There will always be different views when it comes to fiduciary responsibility. Many of us know that a realtor has a Fiduciary responsibility to their clients. But how do you treat this when meeting with your clients. How does a realtors code of ethics intertwine with your fiduciary responsibility?
Over the years, I have seen some very poor performances both by realtors and loan officers when it comes to looking out for their clients best interest. But many will argue that the loan officer has a fiduciary responsibility to the investor, not the consumer. Is this a fine line? What about those loan officers that don't care about either? Shouldn't it be the consumer first? Besides, if a loan officer looks out for the consumers best interest, shouldn't this be good for the borrower? Or is it a fact that you should make a loan and make it happen, which helps the investor/lender? Now, doesn't this go against what fiduciary responsibility is all about? What about the consumer?
What about those realtors that direct their client to their in-house lender? Shouldn't this be against their fiduciary responsibility? Whose best interest is at hand? Shouldn't you seek the best loan officer for your client and not to a loan officer that is part of your real estate office? What sey thee?
What about greed? What about that realtor that handles both the real estate side of things and the lending side of things? Both as a realtor and a loan officer? Even though it's allowed in many states, shouldn'[t it be banned? How can one person have your best interest on both transactions? Isn't this just like dual agency, which so many states are putting their foot down on now.
First off, you just can't possibly know and understand all about mortgages, the programs, the guidelines, and stay on top of the rates if working as a part loan officer. And then to turn around and be that clients realtor also. I truly hope that they make loan officers responsible. Possibly having them sign something.
I recently received a phone call last week from a realtor working in one of Miami's largest real estate offices. She needed help with an issue and received my name from a realtor in her office in which I closed a loan for her buyer 2 weeks prior. This realtor wanted to know if I could still do the down payment assistance program. I said I could and she went on to explain the problem. Here it is....
She had the seller. The buyers agent was also her loan officer who had the loan for 5 weeks. They just found out a few days ago that they can't do the DPA program now. But the seller was giving a total of 9% in closing costs, part of which was to go to the buyers down payment. Since the realtor/loan officer couldn't help with the DPA, he wanted the 3% that couldn't be used, to be added onto his side of the commissions. He then went on to say, that if they couldn't accommodate this, that his buyer will not go through with the offer.
Now, most of you know that it sounds like some fraud is involved. And the story gets worse. But for arguments sake, the listing agent presented this to her seller. She didn't want to have any part of this and said no. Now she can't sell her house, has spent money on the purchase of another house, and just wasted about 6 weeks. The listing agent was even able to get a hold of the buyer, trying to piece this together, but the buyer thinks that her realtor deserves the extra 3%. And now is telling everyone that she has the 3% to complete the transaction. Can anyone smell something here?
Overall, the listing agent involved and her broker will be filing complaints all the way up the ladder. To the Florida real estate commission, to the board of realtors, and to the mortgage bankers association. And guess what? This real estate agent slash loan officer? His aunt owns her own title comapny, in which she was doing the title on this. And a FYI..... realtors can not be on the mortgage application if it is a FHA mortgage. In which case this was a FHA mortgage. All I can say is that you should be aware as a buyer, seller, a real estate agent, and a loan officer. Not only are people in the business cracking down and reporting, but the FEDS are chomping at the bits to arrest and prosecute. And it's about time..!!!!!
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33 Comments on Realtors have a Fiduciary Responsibilty..... What about loan officers???
We're supposed to provide 3 choices to our clients, and allow them to choose. Our brokerage does not have in-house financing, but we used to have (according to management) Countrywide as our preferred lender. In light of everything that's happened in the last couple of years, our new "preferred lender" is Bank of America. I've personally, never referred business to BofA, but I had a friend who used to be a loan officer with Countrywide. I did have her name on my list for a while. She did OK. But I preferred my independent mortgage brokerages.
I get tons of calls from my online profiles..... from agents that are looking for a sucker loan officer to help scam their clients....
Sad
Jeff, I think that Lynn may have meant that being a REALTOR® in and of itself does not create fiduciary...but the act of taking on the client as a buyer or seller does. In the State OF Texas, any agent that does not represent a buyer, by default represents the seller and so the fiduciary relationship is dictated.
HOWEVER, I noticed, as I read over your post, you do not answer the one question you asked in your title. Who does the loan officer have legal fiduciary responsibility for? I mean, not does your loan officer watch out for someone but rather, legally binding in court Fiduciary Responsiblity. Who does the loan officer have this responsibility to or is it to no one at all?
Jeff, you have so much food for thought in this post that I'll be able to skip breakfast. While DC and Virginia have gotten rid of the fiduciary relationship between cleint and agent, although that certainly does not affect the agent's obligation to look out for the client's interests. Even when I worked for companies that had in-house lenders, I made them compete with the other guys for my clients' business. I think the whole idea of a lender/real estate agent in one suit is totally crazy. And the example you gave from Florida is just plain nuts.
Another great post Jeff!
The convenience of an in-house loan officer makes sense to me. The LO can estimate payments, interest rates and loan programs and our buyer won't need to leave the building. The buyer should be told that they may chose whom ever they wish, of course.
Now, if the realtor is going to do the real estate side and an FHA loan in Florida, an example need to be made. It's the same thing with 1099 co-brokering of FHA loans, without enforcement, it will continue until it seems like the normal thing to do.
HUD needs to flex its muscles and lay down the law.
Its amusing to me to hear about states getting rid of the fiduciary relationship between client and agent. Just goes to show how much better lobbyists real estate agents have then mortgage brokers. ;)
After all, the common law development of the concept of agency (in general not just in real estate) has always included a fiduciary duty. I have always felt that in the case of buyer agency the fiduciary duty went against human nature for someone to make higher commissions by getting the buyer to pay more. Most times when duties don't acknowledge human nature, they don't work out. It makes more sense on the seller's side where the more money you get the seller, the more you make.
In most states outside California, loan officers don't have any fiduciary duty. They also don't have exclusive contracts like listing agreements. A deal can be pulled away from a loan officer at the closing table even if they have done everything correctly and delivered as promised. Heck, on a refinance it can be pulled away from them even after the closing during the recission period. When this happens to a fiduciary agent, they at least have some legal rights to go after their commission, even if they choose for business reasons not to. Loan officers end up crawling away to lick their wounds, or giving up all their profit to keep the deal.
On the other hand, the numbers aren't always the only criteria for acting in the best interest of the client. For instance, a seller who is about to turn down the only offer they have received in months probably should be pressured a little to take that "lower offer" instead of losing money by holding out.
On a side note, protecting the client's interests isn't always about getting the lowest numbers promised up front. As has been discussed on Active Rain many times, some brokers will give misrepresentative Good Faith Estimates, or even just make mistakes in their choice of loan program, and then have completely different numbers show up at the closing when it is very inconvenient for the parties not to just go ahead and close. Getting the lowest priced upfront quote isn't always the only element involved in protecting a client's best interest. A low price quote isn't any good with no closing.
If I were an agent with a deal to close and a client who had a borderline loan scenario, and Jeff gave my client a quote that was more expensive and at a higher rate than another broker, I would likely advise my client to take his higher offer. Because he has the experience and knowledge to overcome the inevitable problems that pop up out of left field that no one could have predicted. Let's face it, borrowers sometimes lie about things they think are unimportant, but underwriters think are important.
Holy conflict of interest batman! This stuff should of been cracked down upon long ago, should never even existed in my opinion. I know that one of the larger Mortgage Bankers in a certain area of Pennsylvania paid for Realtor's cell phones, car payments, and the like. Hmmmm, somebody rationalize that to me. I've always liked Bill's rules and Rule #1 is the customer comes first. End of story.
Jeff, I agree about the possible conflicts with in-house lenders, title agents etc. However, in Florida unless the clients is advised and sighns a single agent notification form where the agent will then be a fiduciary to the client, the assumed agency relationship is that of a transaction broker and no fiduciary responsibility exists - at least legally.
Jeff,
You raise some interesting questions, generating some interesting responses.
There is no one size fits all type of answer and as indicated by many of the comments depends upon state law.
I am a pre-license instructor in Illinois and my response is based on Illinois Real Estate License Law.
Before I get into Illinois specifics, I truly believe that an universal rule of thumb would be the "golden rule", "Do to others what you would have others do to you." While that might sound simplistic, it makes sense that an educated loan or real estate professional would know how they would want to be treated in a given situation. If you wouldn't want to be treated in a particular way, based on your knowledge and experience, why would you treat another that way?
Illinois is a designated agency State with certain required disclosures. One of those disclosures is the disclosure of all sources of compensation, the client receives the disclosure and can make the decision as to whether or not the use of an in house lender is in his best interest.
The question can be raised as to just what is in the client's best interest, lowest rate and fees, or a loan that will close. Perhaps an in house lender has demonstrated a proven track record of closing loans that is better than an outside lender. Only the client can make the decision as to what is in his best interests and should be given suffcient information to make that decision.
Here is what I present in class. The key to long term success in the real estate business is having satisfied clients who will refer the license and do repeat business. If the licensee does both and a client is not happy with the loan process or finds out later that a better rate was available, etc, he might accuse the licensee of self interest. Is this a risk the licensee wants to take on?
That's up to the licensee and our reccomendation is that the licrensee uses a formal written disclosure that explains that the client does not have to use the in house service and should feel free to shop for his own loan.
As of July 1, 2008 a new Illinois law does create an agency relationship for loan officers with certain obligations to the borrower. The law gives the borrower the right of private action under the law.
Hi, good blog, but Realtor is not interchangeable with agent, or real estate agent, FYI.
Realtor code of ethics: Standard of Practice 6-1
REALTORS® shall not recommend or suggest to a client or a customer the use of services of another organization or business entity in which they have a direct interest without disclosing such interest at the time of the recommendation or suggestion.So that agent, most likely not a Realtor, blew that one if he was, but this should be a standard of care that every agent adheres to.
Also as far as fiduciary, "under Ca. law, all special relationships that involve a high degree of trust, fidelity, integrity, and confidnece, and the experties of special knowledge and discretion or power" constitutes a fiduciary relationship. (http://www.dre.ca.gov/pdf_docs/rebsum07.pdf) It means trustee/bene,lawyer/client, board of directors/corporation, real estate agent/principals-clients, including mortgage loan brokers that are licensed by the dept of real estate and the borrowers.
Do other states not have this law? If not, they're making a huge mistake for their citizens. Also, for consumers, make sure you choose a Realtor, and not just an agent.
FRED...... . yes, that transaction does smell. And in regards to Oregon, allowing 1 person to handle all transactions involved.... What are they on, crack? We both agree that this should not be the case, that you should be allowed to deal on all levels of the real estate transaction and secure the fact that the client will always get the best deal and the best interest in hand. It just doesn't make sense and opens up a can of worms for wrong doing.
CARL..... . I told the real estate agent to look into the signing of the mortgage application by this realtor/loan officer. And when filing her complaints, to make sure that this is in the complaint. Yes, it smells very fishy.
And yes, very interesting that the buyer feels that her agent deserves the extra money. Which makes you think more so that fraud is definitely involved. You would think that if she really wanted the house, that she would be open to some other advice or scenarios... very scary.
CHARLES...... . okay? a realtor that is also a loan officer or a loan officer that is also a realtor? Isn't that like potatoe or patato? Seriously, you talked about a policeman by day and a fireman by night. Do you see policeman putting out fires or a firefighter going to a burglary call? Let's be real here... that is your opinion and maybe you did act on your clients best interest. Overall, you would be a small number.
I will say this... I do have a problem with a realtor that is also a loan officer, handling both sides of the transaction. I also have a problem with an agent who is both the sellers agent and the buyers agent on the same transaction. Answer this.,.... where does your professionalism side with first? The seller or the buyer? How can you honestly negotiate for the buyer when you have the seller. You win either way. Are you more afraid in losing the deal if you have the buyer underbid? Do you over price the house and not have the buyer negotiate? Seriously, just to many holes in this scenario. And most people would and have taken advantage of it.
In regards to being a clerk but also a soldier? How can you compare all of this. You can be an accountant and a soldier. But when called to duty to defend your country, you aren't going to run across a battlefield with your calculator. Just my .02. Thank you for your input, but I disagree with most of it... look at my example. That has happened a lot in the last 2 years.
RUTHMAN real estate...... . yes, the company that offers one-stop shopping wants control. Which is also the same as keeping the profit in-house. It would be different if the in-house lender would give a better rate or discount. Or the real estate company, having both transactions, would give a break to the seller or give money to the buyer. You don't see any of this... yes, yes, the buyer will sign a form, but the realtor will usually make it sound like it's in the consumers best interest. And many realtors don't get anything for this. But if they go outside this box, they will get pulled into the managers office. Why? because their broker or boss wants it in-house... more money to them. And they will pass bonuses onto the manager, hence why the manager will bear down on their agents, going after them if they don't keep things in-house. This needs to be exploited more often. You wonder who has whose back and whose interest at hand.
RUSSELL...... . first things first.... thank you very much for those polite compliments. And just a FYI.... we applied for out Texas license and should be licensed in TX in about 45 days.
In regards to your questions... I don't know much about the Austin market. Meaning what the average prices are... or what areas that you go after.... but read this post and all of the comments in this post. http://activerain.com/blogsview/701392/FHA-loans-vs-Conventional I list a few reasons to why you might not have seen so many FHA loans. Some lenders just weren't approved FHA to begin with. And another reason, I am not sure what your average home price, but before 2008, the loan limits where lower for FHA. They are now $271,000 in Austin... but again, read the comments in my post. There is a loan officer from Texas, who tried to tell me that my rate was to high in my comparison. but this person forgot one major ingredient when comparing.... and that was the penalties imposed by Fannie Mae, when it came to LTV and credit scores, which means his rate would have been higher. And if you read the other comments by other loan officers, they all make a point that I was correct in this scenario. Hence another issue that we have on hand. Which is another reason why you might not have seen as many FHA loans. Many loan officers just don't know the difference and think conventional is better. But in many cases, conventional loans can be easier for the loan officer... hence another reason why they don't do them as much, unless they have to. All of this is very sad and just one reason out of many, why we are in the mess that we are. The consumer not getting the best program... I didn't say best rate, but the best program out there on the street. In many cases, the consumer would get the best program that the lender has available, but not what can be offered when it comes to mortgages. I hope this helps some. Just my .02, but it can be backed up by facts, not opinions.. and again, thanks for those kind words.
wow this has created a lot of conversation - nice job - to me this seems like a mess on most sides of the transaction -
Jeff,
If the Realtor is doing their job and encouraging their buyer to "shop for their mortgage" - not just taking their buyer to whom they wish to close the transaction with...AND the mortgage company is required by RESPA to disclose any dual relationship that exists...what is the harm? Our company is all about disclosure and protecting both the consumer and the investor (bank). You CAN do both if you educate your borrower/buyer. The problem with some mortgage professionals is they don't educate their borrower and give them the loan that they think is best for the borrower without asking proper questions and finding out what the borrower's needs truly are! - JoAnn Srein
I see no issue with a Realtor also acting in the role of the Loan Officer as long as the agent/LO fully discloses the relationships... Also, for the buyer, there are great advantages to this scenario, namely that there is a single point of contact for the transaction. A very good thing that make the buyer much more comfortable. Also, I see no reason why a Realtor can not be up to speed to with loan products. We have several real estate agents in our firm that are also fully qualified "licensed" loan officers (RI now requires licensing for LOs) and these agents are the most successful in bringing buyers to the closing table. Why, because they handle all aspects of the transaction for their buyers, and know what is needed.
Also, I see no conflict of interest that cannot be worked around much easier than dual agency issues. In the instance of a buyer agent working also as a loan officer, there is fiduciary responsibility to the buyer, which would mean getting the best loan for them, just as much as it means representing their interest in the negotiations on price, etc. Disclosure can avert legal issues, and this is unlike the comparison to dual agency since the agent is not claiming to represent both opposing parties to the transaction, but rather two parties on the same side of the transaction... very different.
Hope that is clear enough on my thoughts...
Good post Jeff...
These are interesting and valid questions. Unfortunately, with the market in turmoil right now, you have the people who will do anything to make a sale. Not only do we need to keep up with current market trends in our area, educate ourselves to keep up with changes, we also have to make sure we are not getting our customers or ourselves into any legal issues. I've turned down a few deals where I could have made mucho dinero just because I smelled a rat. In most instances, I was right!
Great blog, Jeff!
We all have a responsibility to do what is right. It is time for accountability and EVERYONE should be held accountable. FBI continues to investigate and prosecute with over "1,400 individual real estate lenders, brokers and appraisers were now under investigation in addition to two dozen corporations."
some higher form of written required fiduciary responsibility would instill a great amount of consumer confidence in the borrowing public
Jeff,
Don't know how I missed this post...but those that don't get it, don't get it!!! Thanks, Fran
I've spoken to a number of Mortgage brokers and Loand officers. They do have a fiduciary duty to their client, unfortunately the borrower isn't their client, their client is the lender. Because of this convoluted relationship the lenders feel no guilt at all for the problems that the buyers will go through or for the financial mess that they have created.
Gary
I need help ANYONE???? I do not know much about the laws of buying and selling houses or the resonsibility of the loan officers mortgage brokers etc. SO IF ANYONE OUT THERE CAN PROVIDE SOME ASSISTANCE, It would greatly be APPRECIATED! In a Nut shell, The Lender I was working with first was able to get me approved for a home loan for 250,000 I decided for personal reasons to back out of that contract at closing. Well to continue this story I found another home within a couple months in a different area and negotiated a contract for $130,000 it was an EXTREMELY excellent deal right around $30, a square foot for this home. Anyways this same Lender started giving me the run around saying she needed the inspection reports on the home, I paid for had them completed and I provided copies of the report, Then she wanted the pool and pool equipment inspected, Yes I paid for it had it done and provided the copy to her. She then proceeded with request after request for information after information for one reason or another often times stating I still have not received this document or that document when I knew I had personally delivered them to her or her office. This continued dragging the loan process out over a few months. Then said I cannot get you approved for the Loan. Weird??? Thats what I thought..... Well after all this time thinking somewhere I had made a mistake, my credit my income I didn't know she could never say why....I contacted another Lender who Then requested a copy of my credit report and found sooooo many mortgage loan companies had requested my credit report that it appeared I was trying to obtain multiple mortgages...Ultimately lowering my credit score, causing my credit to be in shambles......Well Guess who is Living in the House That I was trying to Buy???? Yes this Loan officer and her family.......She bought the house.........Soon as my contract was expired. She had already submitted a back up offer prior to my Loan not being approved. Is there a legal way she can be held responsible? I believe she obviously had a moral right not to do this.....Is there anything I can do about this??? I still have the contract and all the emails etc.