"What we've got here is a failure to communicate. Some men you 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 presenting all material facts expected by industry standards. These brokers only understand their reality, not the one that exists in the prudent lender underwriting world. Their actions are less than professional, full of conflicts of interest, elusive, evasive, and outright deceptive, all to make a buck. This underscores the crucial importance of ethical standards in our industry.

We must maintain transparency in our dealings, as most mortgage brokers strive to be as professional as time and effort will allow.

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Here are a few examples of statements made and actions some mortgage brokers took that should lead any professional potential lender/broker to walk away. As a lender/broker, you have the power to uphold ethical standards in our industry.

Mortgage broker says to the funding lender/broker: "My client will only do this loan with you if I can direct the appraisal to my preferred appraiser. I have called and only found one appraiser who would assure me a high enough appraised value to obtain the requested loan." This is an apparent conflict of interest by the procuring mortgage broker, and the broker's appraiser may be violating their ethical standards and licensing requirements. The appraisal process is supposed to be independent and unbiased. The prospective funding lender/broker's chosen appraiser says the value is between 1.2 to 1.3 million. The appraiser selected by the procuring mortgage broker said 1.5 to 1.9 million. The lender/broker said, "We do not allow non-independent and biased appraisers."

Mortgage broker says to the funding lender/broker: "My client will not 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 proof of the borrower's credit standing and ability to repay, has not been appropriate for over 30 years. The lender/broker said, "Thank you, but we do not operate our business by taking instructions from brokers, rather than using industry standards."

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 borrower. The funding lender/broker said, "Although you have a fiduciary relationship with your client, we have a fiduciary relationship with our trust deed investors. We must communicate directly with the borrower. Otherwise, we could miss some material facts."

The 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 said, " not so fast, the beneficiaries have a material interest in the outcome and use of the net loan proceeds of this loan. We require their approval for this loan request."

The mortgage broker tells the funding lender/broker, "I am shopping many sources for a zero-point loan to charge more points 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- I will shop around until I get what I want." The mortgage broker is acting adversely to their borrower. The funding lender/broker should walk away and delete this broker from their future database.

The mortgage broker tells 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 said, "We are only requesting information to construct the material facts of this transaction. We are using appropriate industry standards, which are also in compliance with state and federal regulations."

The mortgage broker tells the funding lender, "I was unaware of all these judgments and additional liens on the title. Just assume that they have all been paid off or satisfied." The funding lender/broker said, "We cannot make assumptions; we must inquire critically to gain all the material facts. The background search from Lexis/Nexus and the credit report reflect important data that must be dealt with, not just sluffed off like it does not exist."

The 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 says, "Before we waste time processing the loan, we need a written statement from the second lien holder that they will agree to subordinate."

The 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 by them? Is there plenty of equity? "The funding lender/broker says, "The only assumptions we are willing to make while reviewing this loan request are that we will obtain all the material facts and deal with them."

The mortgage broker tells the funding lender/broker, "Let's change title companies. I am sure another title company will not care about the stuff on the title search. They will overlook it and provide the insurance so that we can get this deal closed." The funding lender/broker, "Sorry, but we require an independent escrow and title, though there is total transparency in the transaction."

The mortgage broker says to the funding lender/broker, "I understand this is a property improvement loan, but my client is unwilling to allow a fund control company to take possession of the construction loan proceeds. They want 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.

The mortgage broker tells 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 lenders said, "Regulations require that the net proceeds of this loan be deposited into a third-party licensed construction fund controlled by an agent's trust account."

The mortgage broker tells 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 the adjacent property owner has permitted them. That should not affect the appraisal or hold up the closing." The funding lender/broker said, "Property access, or lack thereof, is a material consideration to this loan transaction."

The mortgage broker tells the funding lender/broker, "My client owns 25% of 4 properties with three other partners. He wants to borrow and encumber only 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 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 appear on the security property's preliminary title report." Mortgage broker says to the funding lender/broker, "Well, if it is not on the prelim, then we don't have to worry about it. The title policy will protect us against any government agency attack." 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 be no coverage." The funding lender/broker should walk.

Of course, the above is a partial list. However, the list should suggest that a lender/broker who makes or arranges real estate loans with the expectation of compensation should possess a healthy skepticism about the representations and intentions of some mortgage brokers. This is especially true when the lender/broker funds each loan transaction with a 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 and brokers to overcome obstacles and drive the transaction to a successful close. Also, full disclosure is assumed, not hidden, and treated as an evasion and obfuscation game. Professionalism, acting as an expert, and being a good fiduciary are continuous exercises.