“What we’ve got here is a failure to communicate. Some men you just can’t reach.” Many of us can relate to this classic quote from the film Cool Hand Luke.
A failure to communicate has a new interpretation when dealing with a few mortgage brokers who attempt to deliver loan transactions with careless regard for fairness or honesty. They only understand their own reality, not the one that exists in the prudent lender underwriting world. The actions of a few mortgage brokers are less than professional, full of conflicts of interest, elusive, evasive, and outright deceptive, all for the purpose of making a buck.
Here are a few examples of statements made and actions taken by some mortgage brokers that should lead any professional potential lender/broker to walk away.
- Mortgage broker says to the funding lender/broker: “My client will only do this loan with you if I am able to direct the appraisal to my own preferred appraiser. I have called around, and only found one appraiser who would assure me a high enough appraised value to obtain the loan that we are requesting.” This is a clear conflict of interest by the procuring mortgage broker and the broker’s appraiser may be acting in violation of his/her ethical standards and licensing requirements. The appraisal process is supposed to be independent and unbiased. The prospective funding lender/broker’s chosen appraiser says that the value is between 1.2 to 1.3 million. The appraiser chosen by the procuring mortgage broker said 1.5 to 1.9 million. The lender/broker should walk away.
- Mortgage broker says to the funding lender/broker: “My client is not going to submit any financials. The borrower’s financials are none of the lender/broker’s business. This is a “hard money loan” and financials are not necessary. The equity in the security property should be based upon my appraiser’s value conclusion.” Pure equity lending in the “hard money’ or “private money” industry, without regard to a reasonable prove up that the borrower’s credit standing and ability to repay has not been appropriate for over 30 years. The lender/broker should walk away.
- Mortgage broker says to the funding lender/broker: “You are instructed not to talk to my borrower. You are instructed to run everything through me. I have a relationship with my borrower, not you. I will get the answers if I think they are necessary for this transaction.” The funding lender broker must complete and deliver required disclosures and notices of right, as well as the loan documents and lender’s escrow instructions directly to the borrower with copies to the broker representing the borrow. The funding lender/broker should walk away.
- Mortgage broker says to the funding lender/broker: “Mr/Ms. Lender/broker, you don’t have to worry about all the beneficiaries of the deceased person’s family trust. As the successor trustee, my client has the authority to borrow. It is none of the other beneficiaries business. They can’t stop my client from taking out this loan and encumbering the property;” The funding lender/broker should walk away.
- Mortgage broker says to the funding lender/broker: “I am shopping many sources for a zero-point loan so that I can charge more for myself. You, ‘Mr. Lending Source’ need to negotiate lower lender points and fees, so I can make a bigger profit. I may never commit to you because someone may give me a better deal.” The mortgage broker is acting adversely to his/her own borrower. The funding lender/broker should walk away.
- Mortgage broker says to the funding lender/broker: “I have been in the lending business for a long time and you are asking for too much information. The loan should be based upon the appraised value and protective equity, nothing else.” The funding lender/broker should walk away.
- Mortgage broker says to the funding lender: “I was not aware of all these judgments and additional liens on title. Just assume that they have all been paid off or satisfied.” The funding lender/broker should walk away.
- Mortgage broker says to the funding lender/broker: “I am sure that we can get the second and/or third trust deeds to subordinate to your new second trust deed.” The funding lender/broker should walk away.
- Mortgage broker says to the funding lender/broker: “Can’t we just assume that all the other stuff like the property taxes, homeowner’s dues, and insurance premiums are current? Why should we be bothered with them?” The funding lender/broker should walk away.
- Mortgage broker says to the funding lender/broker: “Let’s change title companies. I am sure that another title company will not care about the stuff on the prelim. They will just overlook it and provide the insurance so that we can get this deal closed.” The funding lender/broker should walk away.
- Mortgage broker says to the funding lender/broker: “I understand that this is an improvement loan, but my client is unwilling to allow a fund control company to take possession of the construction loan proceeds. He/she wants all their money at closing. Oh, and yes we expect you to use the after-repaired value in your protective equity calculations.” The funding lender/broker should walk away.
- Mortgage broker says to the funding lender/broker: “I am not aware of the ‘notice of substandard condition’ that is recorded against the security property. But we should assume that it has been taken care of.” The funding lender/broker should walk away.
- Mortgage broker says to the funding lender/ broker. “I guess it is true that my client can only enter their property by driving across the adjacent property owned by someone else. I assume that they have been given permission by the adjacent property owner. That should not affect the appraisal or hold up the closing.” The funding lender/broker should walk away.
- Mortgage broker says to the funding lender/broker: My client owns 25% of 4 properties with 3 other partners. He wants to borrow and encumber only his 25% of the equity. His partners will not sign or allow the encumbrance. There must be a way. The funding lender/broker should walk away.
- Mr/Mrs mortgage broker, “while we were processing your loan request, we discovered that the borrower has a federal and state tax lien on their credit report and Lexus/Nexus background check. The liens did not show up on the preliminary title report of the security property.” Mortgage broker says to the funding lender/broker, “Well, if it is not on the prelim, then we don’t have to worry about. The title policy will cover us against any attack from the government agency.” The funding lender/broker says “Not necessarily. We have been given constructive notice that the liens exist, and therefore are senior to our new trust deed. Also, the title policy excludes any defect or potential defect of title about which the intended insured or agent thereof has received notice or knowledge, there will decline coverage.” The funding lender/broker should walk.
The above is, of course, a partial list. But the list should suggest the need for a lender/broker who makes or arranges real estate loans with the expectation of compensation to possess a healthy degree of skepticism about the representations and intentions of a few/some mortgage brokers. This is especially true when the lender/broker is funding each loan transaction with single or multiple private party beneficiaries.
Do a few bad apples spoil the whole bushel? Of course not! Most mortgage brokers are tremendously professional. They work with funding lenders/brokers as a team approach to overcome obstacles and to drive the transaction forward to a successful close. Also, full disclosure is assumed, not hidden and treated as an evasion and obfuscation game.
Business and Private Money Finance Consultant
Cell 949 533 8315