One of the less visible but vitally important members of the
team for any real estate transaction is the escrow officer. This
person makes sure the buyer, seller and lender have all the
paperwork done in order to close the deal. Mountains of paperwork,
stress of deadlines, nervous people, a myriad of laws and
regulations are all handled with aplomb by a good officer. We are
blessed with a plethora of excellent escrow and title companies in
our area. (The bad ones generally get weeded out!)
One of the less visible but vitally important members of the team for any real estate transaction is the escrow officer. This person makes sure the buyer, seller and lender have all the paperwork done in order to close the deal. Mountains of paperwork, stress of deadlines, nervous people, a myriad of laws and regulations are all handled with aplomb by a good officer. We are blessed with a plethora of excellent escrow and title companies in our area. (The bad ones generally get weeded out!)
Escrow and title companies also help real estate professionals with marketing. They provide us with information and labels and all sorts of good information, such as buying or selling guides we are able to pass on to our clients.
These companies additionally sponsor classes for our industry with topics ranging from how to do a 1031 exchange to required continuing education courses to how to market real estate services. Recently Jennifer Galindo from Fidelity in San Benito County organized an eye-opening seminar on the topic of predatory lending practices and the impact of that on real estate agents. I thought I’d share the information I gleaned from it with you.
First of all we need to understand that every Realtor has a fiduciary duty to his or her clients. So what does that mean in simple terms? Your agent is responsible to put you in the best financial position possible, no matter what. This implies a full disclosure of all material facts and a reliance on good faith.
Second, we need to understand what predatory lending is. Simply it is a pattern of conduct whereby fiduciary responsibility is put aside and the client is put into a loan (and home) financially unsustainable.
Generally speaking, predatory lending is done by corporations hiring uninformed, uneducated, non-licensed workers. The situation is a variation on a theme of something like this: A client is looking for a house and wants to get pre-qualified for a loan. The lender says they can afford a house, and that the initial down payment is $10,000 and the loan will be $2800 per month.
Sounds good to the client, who feels he or she can make that payment. They jump through some hoops, being told by their lender what to do and what to sign throughout. And finally the big day comes! The deal closes and they move into the home and live happily ever after.
Well, not exactly. You see, the loan person forgot to mention that the affordable loan payment of $2800 is only for the first three months, and then the payment goes to $5000 per month. Or that there is a HUGE pre-payment penalty so once they notice they can’t afford this loan there is no way out. They lose the house in no time at all.
What can they do? They can’t sue, because surely some of the documents they signed contained information which, unbeknownst to them, is untruthful. And even if this is not the case, suing in a court of law takes so long the house will be long gone anyway before the issue gets presented for legal interpretation.
Many people think, “Well, turn the unscrupulous agents in to the Department of Real Estate.” However the Department of Real Estate (DRE) is not set up to be a policing entity. It is merely a licensing agency. Though it will punish agents who are operating outside its legal licensing regulations, it has neither the time nor the resources to track down and investigate allegations of wrong-doing. In fact, the website of the DRE does not even have a complaint form. A victim of would have to write a letter (in English, mind you) and send it in. They would have to know the ins and outs of the system to use the DRE as a course of remedy.
So what does a victim of predatory lenders have to do to do to get satisfaction? They can contact the local District Attorney and lodge a complaint. If several parties name the same individual or corporation, action will be taken. Or they can hire a private investigator.
Investigators are licensed individuals, usually with a background in law enforcement. The investigator will be looking for a systemic violation of fiduciary responsibility. In addition, they look for a pattern of behaviors which indicate that fraud, either civil or legal.
First of all, they want to know what the client was told…or in many cases not told. (Remember the example above where the buyer did not realize the monthly payment was merely an introductory incentive for a short time, and that there was a huge pre-payment penalty which would not afford them the freedom to refinance out of the loan.) Then the investigators will want to see where the documents were signed. Were they signed outside of an escrow and title office? HUGE red flag indicating the buyers were signing things the agent didn’t want the escrow officer questioning or explaining to the buyer.
And lastly the investigator will want to know what plans were discussed for, say, three years down the road. If the future was not laid out for the buyer, it could mean that picture is bleak.
Whoa, doggies! How can you ensure you are not the victim of a predator? Have a relationship with a local Realtor who will keep your interest at heart. I personally think the loan and the purchase should be done by two separate entities…sort of a checks and balances system. Find a Realtor to be your trusted advisor.
And be kind to your Realtor!
