS. This approval is for the loan number referenced
above, and SPS makes no warranties and takes no responsibility for the release or satisfaction of any other liens
unrelated to the loan number referenced above that may exist. If a foreclosure action is pending against this property,
upon satisfaction of all terms of this approval the pending foreclosure action will be dismissed and appropriate
instruments recorded.
0 Reply
Greg K.
OP
Specialist · Boston, MA · Member since 2018 · 75 posts · 7 votes
7y
I used the Bold and Italics formatting to answer the questions about how I intend to make money from this.
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Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
7y
@Greg K., sorry, I still don't get it. According to another of your threads (https://www.biggerpockets.com/forums/88/topics/663447-outside-opinions-on-the-structure-of-this-joint-venture), the market would pay significantly more than the lien held by SPS, right? ie. No short-pay needed. Yes, I see that you want to keep your options open for making more profit than just your initial "25% equity", but, by entering a JV with (experienced) folk who need to put actual (many hundreds of thousand) dollars in at the start, and many more actual dollars into its future development, vs your zero extra dollars, I hope you can see that there are many ways that they may try to squeeze you out?
("Thank you for the bargain, here's some pocket money for your trouble, now go away"!)
Question: Wouldn't your best (sure, fraud-free) profit be to just sell it at full as-is value? All the best...
0 Reply
Greg K.
OP
Specialist · Boston, MA · Member since 2018 · 75 posts · 7 votes
7y
@Brent Coombs
Again, all of your guesses are dead on. I should remove that marketplace post. I have since crossed the JV option off as a creative solution.
I actually would be delighted to keep my 25% equity in whatever form. The structure outlined in that post wasn't my idea.
And yes, again, in no way am I denying the discrepancy between the properties as is value vs. the oddly 'short' BPO's that the bank keeps coming up with. I flat out, on the phone stated this fact in plain English to the bank itself.
What I'm suggesting here, is either some sort of asset secured refinance, which I believe is technically the point of a "Short Pay', as I was told that a HUD-1 settlement form would only be needed if funds were obtained via financing.
Or something like a double-close, which if I understand correctly, in some forms would be more or less the exact same thing(transactional funding, bridge loan, etc.)
The bank keeps bringing up that I still have options, and that they are very willing to work something out to avoid resorting to foreclosure. But for whatever reason, they need me to figure out the solution myself.
Lastly, the property is currently listed. 'As is' is in the listing description.
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Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
7y
Originally posted by @Greg K.:

The owner is in fact my mother. I'm not sure how or why, or if this is specific to the note holder they represent(HSBC), but after the most minor legal tiff, where I was able to obtain a stay on the foreclosure sale, I called them and they informed me of this Short Pay program, which was previously not even a visible option on their web portal. One of the reps, advised me as follows:
I should obtain the funding needed to 'Short' pay off the mess of a balance. Then gift it to my mother. Then have her wire the reduced amount to them. And then, if she wants, she can record title of the property over to me, or keep it, they didn't care. But he said this was just one example of what I could do
(Greg, I don't recall reading this earlier post before). What do you mean by: "this is specific to the note holder they represent(HSBC)"? ie. Who actually holds the mortgage lien?
Today you wrote: ..."What I'm suggesting here, is either some sort of asset secured refinance, which I believe is technically the point of a "Short Pay"..., which in my understanding would only be applicable if the property was not going to be sold. Right? ie. If you try to "beat the system" by getting the property sold the next day (at whatever additional price that would allow you to profit from it) after sniggering at SPS for accepting such a low pay off, I'm suggesting you would only have yourself to blame if they suddenly wake up and add an Addendum at the last moment that would prevent you from carrying out your profit wishes (ie. The same Addendum that I believe is usual to short sales!)
Well done for listing it (again?). If your Agent says it's worth $900k+, why settle for less? Cheers...
0 Reply
Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
7y
So, why are you listing it since you insist you are not doing a short Sale, but instead a short Pay/refinance?
Stilll not sure how you plan on making any money, other than some vague reference to the property actually being worth much more. Any fed to you reflected on the refinancing hud will be questioned.
0 Reply
Greg K.
OP
Specialist · Boston, MA · Member since 2018 · 75 posts · 7 votes
7y
ummmm, yup. I get it.
Thank you everyone for your help!
Here's where I stop begging BP posters to solve my problems for me, and give it my all.
@Brent Coombs special thanks for the needed tough love
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