By Mike Colpitts
In these challenging days of selling real estate “silent second” mortgages are making a quiet, some what frightening, most often times illegal comeback.
Silent seconds as they are called in real estate parlance are second mortgages, which are not revealed to lenders and can find the user’s behind bars in the local county jail. They’re also called dirty seconds because that’s what they are when they aren’t revealed to the mortgage company or bank.
Originating in commercial real estate transactions years ago, silent seconds got their disquieting name from unscrupulous lenders and real estate agents, who told buyers and sellers of property “not to worry” about them. But they have been the primary cause of hundreds, if not thousands of unknowing folks going to jail. Mortgage fraud is punishable by up to 10 years in Federal prison for each count.
As real estate market conditions change, the silent second has made a quiet comeback as an unwelcome visitor in what the FBI calls an epidemic of mortgage fraud.
Mortgage fraud executed by mortgage brokers, in-house lenders and loan agents along with tens of thousands of home purchasers is at least partially to blame for the nation’s mortgage crisis.
If you don’t know what a silent second is here’s the scoop: Say you’re thinking about selling your house and after months on the market you’ve finally gotten an offer to sell. You’re relieved! After all it’s almost too good to be true. It’s a full price offer. The problem is the buyer doesn’t have a down payment or is short on funds for the down.
The buyer comes up with a creative way of purchasing your property by suggesting that you carry a “second” mortgage on the property of say 10%. That 10% in turn would be used by the buyer as the down payment at closing without letting the lender know. The paper work is shuffled to handle the transaction nicely enough.
Then documents are quietly executed outside of the paperwork that the lender gets to secure the second, and you as the seller have security in the property you’re selling in the amount of the 10% down payment.
That document alone is enough to land you in jail. The second is not revealed to the lender and under many circumstances today becomes a major loophole for people to sell their homes. But it is also enough evidence to put you behind bars.
Silent seconds were blamed for much of the fallout in the U.S. Savings and Loan Fraud scandal, and fraudsters were sentenced to prison as a result. Many were used to sell property following the hey-day in the nation’s last big real estate boom that ended in the U.S. Savings and Loan Fraud scandal.
What’s the moral of this story? Wait for a buyer with real money for a down payment or better yet a cash buyer, and if you’re having trouble making your mortgage payment take on a second job or in the worst case scenario walk away from the house instead of risking a trip to jail.