I personal experienced this twice. Once with National City as the 2nd lien holder. The bank representative (Sharon) suggested that either I or the borrower wire money to them a day prior to close and they would "ok " the transaction. I asked her, wouldn’t it be fraud if it wasn’t on the HUD-1, she said it was legal and thta they did this all the time.
I told if she could get her corporate attorney to write a letter saying it’s legal, we’d consider it. Never got the letter. The seller and I agreed to not participate and let the 1st lien holder foreclose on the property.
The second time I experienced this was was on a short sale with Wells Fargo as the servicer for both the 1st and 2nd loans. Again the 2nd asked me to pay them something outside of escrow. I said, that would be illegal, give me another option. Eventually in this one, I got both negotiators to have a conference call and we hammered out a deal that didn't involve fraud.