Trust But Verify Is Business 101
Mortgage brokers who don’t protect their fees stand a good chance of losing them
By Rob Diodato
Rob Diodato is the president of York Commercial Finance,
a commercial mortgage advisory company located in Dallas.
Diodato arranges financing for commercial real estate
transactions nationwide for all property types and is an
expert in U.S. Small Business Administration 504 and 7(a)
loans. Diodato has more than 26 years of experience in the
commercial and residential mortgage industries. Reach him
at (214) 561-8671 or email@example.com.
A lender may claim they are strictly wholesale and
that they never deal directly with a client. That claim
could have a loophole, however, if the lender also has
internal loan officers who operate outside that wholesale relationship and will deal directly with a client
without notifying the originating broker of any financing requests. Now, if you have a fee agreement with
a non-circumvention clause for any future financing,
you are protected — not by the lender, but because of
the fee agreement signed by your client.
What also can be troublesome are some multichannel
lenders (wholesale/retail/correspondent) who offer their
products through these various channels with varying
rates and fees. By definition, a wholesale transaction
should offer a lower rate and/or points. That is not
always so, however.
In some cases, a multichannel lender may offer the
broker one set of loan terms on a deal, yet provide
slightly different — and better — terms for the same
deal to a client who works directly with the lender.
That means a commercial mortgage broker working
with such a lender could actually lose a deal to the
same lender they submitted the transaction to for review. The lender may not even be aware that the client made an application through their retail channel
independent of the broker submitting that same loan
application to the wholesale side.
n n n
It is prudent to have a conversation with your lenders
— as well as any you hope to partner with in the future
— to discuss what their policies are with respect to
protecting your place in any transaction you submit,
so that you avoid any surprises. Inquire whether your
fees will be included at settlement, whether you can
correspond directly with the lender’s attorney prior to
closing and how your fees will be remitted.
That approach gives you the opportunity to gravitate toward lenders that respect your role as the loan
originator and will not only protect your fees at closing, but will remit those fees immediately upon settlement. Lenders are in a precarious position should
a client refuse or dispute a fee because it is not their
responsibility to intercede in that arrangement. So,
be sure to consult with an attorney and spend some
time and money on structuring a solid fee agreement.
As the referee of a boxing match would say, “Protect
yourself at all times.” n
As a commercial mortgage broker, one of the most important responsibilities you have is to seek out lenders to partner with that will afford your clients the best products, terms and service. This a time-consuming process
and one where it’s prudent to ask the right questions
of your lender — not only about their products, pricing
and fees, but also to ensure your role as an originator is
Many nonbank lenders advertise that they protect
brokers. What that means can differ by lender, however.
Essentially, what it means is that your origination fees
will be protected at closing. But are you truly protected?
The answer is a resounding “no.” There are many
scenarios where the originating broker may lose
their commission because they are not truly protected.
Understanding what can go wrong upfront and taking
corrective measures right away to prevent a bad outcome is key to ensuring you get compensated for
Many lenders employ multiple commercial loan officers.
This can create an issue with protecting your claim to the
loan-file work, absent solid documentation.
If you submit a commercial mortgage application
for a client to one of the lender’s loan officers, and the
same client — on their own or through another broker
— submits an application for the same transaction to
this lender, but to another loan officer, then the lender
will usually request that you provide an exclusive-broker agreement.
That documentation is required for the lender to
recognize you as the broker of record and to protect
your fee. If you do not have an exclusive-broker agreement, you are not protected.
In addition, many lenders who claim to protect brokers
also require brokers to submit an executed fee agreement with the initial loan-submission package. If you are
a commercial mortgage broker who does not have such
a fee agreement signed by your client — prior to divulging who the intended lender is for their transaction, or
prior to submitting detailed transaction information to a
lender — then you are doing yourself a disservice.
If you are remitting client information to a lender
without an executed fee agreement in place (inclusive
of a non-circumvention clause), beware. You run the
risk of the lender circumventing you and going directly to the client to secure the deal, essentially using you
as a lead source.
Very few lenders offer a strictly wholesale platform
and, even in those cases, brokers can find themselves
exposed. Many lenders, including nonbank lenders,
also offer their programs via their retail channels.
They are, in essence, competing for your borrower.
by Rob Diodato
View these articles and more at
“Weave Knowledge Into New Business,”
“An Untapped Commercial Gold Mine,”
“Leverage Can Amplify Return on Investment,”
“Ask the Right Questions Upfront,”