Realizing another deadline was fast approaching for my 'Money Talks' blog of the month...I sat anxiously stewing over the past 30 days of 'what ifs' and latest loan happenings. Do I write about the client who contacted us for a refi swearing the property was valued at twice the going appraised value?...Nope...happens every day. What about the one we invested over 60 days in refinancing only to find out the borrower was hedging our loan and terms against their existing bank to get him better terms from the existing lender?...maybe. Or perhaps the one with the email that floated over to my spam folder but I kept thinking it was legit until the area code pinged to South Africa? I could write a book...Wait..I know...let's write something about integrity.
It's a word few folks recall or use today. Integrity...the very word conjures up men and women who fought to build our country, our businesses and the very backbone of modern day America. But where has it gone?
Sadly, we often see a lack of it in the lending industry as evidenced especially since the fall of the American economy of 2008. Since I speak with lenders and clients across the country on a daily basis, I get a sense rather quickly of where we're headed for the weeks and months ahead. Oftentimes it entails discussions of various indices we use to cast rates and terms while other times, it involves the most relevant new stories and how it will affect the global economy. More importantly though, it involves each of us doing the right thing...that's the very definition of the word integrity, isn't it?
Here's one for the books...a client contacted us in February to refinance a property for $7.4mm on an $12mm property. The client sent over the initial information and was in a hurry to refinance the property as the existing lender. After careful review, the client was preapproved for financing and was sent a pre-approval letter from the lender. Upon receipt the client decided they wanted additional things that they had not stated in the initial review and did not accept the offer...Okay, it happens. We continued to find a loan for them based on the new set of criteria and once again had them pre-approved with another investor after another month of time invested. Yet again, they changed their criteria refusing to accept the terms and even changing their tune about doing the transaction at all. I had a hunch something was up and did a bit of research. Sure enough, this package had been approved at several lenders. Something I know is that when a transaction is seen multiple times in the market, it makes underwriters nervous. They consider the borrower a 'shopper' and no longer take them seriously. It turned out this borrower had been submitting this loan and collecting LOI's since October 2011...that's 8 months! He could have closed 4 times over already.
When I called him after turning down our second LOI and asked him about the supposed lender deadline, he responded that he was not concerned at all about it since the lender would never foreclose on someone with an LOI in hand. He had used all the LOI's as insurance policies against foreclosure.
At this point we had over two months invested and the loan will never close. Oh and the best part was when he offered to send us another loan to 'work on'...thanks but no thanks.
I call this the 'DiTech Mentality'...we've all seen the commercials for the residential loan company who compares rates across the board just to beat out the other guy's terms. It's where people are virtually brainwashed into believing they can shop for their loan like the latest pair of designer jeans. Commercial loans are the polar opposite of residential loans. It takes commercial mortgage professionals many years to become experts at their craft. Contrary to popular belief, the loan industry is not a one size fits all type of business. It involves networking with the right lenders and knowing the entire available product on the market plus being knowledgeable of each property type with its' nuances for lending.
Borrowers need to understand that we invest a tremendous amount of time and energy into finding the right products to close the loans they are looking for. When we invest 30-60 days into that process and it's not because we need the practice. It has to be a win-win. That's where integrity comes into play. Be honest...if you are not serious about buying a property and are just looking to buy in the future...by all means shop 'til you drop' but don't ask us to invest our time with no surety that the loan will ever close.. I've actually had people who had a non-refundable deposit on a given property go through the entire process only to find out it was an exercise in futility because they had no intention of ever closing to begin with.
About 6 years ago, we had a client who worked with us for almost 3 months. First he had to get his deposit together...then he couldn't come to terms with the present owners, then he asked for repairs to be made on the existing structure. Fine...we understand all of that. But you'll never guess what he came up with on the day of closing. All parties were present to close the transaction and were meeting at the title company. The realtors, title agent, buyer and seller were all convened right before the holidays. The lender was on board with all of the loan documents available. We receive the call that the borrower had arrived and the title company would send over the completed and signed loan documents as soon as they were executed. About 20 minutes later, I received a fax. 'The borrower has left the building.' What?? Is everything okay? They couldn't be done that fast.
As it turns out the borrower decided he was no longer interested in purchasing the property and just walked out. He was not calling anyone back. A few days later I found out that he went out the very next day and purchased a new luxury home on a golf course for cash. Would have been great had he let us know that was really his plan all along. And people wonder why we charge an upfront fee.
Commercial mortgage professionals oftentimes charge an upfront fee as an insurance policy in cases just like the ones above. Imagine if you went to work for 2 months, produced for your company and they just decided not to pay you? In my experience, serious borrowers with real transactions do not hesitate to pay something to get something. The ones who aren't, don't.
So circling back to that 'integrity' word again...The meaning is a bit deeper now, hopefully. Just be honest with your intentions and let the professionals do the work to close your transaction.