'Mad Chedda' for commercial RE brokers
Posted in RESPA reform By Matt Carter, Thursday, July 3, 2008.Here's an interesting referral fee chart posted by a commercial loan broker that came my way via a Google alert. Writing on his ActiveRain blog, Charles Hennebeul of American Cash Solutions Inc. wishes readers a Happy Fourth and shares some of his personal views on RESPA -- that it's "a waste of time in terms of preventing kickbacks." Hennebeul relates that when he started as a loan officer in 1999, "my boss told me that she would meet in a car parking lot to give the cash to the realtor ..she said it was illegal but noone in the company specified RESPA..she said she was nervous everytime she did it..like someone might be watching."
Hennebeul found the practice "pathetic," and to this day, when he sees an advertisement featuring a Realtor and a mortgage company, it reminds him of another thing his boss said: "When a realtor sends three deals then they will pay for the advertisement in the realtor magazine."
He thinks the mortgage crisis will bring increased regulation that will "challenge the rule breakers to figure out how to break the new set of rules!"
Fortunately, as a commercial loan broker, Hennebeul says "we are not bound by RESPA. RESPA is for consumers. If you are an accountant, lawyer, Doctor or some sort of licensed money maker its your responsibility to make sure you are in compliance with whatever it is that you need to be in compliance with. We don't care if you have some sort of written disclosure to your customers/clients/peoples/teamplayers-just make sure it doesn't make any representations, warranties or binding legalese that involves American Cash Solutions Inc."
Here's what American Cash Solution pays for referrals:
American Cash Solutions Inc Referral Fees
Loan Size Referral Fee aka Mad Chedda !
$500,000 to $750,000 $500
$750,001.00 to $1,000,000 $750
$1,000,001.00 to $2,000,000 $1000
$2,000,001.00 to $3,000,000 $3,000
$3,000,001 to $10 million $5,000!!!
There is no limit on the number of deals you can send us.
On all deals $10,000,001.00 and up $7,500!!!, non-negotiable.
So, my question is do you suppose there's a similar payment structure for all the "Mad Chedda" that goes to residential Realtors out in the car?
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Submitted by Daniel Rothamel, Inman Community Manager on July 3, 2008 - 1:02pm.
Commercial real estate is a different world in many ways. I learned that very quickly.
I sure hope that their aren't any residential REALTORS sitting out in the parking lot. I know that for our brokerage, we won't even accept the $75 fee that home inspection companies send.
http://www.RealEstateZebra.com
Submitted by Jillayne Schlicke on July 3, 2008 - 1:07pm.
I viewed both website links provided. The activerain blog article pretty much says that we should through out the law if it can't be enforced.
Although I would never advocate doing that, he does make a good point. If we're going to reform RESPA on the residential side then we should also make sure HUD has enough funds to enforce their own rules.
One observation on the link to his personal business website, if I were a person working in the residential sector and wanted to utilize this guy in order to earn a referral fee, I would for sure want to check with my own company to see if there are any policies against receiving such a fee, state laws, and also federal laws that might prohibit receiving such a fee.
Full disclosure to one's client seems prudent.
Submitted by Matt Carter on July 3, 2008 - 3:04pm.
Daniel your brokerage is probably smart to turn down those checks. A member of this group was able to obtain an opinion from HUD earlier this year on that exact issue -- referral fees paid by home warranty companies -- that suggested that would be a RESPA violation.
Asked about two types of agreements in which real estate agents are compensated only when the consumer purchases a home warranty, Paul Ceja, assistant general counsel for GSE/RESPA, said it "appeared likely" that they violated Section 8 of RESPA. This was an "unofficial staff interpretation" that I was never able to get a comment from HUD on. But this is something I need to go back and do a story on. I would be interested in hearing from other members of the group about their experiences with home warranty companies -- whether they have agreements with them, and whether the referral fees are tied to individual home warranty purchases.
Submitted by Diane Cipa on July 4, 2008 - 7:31am.
The very idea of a home inspection company sending a kickback to a real estate broker makes me want to puke.
I can think of no better example of abusing a fiduciary duty and one more great reason for consumers to ignore referrals coming from their real estate agent when selecting inspection companies.
Savvy consumers should hire inspectors who are not suffering from conflicts of interest such as maintaining a referral relationship with the real estate agent. That basic conflict alone is sufficient warning to beware, but add a kickback to the equation and you've got a more serious problem than a RESPA violation.
Submitted by Joe Cline on July 5, 2008 - 6:33pm.
I have mixed feelings on the issue. I know that as a broker I should make my money on the brokerage and leave the rest on the table.
At the same time, I like to be involved in all aspects of the transaction to assist my clients. It would be more financially feasible to guide clients from A all the way to B and really provide stellar all-inclusive service if we could make money on more aspects of the transactions, thus allowing us to spend more time on each individual.
Also, by partnering and disclosing the relationship to the buyer it could be possible to negotiate the best rate for all clients by having a relationship with a provider.. i.e. the economies of scale. That said there are obvious legal and liability issues.
Just another something to ponder. :)
Hope all is well,
Joe Cline
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