Real Estate and Ethics: Collision or Harmony?

The “Party is over” for local company
Elizabeth Rhodes of The Seattle Times reports on the rise and fall of Merit Financial in today’s Sunday paper. Ironically, it is not in the real estate section (it should be) but the business section— a full page article, above the fold.

I encourage everyone who is in business and those not already aware of the demise of Merit Financial to read the article in Sunday’s paper. I grabbed the bulldog edition and read through it taking away several points and add a couple personal suggestions:

  • It is critically important to know who you do business with.
  • It is of equal importance to understand (as much as possible) the financial foundation with those whom you entrust your clients. Will they be here today and gone tomorrow? There are several ways to get a general snapshot of this legally and unobtrusively. It has saved me more than once of going into business with others who have a poor track record or are saddled with debt. Debt and escrow trust accounts are a disaster waiting to happen.
  • Success is not necessarily defined by owning designer shoes, clothes or driving Hummers, Porches, Mercedes, BMW’s or living in a McMansion. I think we all have our experiences of knowing a multi-millionaire or two who drives a modest car, shops at Goodwill or is found handing out $100 Bills to surprised people in Chicago, as was the case last week.
  • Worry about your very last customer’s experience and service satisfaction, not the trappings of the paycheck. Income will only follow if you are passionate about providing great service at a great price, in that order.
  • If the focus is only on the paycheck, increasing that yield spread premium, or making a “deal,” your customers will see right through you, sooner or later. It shows.
  • Fundamental real estate knowledge coupled with the experience of having a great support structure around you will lead to satisfied customers and foster long-term business relationships.
  • Make it a point in 2007 to surround yourself with real estate professionals in your support structure that may know more about their expertise than yourself. It is not necessary to be an expert in every arm of real estate. There are great loan officers, excellent escrow and title staff that are eager to assist you with your questions. The more I hear “I’ve been in this business x amount of years and I’ve never heard of escrow doing such a thing or…..(insert your own verbage)…. the more we know it is a dead giveaway that posturing is taking place and what is meant is “I don’t know.” There is much to gain and everyone learns more collectively if there are less “I know it all” personalities. What is sorely needed and refreshing to hear is, “I have never run into this scenario, please help.”

Escrow closes the door on a closing

Every real estate practitioner has had the opportunity to work through an ethical dilemma in real estate. Recently, our escrow office experienced probably one of the more difficult ethical issues: coming across highly probable transaction fraud a business day prior to closing. We wrestled with the issue all weekend a short while ago. Any way you sliced it, the ramifications were not good. In our minds, the “what-if scenario flow charts” were in full swing. For example:

  • Don’t close the transaction and lives will be turned upside down, not to mention thousands of dollars of commissions lost, including our own earned income. Side note: escrow (the “presumably” neutral party) only gets paid if the deal closes, an issue that I personally would like to see changed and take up with Dept. of Financial Institutions or others in Olympia.
  • Obviously, another downside is that we will probably lose the business relationship forever, regardless of whether we are correct or not. Certainly, how this plays out will clearly show the true colors of the agents involved.
  • Close the transaction and the risk grows exponentially as time goes on. Escrow will be named in a claim regardless of all the disclosures and tight legal language escrow has.

Interestingly, with the broker and sales agents fully aware of why we elected to not close, they have elected to try another company to close the transaction. Hopefully, they can work through the problem and get it done in a legal and ethical manner. We wish them the best.

In the end, pushing the ethical limit or being a party to fraud is just not worth the risk, short-term and long-term.

8 thoughts on “Real Estate and Ethics: Collision or Harmony?

  1. Hi Tim,

    Sounds like you chose NOT to close the transaction. Question: Do you plan to file a report with the state regulators about the possible fraudulent transaction?

    In the Merit Mortgage story, Elizabeth Rhodes mentions that our state’s Department of Financial Institutions did not investigate Merit due to lack of any formal consumer complaints.

    On the Seattle PI RE Professionals blog, I have posted six questions for the former senior managers of Merit, who are all still in the mortgage business.

  2. Yes, our office pulled the plug on the transaction. Currently, the transaction was placed with a title company. Obviously pulling the plug at the 11th hour has raised eyebrows with the title company.

    One way to combat fraud and this is in no way a commentary or suggestive of the subject transaction, is for closing agents to never let loan/closing documents leave the possession of their office or office staff**:

    -do not give loan documents to the loan officer originating the loan.

    -do not give the loan or any closing documents to agents involved with the transaction.

    Note: it is somewhat common for loan officers or agents to wish to act as a delivery service of closing/loan documents and have their client sign in front of a Notary, but this is generally a practice to avoid.

    **Closing agents should have very close and established working relationships with Mobile Notaries if they are to be hired to sign out of area clients or for clients who do not make time to sign closing papers at the escrow office.

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  4. I was sold a piece of property that the person did not own. Luckily, I had title insurance. What was amazing to me is that noone wanted to prosecute this criminal. He had assumed the identity of a dead person in Canada and sold us a lot here in Florida.
    The only reason we caught him was he tried to sell us something else.
    I buy and sell homes and casas here in Florida where there is a lot of fraud, so I am happy that you took a stand for unethical behavior.

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