Paul
F. Alphen, Esquire
Our office does
not perform a ton of residential loan closings these days, but we recently
received an email related to an upcoming closing that was disconcerting; but
perhaps I am too conservative. It was an email from a company that provides
brokers with an advance on the commission the brokers may earn as a result of a
real estate closing. The email asked us to confirm the following (the names
have been changed to protect the innocent):
1)
Has earnest money been deposited for 123 Main Street? Yes or No
2)
Is this sale a short sale? Yes or No. If Yes, does it have lender approval? Yes
or No
3)
Do you show the property with a tentatively scheduled closing date of November
21, 2016?
4)
Is John Smith shown on the file as earning a commission?
Once
this commission advance has been funded, you will receive a CDA signed by Jack
Doe, Broker of Real Estate Broker Co, with instructions for disbursement of
funds to Advance Commission Company upon the successful closing of this sale.
I love brokers
and I don’t want to become a hindrance to their livelihoods. Perhaps the
commission advance business has all the checks and balances in the world. But I
have some questions:
1. I cannot
always answer the above questions with accuracy. The name of the broker’s
agency is often stated in the P&S, not the specific broker. I don’t know
the relationship that the broker has with his/her agency and if the broker owes
the agency for past due agency expenses. If I am not the escrow agent I cannot
accurately represent that the deposit money has been “deposited”; I’ve been to
more than one closing when I learned that the full deposit had not been paid.
2. We are
already up to our necks in performing uncompensated services (everything from
ordering insurance binders to contacting moving companies). We don’t need to
add another.
3. A commission
is not earned until and unless the closing occurs. I do not want to be part of
a process that could result in a commission being advanced in a transaction
that ultimately falls through. I expect that much finger pointing will follow;
perhaps litigation. Perhaps there could be problems having the deposit released
to the proper party if one of the brokers already spent the commission.
4. If a dispute
arises, I do not want to become a witness, or an alleged co-conspirator to
claims that (a) I should have advised the commission advance company that there
were outstanding contingencies or other concerns with the pending transaction or
(b) I breached a duty to a buyer or seller by participating in the commission
advance because the advance interfered or delayed the release of the deposit
when the transaction fell through.
Perhaps these
concerns are just a reflection of my age. I also don’t like ride sharing apps,
vacation rental apps, internet fantasy sports gaming, and electronic signatures
on P&S agreements.
Paul
Alphen is an Emeritus member of the REBA Board of Directors and a member of the
Association’s Strategic Planning Committee.
Paul can be contacted by email at palphen@alphensantos.com.
