IT IS OK TO PAY, JUST MAKE SURE IT IS DISCLOSED
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 according to a CNBC article here.
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.
Since many second lien holders are getting very little, they are now requesting money on the side from either real estate agents or the buyers in the short sale. When I say “on the side,” I mean in cash, off the HUD settlement statements, so the first lien holder doesn’t see it.
They are pretty clear and pretty upfront about the fact that if the first lender knows they are getting paid, the first lender will kill the short sale. So these second lenders are asking for the payments off the closing documents, off the HUD statement, usually in a cashiers check prior to closing. Once they receive that payment, they will allow the short sale to go through, which according to RESPA laws is probably illegal.
All disbursements for the short sale should be disclosed.