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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   September 2018

Trust But Verify Is Business 101

Mortgage brokers who don’t protect their fees stand a good chance of losing them

As a commercial mortgage broker, one of the most important responsibilities you have is to seek out lenders to partner with that will afford your clients the best products, terms and service. This a time-consuming process and one where it’s prudent to ask the right questions of your lender — not only about their products, pricing and fees, but also to ensure your role as an originator is not compromised.

Many nonbank lenders advertise that they protect brokers. What that means can differ by lender, however. Essentially, what it means is that your origination fees will be protected at closing. But are you truly protected?

The answer is a resounding “no.” There are many scenarios where the originating broker may lose their commission because they are not truly protected. Understanding what can go wrong upfront and taking corrective measures right away to prevent a bad outcome is key to ensuring you get compensated for your services.

Documentation matters

Many lenders employ multiple commercial loan officers. This can create an issue with protecting your claim to the loan-file work, absent solid documentation.

If you submit a commercial mortgage application for a client to one of the lender’s loan officers, and the same client — on their own or through another broker — submits an application for the same transaction to this lender, but to another loan officer, then the lender will usually request that you provide an exclusive-
broker agreement.

That documentation is required for the lender to recognize you as the broker of record and to protect your fee. If you do not have an exclusive-broker agreement, you are not protected.

In addition, many lenders who claim to protect brokers also require brokers to submit an executed fee agreement with the initial loan-submission package. If you are a commercial mortgage broker who does not have such a fee agreement signed by your client — prior to divulging who the intended lender is for their transaction, or prior to submitting detailed transaction information to a lender — then you are doing yourself a disservice.

If you are remitting client information to a lender without an executed fee agreement in place (inclusive of a non-circumvention clause), beware. You run the risk of the lender circumventing you and going directly to the client to secure the deal, essentially using you as a lead source.

Multichannel confusion

Very few lenders offer a strictly wholesale platform and, even in those cases, brokers can find themselves exposed. Many lenders, including nonbank lenders, also offer their programs via their retail channels. They are, in essence, competing for your borrower.

A lender may claim they are strictly wholesale and that they never deal directly with a client. That claim could have a loophole, however, if the lender also has internal loan officers who operate outside that wholesale relationship and will deal directly with a client without notifying the originating broker of any financing requests. Now, if you have a fee agreement with a non-circumvention clause for any future financing, you are protected — not by the lender, but because of the fee agreement signed by your client.

What also can be troublesome are some multichannel lenders (wholesale/retail/correspondent) who offer their products through these various channels with varying rates and fees. By definition, a wholesale transaction should offer a lower rate and/or points. That is not always so, however.

In some cases, a multichannel lender may offer the broker one set of loan terms on a deal, yet provide slightly different — and better — terms for the same deal to a client who works directly with the lender. That means a commercial mortgage broker working with such a lender could actually lose a deal to the same lender they submitted the transaction to for review. The lender may not even be aware that the client made an application through their retail channel independent of the broker submitting that same loan application to the wholesale side.

•  •  • 

It is prudent to have a conversation with your lenders — as well as any you hope to partner with in the future — to discuss what their policies are with respect to protecting your place in any transaction you submit, so that you avoid any surprises. Inquire whether your fees will be included at settlement, whether you can correspond directly with the lender’s attorney prior to closing and how your fees will be remitted.

That approach gives you the opportunity to gravitate toward lenders that respect your role as the loan originator and will not only protect your fees at closing, but will remit those fees immediately upon settlement. Lenders are in a precarious position should a client refuse or dispute a fee because it is not their responsibility to intercede in that arrangement. So, be sure to consult with an attorney and spend some time and money on structuring a solid fee agreement. As the referee of a boxing match would say, “Protect yourself at all times.”


 


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