There are so many scams and weird, unnecessary replies, comments, and spamming on international websites. I use LinkedIn.com and some of the other, larger websites often but I absolutely hate the constant spam and weird scams from many different countries.
Limiting this site to the United States only will not eliminate those issues completely but it will cut down on spam and scams in a big way. As this website grows and begins to get noticed on other, larger sites online, please give me your feedback to this message by replying to the blog that I have just posted by the same title.
Your feedback will be carefully considered but you must give me your response on the blog I have just posted by this exact same title on The Real Estate Finance Website. This is your chance to be heard and shape this great funding website!
Thank you so much!
Well said, Mike Parish, and I agree with you whole heartedly. As of September 1, I will be charging an engagement fee myself for some (if not all) of the same reasons you wrote above. Borrowers are all too happy to ask me for advice and introduction to lenders and then walk away. My time, effort, and connections are way to valuable for such nonsense.
Borrowers should also vet the lenders, just like lenders vet borrowers. Instead, they just make up excuses for not wanting to pay upfront fees. I've asked some borrowers to name the names of those who scammed them and around 50% don't recall who the lender was. The other 50% who were able to name them, after further questioning, didn't make the effort to vet the lender … they just took it on 'good faith'. They also were not qualified in other areas such as credit, financials, etc.
Which leads me to believe that most borrowers are inexperienced when it comes to shopping for capital. Many also appear to believe that the strength of the property will make up for their shortcomings as borrowers on personal qualifications level. They are so desperate, they will fall for anything and buy into anyone who makes claims to fame.
Andrew, I believe you misinterpreted what Mike said about upfront fees for brokers. As brokers, we are paid for a service we provide, that service being to bring a loan to the table. If we fail to produce a loan for the borrower, why should we be paid? Your comments demonstrate a problem in our industry, that being loan brokers feel they are entitled to a fee, even if they fail to perform. It should not be looked at as a potential waste of your time. Rather, you should be looking at this as a borrower providing you with an OPPORTUNITY to make a good commision, IF and WHEN you perform. Andrew, I am also a real estate broker. Based on your logic, if you came to me and asked me to list and sell your home, it would be okay for me to collect part of my commission up front, regardless if I sell your home or not. I have to create a CMA on the property, take pictures of it, enter it on the MLS which I pay for, advertise it, answer phone calls on it, take clients on showings, possibly have an open house, write contracts on it which may never go through, etc. After all, my time, effort and connections are valuable, too. Right? You'd be okay with that? Of course you wouldn't! You'd tell me to go pound sand, that I'd get my commission IF and WHEN I sold your home for you. So why should loan brokering be any different? Like real estate, loan brokering should be PERFORMANCE-BASED. If you don't have enough confidence in your ability to create a strong enough rapport with your borrower to keep them from walking away, don't work on their loan. Holding them hostage with an upfront fee is not the way to sell yourself and your abilities.
The other side of the coin is, what state are you located in? As I mentioned previously, in several states, it is a FELONY crime for a loan broker to accept ANY upfront fees whatsoever, call it what you want. During my 30 years in law enforcement in Florida, I became a loan broker while still active in law enforcement, so to make sure I was doing everything by the book, I contacted the Florida Office of Financial Regulation and went through the statute thoroughly to make sure I understood it. One thing I've found is some loan brokers try to be clever by giving the advance fees a different name, thinking they are circumventing the law. Wrong! Call it a Referral Fee, Consulting Fee, Engagement Fee, Finder's Fee or any other name you want to come up with. It's still an advance fee you haven't earned yet. I have helped several clients get their money back by checking on their respective state laws and in those where it was a crime, the very real threat of being arrested for a crime motivated the loan broker to return the fee. So not only is it a bad and unethical practice in my opinion, there is a very good chance it may be a crime in your state. Have a good data base of lenders, get the proper documentation upfront so you know you have a good prospect, get your fee agreement signed upfront along with a NCND and get your borrower a loan with no upfront fees. Collect your fee at the table and you'll be a hero. If you can't get the loan but you did your best, you'll have a client who will remain loyal to you and refer you to others.
Spot-on Tom. That is how I conduct my business and I advise any/every client I encounter to expect the same. As a broker charging 2,3,4% or in some instances; equity+; I can justify "investing" my time into something I determine to be a worthwhile endeavor or "fundable" deal. The deals which fund are sufficient to cover those which do not. I learned more from the deals that DIDN'T close than I learned from the ones which did.
Well said and thanks for further clarifying what I attempted to address.
Ok, I read and agree. I did not state myself thoroughly or completely. Yes, it is and should be performance-based. I am not interested in taking people's money without giving them something in return .. I wholeheartedly agree and support that.
My agreement will allow for a refund if I cannot perform, but I am not going to contact lenders and make introductions only for the borrowers not to move forward … something that happens all the time for me. Regardless, I will keep in mind what you wrote.
I'm in WA State. I will contact the Dept. of Finance for an update since it's been a while. I know a few attorneys that are charging a retainer fee to start up clients here locally. One of them told me last week that they see no reason I can't do the same as long as I leave room for a refund.
Thanks for ringing my bell here. I do need to take more precautions.
Andrew, I caution you. I don't know what attorney advised you as such but you either misunderstood or he/she is outright INCORRECT to advise such. Robbing a bank and returning the money does not negate the underlying crime. Neglecting mortgage lending law in an effort to minimize inconvenience will not be looked upon favorably by any regulatory agency either. Regardless of your underlying intent, running afoul of the law will NOT lead you to prosperity.
Hear me out because I KNOW I am right/correct.
My background includes a B.A. in Real Estate, a B.A. in Finance, and a minor in Real Estate Law. The ONLY acceptable/legal manner to address what you are seeking to address is by way of a fee agreement and an NCND (Non Circumvent Non Disclosure) agreement. Those documents can be delivered to title/escrow and a "demand" can accompany such so as to ensure you are properly compensated. Further, such documents can limit your borrower from engaging in direct business/contact with your sources for not only the current deal but future deals for a specified period of time. My agreement provides for 3 years. This prevents a borrower from bringing a dogs#%^ deal to you in order to be placed in contact with your funding sources so as to court them directly (circumventing you) with another deal. I have a relationship with my lenders (now) that I simply don't have to worry about this scenario nearly as often as I once did. That having been said, I DID have to enforce my NCND on one occasion. Although it cost me nearly $25,000 in legal/court fees and 2 1/2 years to enforce, I prevailed and received a $235,000 judgment against the offender.
Long story short; while it may not be convenient nor comfortable to act in a lawful manner, the remedy for incurring "injury" as a result of doing so is at-hand and the truth (court) will always be on your side.
I frown at your frustration because I recall the frustration (you're feeling) I once endured:( Know this: Paper-up, practice fair/ethically, be diligent; and the chips will more often than not fall in your favor.
I hear you. I may have misunderstood the attorney. He said he was going to send me a 'authorization to charge credit card' that they have clients sign before engaging. I'm not an attorney so I know that won't work for me. He works at a law firm in Portland, Oregon with 12 other experienced partner / attorneys.
As I wrote to Tom, I am going to take precaution and not just jump in. I am in the process of working on an LOI and also have a title / escrow company and a lawyer to help me with all this.
Thank you for your input and advice.
Good deal Andrew, you're on the right path. Attorneys (I know SEVERAL and have more than a few in my family) can charge for seemingly anything (including bad advice).LOL
Hence, "A law degree is a license to steal." They don't pass laws unfavorable to their ilk and they're seemingly immune to many of the same laws to which we are subjugated;)
In lieu of an LOI, I would advise drafting a fee agreement and an NCND. The fee agreement can be submitted/attached to escrow (must be paid or bonded-around prior to closing) and the NCND will cover your interests should you need to bring a matter before a court/arbiter. The NCND, if properly constructed, can also provide for the filing of a lis pendens upon real property within a brief period of time (usually 48-72 hours) prior to initiating formal litigation.
The fee agreement (under the court scenario) will then be deferred to in order to assess damages. I don't know whether or not Washington/Oregon provide for "Treble Damages" but, my home state of NV. does. In the event your choice of jurisdiction affords such, be sure to include language to that effect within your agreement. In short, if they willfully and intentionally commit a tort (breach of law) in violation of the terms of the agreement, you will/would be entitled to collect 3x the amount you would have otherwise been entitled to collect had the agreed upon fees been paid. After all, who wants to go to court and spend $20-$25k to collect the mere $50k they are already entitled to? Collecting $150k (under treble damages) makes bearable the "inconvenience" of forcing someone to do what they otherwise SHOULD have done.:)
I do have an NCND and FPA already in place but like your ideas about the 'treble damage' and lis pendens. I will see what I can do to incorporate that into the agreements.
Several advisors I work with have also advised me against the engagement fee so I am reconsidering. I will most likely not charge a fee but I will disengage any potential clients in a heartbeat if they want everything for nothing. I spend too much time educating borrowers only to see them go elsewhere for their funding. The end has arrived. :)
Thanks again for all your advice and input. It is seriously taken and considered.
Mike, I wrote my comments with the assumption that legitimate third-party fees were a given. Perhaps I should not have made that assumption and clarified that. It's a good point that needs to be made for those new to the industry.
Understood Tom and I intende
I agree only US or Canada, So many scams like 2-4% money, 100% financing etc. Guess what the Money Fairy doesn't exist.
I would go further requiring existing posters from outside the US to prove their legitimacy to continue to post.
I agree Linkedin is completely out of control with spammers (criminals).
Larry, I agree. I keep telling folks 100% financing is like Bigfoot; everyone has heard of it but no one has proof of its existence!