I like the country duo "Big and Rich." They have a song called "We are Coming to Your City."
Well, there are other people who are coming to our city - if fact, they are already here - and they want to get "Big and Rich" by commiting mortgage fraud. And they want you to be a part of the show.
Mortgage Fraud is, according to the FBI's web site, one of the fasting growing financial crimes in the country. I have spoken to several groups of real estate agents, brokers and loan officers over the past few months. At each speech, there is always somebody who asks "Well, if we don't know about it, how can we get in trouble?" That's just it, real estate agents, brokers and loan officers should know loan fraud when they see it, and they should make sure that neither they, nor anybody associated with them, is in any way involved in a fraudulent transaction.
Another theme that may not be spoken, but is apparent in the looks in some people's eyes is "that could never happent to me."
Well it can happen to you.
I will post two or three artices on mortgage fraud over the next few weeks as time permits. In the mean time, I encourage anyone in the real estate industry who reads this post to click over to http://www.mnrealtor.com/publications/pdfs/TipsRuinYourLife.pdf and read this article. It is a painful and poignant reminder that it can happen to you.
Sunday, March 11, 2007
Sunday, February 18, 2007
How Much is Your Closing Fee? And Does that Include Shipping and Handling?
“Hi, my name is Pat, and I am an Ebay addict.”
If there were a 12-step recovery program for Ebay addiction, I would be there. I started shopping on Ebay several years ago – back when it really was a virtual garage sale. I have gotten a lot of good deals on merchandise over the years. I learned very quickly, however, that the price of the merchandise was only part of the cost. You see, many people who sell on Ebay have figured out that they can boost their profit by charging “shipping and handling” charges that are more than their actual out-of-pocket cost of getting the merchandise from their garage to mine. I realize that it takes some effort to package an item for shipment and to take the package to the shipper. I also realize that packaging supplies cost money and I don’t fault sellers for wanting to recoup their cost. And yet, these additional charges for shipping and handling end up making the widget, or whatever I just purchased, cost more than the stated price
I’ve noticed that sometimes, pricing for real estate closings can look a lot like an Ebay auction: the stated price looks really good, but by the time you add in all the “extra” charges – copy fees, package printing fees, overnight delivery fees, courier fees, email delivery fees, incoming wire fees, outgoing wire fees, and a host of others – the total cost to the buyer and seller is up to $100.00 more than the stated cost for the closing.
When we were working up the business plan for the TitleSouth Closing Center, we took a different approach to pricing closing services. Instead of stating a certain price – say $500.00 for a typical real estate closing with one mortgage – and then adding on for overnight packages, incoming and outgoing wire transfer charges and other expenses that are ordinary and necessary costs of doing business, we decided that our stated price would include all of these incidental costs.
It is a simple and straightforward business model – one price, no hidden charges. The price we chose is reasonable and competitive based on what closing attorneys and other title insurance companies in the Birmingham area charge for similar services. TitleSouth Closing Center’s fees are not the lowest in the Birmingham area, but they are far from the highest. We believe in being upfront about our fees, charging a fair price and delivering quality service and a good value for the fees we charge. Not only are the Closing Center’s fees competitive for closing services, we also offer agents, buyers and sellers an interactive closing experience through SureClose, our on-line transaction management platform (www.sureclose.com). We also offer to provide buyers and sellers copies of their closing documents on a CD, and work with buyers and sellers whose work schedules or travel arrangements make it difficult for them to close between 8:00 a.m. and 5:00 p.m., Monday through Friday.
In short, we pay the shipping and handling – it’s a lot better deal than you’ll get on Ebay.
If there were a 12-step recovery program for Ebay addiction, I would be there. I started shopping on Ebay several years ago – back when it really was a virtual garage sale. I have gotten a lot of good deals on merchandise over the years. I learned very quickly, however, that the price of the merchandise was only part of the cost. You see, many people who sell on Ebay have figured out that they can boost their profit by charging “shipping and handling” charges that are more than their actual out-of-pocket cost of getting the merchandise from their garage to mine. I realize that it takes some effort to package an item for shipment and to take the package to the shipper. I also realize that packaging supplies cost money and I don’t fault sellers for wanting to recoup their cost. And yet, these additional charges for shipping and handling end up making the widget, or whatever I just purchased, cost more than the stated price
I’ve noticed that sometimes, pricing for real estate closings can look a lot like an Ebay auction: the stated price looks really good, but by the time you add in all the “extra” charges – copy fees, package printing fees, overnight delivery fees, courier fees, email delivery fees, incoming wire fees, outgoing wire fees, and a host of others – the total cost to the buyer and seller is up to $100.00 more than the stated cost for the closing.
When we were working up the business plan for the TitleSouth Closing Center, we took a different approach to pricing closing services. Instead of stating a certain price – say $500.00 for a typical real estate closing with one mortgage – and then adding on for overnight packages, incoming and outgoing wire transfer charges and other expenses that are ordinary and necessary costs of doing business, we decided that our stated price would include all of these incidental costs.
It is a simple and straightforward business model – one price, no hidden charges. The price we chose is reasonable and competitive based on what closing attorneys and other title insurance companies in the Birmingham area charge for similar services. TitleSouth Closing Center’s fees are not the lowest in the Birmingham area, but they are far from the highest. We believe in being upfront about our fees, charging a fair price and delivering quality service and a good value for the fees we charge. Not only are the Closing Center’s fees competitive for closing services, we also offer agents, buyers and sellers an interactive closing experience through SureClose, our on-line transaction management platform (www.sureclose.com). We also offer to provide buyers and sellers copies of their closing documents on a CD, and work with buyers and sellers whose work schedules or travel arrangements make it difficult for them to close between 8:00 a.m. and 5:00 p.m., Monday through Friday.
In short, we pay the shipping and handling – it’s a lot better deal than you’ll get on Ebay.
Sunday, February 11, 2007
Don't Tempt RESPA Fate (Part 2)
When I started this weblog, I hoped to post a couple of times a week, and I kept to that schedule for a while. The past few weeks, however, I have not posted as often as I planned. My absence was the result of a much busier than expected January at the TitleSouth Closing Center, and the demands of preparing to fully open the second TitleSouth Closing Center location on Acton Road. Please forgive my absence. I will try to be a more faithful to my original posting schedule.
My last post discussed RESPA and a series of actions by settlement service providers that are permissible under RESPA. It was “the Good” in terms of RESPA Compliance.
This post contains the second and final installment of my “The Good, the Bad and the Ugly” RESPA compliance post. The following actions are NOT permissible under RESPA. Do any of these actions sound familiar? Remember, under RESPA, it is just as much a violation to receive a thing of value in exchange for a referral as it is to give a thing of value in exchange for a referral.
The Bad
(Not Legal)
1. Can a lender, title company or other settlement service provider sponsor a RE salesperson in its advertising where the RE salesperson does not have to pay for the ad or gets a discount?
No. The sponsorship defers an expense that the RE salesperson would otherwise have to pay and is a thing of value under RESPA.
2. Can a lender, title company or other settlement service provider sponsor a contest in a real estate office that awards points for each mortgage application, title order, etc. that the other settlement service provider receives?
No. The contest prize and even the opportunity to win a prize in exchange for referrals is a thing of value under RESPA. HUD has recently taken action against a drawing held at an awards program administered by the Coldwell Banker Real Estate Corporation.
3. Can a lender, title company or other settlement service provider buy lunch for the office subject to receiving a specified amount of business?
No. Buying lunch in exchange for receiving referrals violates RESPA.
4. Can a loan officer give my buyer a closing gift that is from both of us at no cost to me?
No. By giving your buyer a gift in your name without any cost to you, the loan officer is deferring a business expense that you would otherwise incur.
5. Can a lender, title company or other settlement service provider send me on a trip or pay for a weekend at a hotel?
No. Trips, weekend stays, fine dining and other expensive gifts are not considered to be in the range of normal marketing expenses under RESPA.
6. Can my broker provide incentives to me for recommending my company’s mortgage or title company?
No. Your broker would be providing you a thing of value in exchange for a referral. RESPA does not require that the thing of value be given by the same person or company that receives the referral of business. HUD recently took action where title companies provided the RE agents with virtual tours at no cost.
7. Can a lender, title company or other settlement service provider sponsor lunch at my open houses without advertising it?
No. By making it appear that you provided the lunch, the lender, title company or other settlement service provider is deferring a business expense you would otherwise incur.
8. Can I be paid for helping my buyer complete a mortgage application?
No. Filling out a mortgage application or providing other nominal services is not compensable under RESPA. HUD recently took action against Re/Max agents in Georgia who received $400 in compensation for merely filling out a mortgage application.
The Ugly
Business Opportunities
There are many lenders and title companies offering business opportunities to RE agents in the form of an ownership interest in a mortgage or title company. These are permissible so long as the business is operated within strict parameters. They are The Ugly because promoters of these businesses often produce letters from reputable law firms which have reviewed the business plan of the company and confirmed its legality in order to induce RE agents to participate. However, a significant number of these businesses are subsequently operated in a manner that is not consistent with the business plan presented to the law firm and become RESPA violations or “sham” companies. This is a trap for the unwary RE agent who can find himself or herself on the wrong end of a HUD investigation not knowing how they got there.
HUD does not limit its investigation to the business plan or other paperwork of a suspected sham company, but pulls back the curtain on the business operation by exercising its subpoena power to find out what is really going on in the business. For example, companies that require a minimal investment from you, but offer generous returns with little or no risk of loss violate RESPA. HUD has recently taken action against several sham companies in North Carolina, South Carolina, Georgia, Tennessee, Ohio and other states.
AUTHOR'S NOTE: The above recitation of “the Bad and the Ugly” come from a memorandum distributed by HomeServices of America’s General Counsel, Dana Strandmo, in 2005. In light of HUD’s increase in enforcement actions and the expansion of its somewhat limited investigative staff by the use of private auditors, I thought that the topics discussed in Dana’s original memorandum were particularly relevant today.
Dana’s discussion of “the Ugly” – business opportunities that may result in RESPA violations even though they were designed to be compliant, is an area where I have some personal experience. Before I came to TitleSouth as General Counsel, I structured two joint venture title companies for clients. I was very careful to make sure that the formation and operation documents were drafted in a way that was RESPA compliant. I went a bit further, however, and required that the companies conduct “self-audits” every quarter to determine that they where being operated in accordance with their governing documents, and that an outside law firm conduct a “compliance audit” once a year to make sure that, in operation, the companies did not inadvertently violate RESPA even though their organizational documents were designed to ensure compliance.
This is an area where, until Congress address the reform of RESPA, we will continue to have to tread lightly and weigh each business opportunity and interaction with fellow settlement service providers on the scales of RESPA compliance. Until RESPA is reformed- if Congress ever gets around to RESPA reform – the best bet is to utilize the “smell” and “newspaper” tests: “Does this Smell Right” (if it doesn’t it probably isn’t), and “How Would this Look on the Front Page of the Paper” (unless you want to read about it there, it probably doesn’t past muster).
My last post discussed RESPA and a series of actions by settlement service providers that are permissible under RESPA. It was “the Good” in terms of RESPA Compliance.
This post contains the second and final installment of my “The Good, the Bad and the Ugly” RESPA compliance post. The following actions are NOT permissible under RESPA. Do any of these actions sound familiar? Remember, under RESPA, it is just as much a violation to receive a thing of value in exchange for a referral as it is to give a thing of value in exchange for a referral.
The Bad
(Not Legal)
1. Can a lender, title company or other settlement service provider sponsor a RE salesperson in its advertising where the RE salesperson does not have to pay for the ad or gets a discount?
No. The sponsorship defers an expense that the RE salesperson would otherwise have to pay and is a thing of value under RESPA.
2. Can a lender, title company or other settlement service provider sponsor a contest in a real estate office that awards points for each mortgage application, title order, etc. that the other settlement service provider receives?
No. The contest prize and even the opportunity to win a prize in exchange for referrals is a thing of value under RESPA. HUD has recently taken action against a drawing held at an awards program administered by the Coldwell Banker Real Estate Corporation.
3. Can a lender, title company or other settlement service provider buy lunch for the office subject to receiving a specified amount of business?
No. Buying lunch in exchange for receiving referrals violates RESPA.
4. Can a loan officer give my buyer a closing gift that is from both of us at no cost to me?
No. By giving your buyer a gift in your name without any cost to you, the loan officer is deferring a business expense that you would otherwise incur.
5. Can a lender, title company or other settlement service provider send me on a trip or pay for a weekend at a hotel?
No. Trips, weekend stays, fine dining and other expensive gifts are not considered to be in the range of normal marketing expenses under RESPA.
6. Can my broker provide incentives to me for recommending my company’s mortgage or title company?
No. Your broker would be providing you a thing of value in exchange for a referral. RESPA does not require that the thing of value be given by the same person or company that receives the referral of business. HUD recently took action where title companies provided the RE agents with virtual tours at no cost.
7. Can a lender, title company or other settlement service provider sponsor lunch at my open houses without advertising it?
No. By making it appear that you provided the lunch, the lender, title company or other settlement service provider is deferring a business expense you would otherwise incur.
8. Can I be paid for helping my buyer complete a mortgage application?
No. Filling out a mortgage application or providing other nominal services is not compensable under RESPA. HUD recently took action against Re/Max agents in Georgia who received $400 in compensation for merely filling out a mortgage application.
The Ugly
Business Opportunities
There are many lenders and title companies offering business opportunities to RE agents in the form of an ownership interest in a mortgage or title company. These are permissible so long as the business is operated within strict parameters. They are The Ugly because promoters of these businesses often produce letters from reputable law firms which have reviewed the business plan of the company and confirmed its legality in order to induce RE agents to participate. However, a significant number of these businesses are subsequently operated in a manner that is not consistent with the business plan presented to the law firm and become RESPA violations or “sham” companies. This is a trap for the unwary RE agent who can find himself or herself on the wrong end of a HUD investigation not knowing how they got there.
HUD does not limit its investigation to the business plan or other paperwork of a suspected sham company, but pulls back the curtain on the business operation by exercising its subpoena power to find out what is really going on in the business. For example, companies that require a minimal investment from you, but offer generous returns with little or no risk of loss violate RESPA. HUD has recently taken action against several sham companies in North Carolina, South Carolina, Georgia, Tennessee, Ohio and other states.
AUTHOR'S NOTE: The above recitation of “the Bad and the Ugly” come from a memorandum distributed by HomeServices of America’s General Counsel, Dana Strandmo, in 2005. In light of HUD’s increase in enforcement actions and the expansion of its somewhat limited investigative staff by the use of private auditors, I thought that the topics discussed in Dana’s original memorandum were particularly relevant today.
Dana’s discussion of “the Ugly” – business opportunities that may result in RESPA violations even though they were designed to be compliant, is an area where I have some personal experience. Before I came to TitleSouth as General Counsel, I structured two joint venture title companies for clients. I was very careful to make sure that the formation and operation documents were drafted in a way that was RESPA compliant. I went a bit further, however, and required that the companies conduct “self-audits” every quarter to determine that they where being operated in accordance with their governing documents, and that an outside law firm conduct a “compliance audit” once a year to make sure that, in operation, the companies did not inadvertently violate RESPA even though their organizational documents were designed to ensure compliance.
This is an area where, until Congress address the reform of RESPA, we will continue to have to tread lightly and weigh each business opportunity and interaction with fellow settlement service providers on the scales of RESPA compliance. Until RESPA is reformed- if Congress ever gets around to RESPA reform – the best bet is to utilize the “smell” and “newspaper” tests: “Does this Smell Right” (if it doesn’t it probably isn’t), and “How Would this Look on the Front Page of the Paper” (unless you want to read about it there, it probably doesn’t past muster).
Wednesday, January 10, 2007
Don't Tempt RESPA Fate
Many years ago - when I was first starting out in the real estate closing business - I was approached by someone who offered to send me a lot of closing business, but it came with a catch: the person who could bring me the business wanted a "piece" of the fees. They assured me that "People do it all the time."
Desipte not having a lot of business and needing all the business I could get, I had the good sense to turn this person away.
At that time, I hadn't spent a lot of time studying the Real Estate Settlement Procedures Act ("RESPA"), but I knew that this proposition didn't pass the smell test.
As the years passed, and I was asked from time to time to render an opinion on whether or not a particular arrangement was permissible under RESPA, I spent more and more time reading RESPA, case law interpreting RESPA and HUD's Formal and Informal Opinions about RESPA. I don't claim to be a RESPA expert - far from it. I know a couple of folks are are bona fide RESPA experts, and they have helped me tremendously.
One of the people I know who is well-versed in RESPA is Dana Strandmo. Dana is HomeServices of America's General Counsel, and is one of my bosses. About a year and a half ago, Dana sent out a memorandum to all HomeServices of America's agents (HomeServices owns approxmately 18 real estate brokerage companies across the country, including RealtySouth, and through these companies has in excess of 11,000 agents) giving them some guidance on what is and isn't permissible under RESPA. Dana's memorandum was titled "The Good, The Bad and The Ugly."
Now, at the beginning of the new year, seems a good and appropriate time to review "The Good, The Bad and The Ugly" and take a look at what is, and perhaps more importantly, what is not permissible under RESPA. Today's post looks at "The Good" - that is, permissible actions under the provisions of RESPA. These questions and answers are directed at real estate agents and their relationships to title insurance companies, loan officers, and others to whom they have the opportunity to refer busienss. Remember, however, that in the context of payments in exchange for the referral of business, RESPA makes it a crime to either give or to receive any thing of value in exchange for the referral of a settlement service. Accordingly, these quesions and answers apply equally to anyone in a position to make or receive referrals of settlement services.
The Good (Legal)
1. Can a real estate (RE) salesperson advertise with a lender, title company or other settlement service provider if each party pays their fair share?
Yes, if the RE salesperson and the other party are sharing the cost of the ad on a pro rata basis (e.g., if you have 10% of the ad space, you pay 10% of the ad cost).
2. Can my office manager sponsor a contest that awards points for listings, open houses, showings, etc.?
Yes, so long as points are awarded only for real estate brokerage activities.
3. Can a lender, title company or other settlement service provider buy lunch for the office?
Yes, so long as everyone in the office can benefit equally and the cost of the lunch is not overly expensive. That is, the cost is considered in the range of a normal marketing expenses for that market area.
4. Can a loan officer give my buyer a closing gift that is from both of us?
Yes, so long as you and the loan officer each pay your pro rata share of the gift expense.
5. Can a lender, title company or other settlement service provider send me a gift on the holidays?
Yes, you can receive gifts that are not overly expensive, that is, they are in the normal range of marketing expenses for the market area.
6. Can I give my seller or buyer a gift in appreciation for their business?
RESPA does not prohibit gifts or other benefits given to your client in the transaction. However, many state laws prohibit it. Check with your manager or company management before making gifts to your clients.
7. Can a lender, title company or other settlement service provider sponsor lunch at my open houses?
Yes, so long as it is clearly advertised that the lunch is sponsored by the lender, title company or other settlement service provider and is not overly expensive, it is considered a normal marketing expense.
8. Can a lender, title company or other settlement service provider help sponsor a party, softball tournament or some other real estate company event.
Yes, so long as the sponsorship is not overly expensive, that is, it is in the normal range of marketing expenses for that market area.
Clearly, this list of permissible activities is not exhaustive and whether or not a particular activity is or is not permissible under RESPA is fact dependent. Throughout the questions and answers set out above, there is one recurring theme - everybody pays their fair share. If somebody pays more than their fair share, the it could be that the payment is considered a "thing of value" in exchange for the referral of business. That is where you can get in trouble under RESPA, and that will be the topic of my next post.
Until next time,
Pat Smith
Desipte not having a lot of business and needing all the business I could get, I had the good sense to turn this person away.
At that time, I hadn't spent a lot of time studying the Real Estate Settlement Procedures Act ("RESPA"), but I knew that this proposition didn't pass the smell test.
As the years passed, and I was asked from time to time to render an opinion on whether or not a particular arrangement was permissible under RESPA, I spent more and more time reading RESPA, case law interpreting RESPA and HUD's Formal and Informal Opinions about RESPA. I don't claim to be a RESPA expert - far from it. I know a couple of folks are are bona fide RESPA experts, and they have helped me tremendously.
One of the people I know who is well-versed in RESPA is Dana Strandmo. Dana is HomeServices of America's General Counsel, and is one of my bosses. About a year and a half ago, Dana sent out a memorandum to all HomeServices of America's agents (HomeServices owns approxmately 18 real estate brokerage companies across the country, including RealtySouth, and through these companies has in excess of 11,000 agents) giving them some guidance on what is and isn't permissible under RESPA. Dana's memorandum was titled "The Good, The Bad and The Ugly."
Now, at the beginning of the new year, seems a good and appropriate time to review "The Good, The Bad and The Ugly" and take a look at what is, and perhaps more importantly, what is not permissible under RESPA. Today's post looks at "The Good" - that is, permissible actions under the provisions of RESPA. These questions and answers are directed at real estate agents and their relationships to title insurance companies, loan officers, and others to whom they have the opportunity to refer busienss. Remember, however, that in the context of payments in exchange for the referral of business, RESPA makes it a crime to either give or to receive any thing of value in exchange for the referral of a settlement service. Accordingly, these quesions and answers apply equally to anyone in a position to make or receive referrals of settlement services.
The Good (Legal)
1. Can a real estate (RE) salesperson advertise with a lender, title company or other settlement service provider if each party pays their fair share?
Yes, if the RE salesperson and the other party are sharing the cost of the ad on a pro rata basis (e.g., if you have 10% of the ad space, you pay 10% of the ad cost).
2. Can my office manager sponsor a contest that awards points for listings, open houses, showings, etc.?
Yes, so long as points are awarded only for real estate brokerage activities.
3. Can a lender, title company or other settlement service provider buy lunch for the office?
Yes, so long as everyone in the office can benefit equally and the cost of the lunch is not overly expensive. That is, the cost is considered in the range of a normal marketing expenses for that market area.
4. Can a loan officer give my buyer a closing gift that is from both of us?
Yes, so long as you and the loan officer each pay your pro rata share of the gift expense.
5. Can a lender, title company or other settlement service provider send me a gift on the holidays?
Yes, you can receive gifts that are not overly expensive, that is, they are in the normal range of marketing expenses for the market area.
6. Can I give my seller or buyer a gift in appreciation for their business?
RESPA does not prohibit gifts or other benefits given to your client in the transaction. However, many state laws prohibit it. Check with your manager or company management before making gifts to your clients.
7. Can a lender, title company or other settlement service provider sponsor lunch at my open houses?
Yes, so long as it is clearly advertised that the lunch is sponsored by the lender, title company or other settlement service provider and is not overly expensive, it is considered a normal marketing expense.
8. Can a lender, title company or other settlement service provider help sponsor a party, softball tournament or some other real estate company event.
Yes, so long as the sponsorship is not overly expensive, that is, it is in the normal range of marketing expenses for that market area.
Clearly, this list of permissible activities is not exhaustive and whether or not a particular activity is or is not permissible under RESPA is fact dependent. Throughout the questions and answers set out above, there is one recurring theme - everybody pays their fair share. If somebody pays more than their fair share, the it could be that the payment is considered a "thing of value" in exchange for the referral of business. That is where you can get in trouble under RESPA, and that will be the topic of my next post.
Until next time,
Pat Smith
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