Your Mortgage Broker Suggested What?

Today was a day like any other Monday (or Tuesday after a holiday) in the world of Edmond Real Estate. I spent the majority of it catching up from the weekend and following up with various clients to set a plan for my week, as well as tying up loose ends on my ongoing transactions and tracking down the daily FSBOs and Expireds.

Some time early in the afternoon though, I made a call to a client and friend of mine that's looking into buying a fixer. We had gone out over the weekend and looked at a home that he and his wife are quite interested in. I won't go into all the details, but basically, it's a very nice piece of property that needs quite a bit of updating to really be the home they want to raise their kids in, so of course the discussion has come around to the possiblity of buying well below value and borrowing against any equity to fund the desired upgrades. The buying below value doesn't seem to be a big obstacle, and I had advised him to call "his mortgage guy" today to find out if they had any programs available that might allow them to get the project money they want. Long story short, the mortgage guy tells my friend, we'll call him Mr D, that there's no way he can get them into any such program that wouldn't cost him an arm and a leg in interest. He then goes on to suggest to Mr D that, even though there are some legal issues involved, he may want to see if the seller would agree to a higher list price, then give Mr D back some cash after closing, in an agreement outside of the purchase contract of course. Can anyone say RED FLAG?

Here in Edmond, we recently had a MEGA-Agent (one of the largest names in our local market) locked up for this very thing. She, the appraiser, the buyers and the sellers are all in deep doo-doo after being caught running a cash-back scheme which defrauded the lenders and drove up property values in Edmond's prestigious Oak Tree addition. The agent is currently serving time in federal lock-up and has lost her license forever. I'm pretty sure the appraiser and the sellers are also serving time.

With this case being so fresh in our heads, it's mind-boggling to me that anyone in the Edmond real estate market would even consider this as an option, much less actually suggest it to a client. Normally, I'd lean toward giving the benefit of the doubt and wonder if this guy just didn't know what he was actually suggesting, but he directly verbalized to Mr D that there would be "some legal issues involved," as if that somehow clears him of any wrongdoing if Mr D actually goes through with it. What if Mr D and the seller had shady (or just ignorant) agents representing them? Could they not find themselves in a major predicament down the line, simply because they were misinformed (or uninformed)? The shady and/or ignorant agents certainly would.

After explaining the ins & outs of this scenario to Mr D, and that I would never be a part of such a transaction, it was clear that he truly didn't realize it was such a big deal, which furthers the possibility of being misled and unknowingly getting into a sticky situation had he been unrepresented, or simply represented by a less-ethical agent. At that point, he made it clear that he's not any more interested in orange jumpsuits than I am.

This whole series of events raises a few issues and questions for me.

• First, it further validates the reasons a home buyer should never go it alone. No matter how intelligent and savvy (Mr D and his wife are both) you, the buyer are, assuming you know all the ins & outs is just plain foolish. Find an ethical, honest, experienced professional to protect you from such pitfalls. We even have insurance to cover ourselves, but the best part is, it doesn't cost you anything to be represented. The seller pays that commission.
• Secondly, it obviously gives me a heads-up about this particular mortgage broker. I can assure you that I will never be a part of any transaction with this clown. But more importantly, it raises the question of how I should handle this instance. Who holds these guys accountable? I don't want this donkey burying some other unsuspecting consumer with his ludicrous advice. Furthermore, it makes every one of us in this industry look bad. Why do consumers have such a poor opinion of REALTORS and Mortgage Brokers? Very simply, because of scum like this guy. So where do I go from here with the information that he's just a tad crooked?
• Lastly, it makes me wonder how many agents and mortgage brokers out there don't understand that this IS WRONG! I know I'm in the minority (around here) of those agents who actually read the contracts we sign and keep up with every bit of industry-related news I can get my hands on. I hold my continuing education in very high regard and my ethics even higher! But what about all the agents with a part-time mentality who simply do the minimum it takes to get licensed and only work a dozen or so transactions each year? I can clearly see where it would be easy for such an agent to miss the fact that his practice is FRAUD.

Yep, just another exciting day in the life!