Seen in a new listing’s agent remarks:
The (Relocation Company’s) Addendum to contract of sale and Inspection Acknowledgement are an integral part of said contract. Primacy prefers the same closing agent represent both the Seller and Buyer (Title company’s name removed)and ask that thew [sic] Buyer’s agent does not contact or open title with another title company or closing attorney
I wonder if the buyers know that the relocation company (the seller) is requesting that the buyer not have their own representation at closing. The Charlottesville market may be different than others in this regard, but Closings are done separately, with Buyers having their own representation (either attorney or title company) and the Sellers having their own. Many attorneys offices will not represent both sides in a transaction because of the inherent conflict of interest.
Coincidentally, the following question and answer was printed in last month’s Commonwealth Magazine, the magazine for Virginia Realtors.
Referral madness
Q. A firm has received two referrals with a twist. In one case, the referral source promises to refer a buyer and pay a referral fee on the condition that the agent not refer the buyer to another mortgage broker. The agreement states that if the buyer agent makes any attempt to arrange alternate financing or refers the buyers to another lender, such action would be considered a breach of the referral agreement entitling the referral source to damages for (ostensibly) tortuous interference with a contract. The source refuses to give the buyer a good-faith estimate of closing costs until a contract is obtained on a house, and when the buyer finally gets the estimate, the rate, origination fee, underwriting fee and processing fee are very high, and much worse than the buyer could qualify for from other lenders. In the other case, the referral source agrees to pay a referral fee only if the buyer uses an unfamiliar out-of-state lender with which the referral source has an affiliated business arrangement. Use of any other lender would terminate the agent’s right to receive a referral fee. What should the buyer agent do?
A. In his novel The Young Immigrants, Ring Lardner describes an exchange between a worried son and his exasperated father: Are we lost daddy I arsked [sic] tenderly. Shut up he explained. That last might be my favorite four words of dialogue ever written. And it just might be the perfect explanation to give these referral sources. How should the buyer agent deal with these demands? Well, in one sense, the agent could simply refuse the representations if they come with such unseemly conditions. But what if it becomes clear just how burdensome the loan conditions are only after the representations are accepted? What if, in the second instance, the buyer switches lenders on his own? In both cases, the referral sources need an explanation of the law. First, the Truth in Lending statement must be given the borrower before any loan
agreement becomes binding, and in the second instance, the requirement that the buyer use a certain lender is most probably a violation of RESPA. I doubt very much if either referral source would be willing to defend his refusal to pay a referral fee by pleading his own improper activity. On the other hand, can the buyer agent successfully press a claim based on an agreement predicated on illegal actions? True, the buyer agent might well not know whether the agreements the referral source has with the buyers are illegal, but it’s at least fair to say the whole thing smells very bad. I appreciate the reluctance to part company with a fertile referral source, but some busi- ness just comes at too high a price. Sacrificing our client’s interest as a condition of obtaining the representation seems too high a price to pay. Get lost you explain.
To see a breakdown of how my commission is broken down in referral situations, click here. Frequently, working with referral companies is just not worth the effort and expense.
Update 08/24/2007: Through the power of Google, I am currently #1 for RESPA “relocation company” lender.
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Well, you’re on a tear this morning, aren’t you?
But you’re right, relo fees are ridiculous. And they keep coming. We haven’t seen a lot of the requirements that they use the same attorney until recently, but it’s showing up more and more – particularly with one of the largest relocation companies … and truthfully, why is that a good idea? I’ve asked that very question in a recent meeting, for an answer specifically as to how that requirement is not a violation of RESPA. Everyone appears to be stumped – to me, the answer is obvious.
Thanks for providing this kind of transparency, I need to link this … you’ve done a good job of breaking it down.
We stopped working for Relo companies for many of the same reasons, except in the rarest of circumstances. Not allowing the purchaser to choose their own closing agent is a MAJOR red flag, whether or not it is a specific RESPA violation. Bottom line– Relo companies suck.
ed note: The following is posted by Jim Duncan with Frazier’s permission.
I enjoyed reading your article about referrals and their “attachments”.
Steering a client to one particular attorney(closing agent) is known as
“running and capping”, and has always been illegal in the past. Of course,
given that many referrals these days come with some type of hidden
compensation to the “referring” agent, be it the lender or realtor, who knows how RESPA would look at it. Big builders have been getting away with steering buyers to the builders own mortgage company with packages worth $10,000 to $30,000(according to the builder). Often the loan the buyer gets is significantly higher in rate and can include some fairly usurus fees.
A book could be written(and probably is being done now) on all the
irregularities in the industry. What we need is a clear and steady set of guidelines from the government and the GSEs(Fannie and Freddie). Mortgage guidelines change so frequently, no mortgage banker could possibly have full knowledge of all products. Fannie and Freddie need to set guidelines somewhere between restrictive and give the farm away. Then, they need to stay there. The government needs to set clear rules for lenders, realtors, and builders and then enforce these laws.
Sorry for the long rambling, but all this has been bugging me for years,
and I don’t see much of it getting fixed.