Commercial Real Estate Loan Tip #4

When applying for a commercial mortgage, only work with one commercial mortgage broker. We recommend interviewing several brokers at the outset of your project, but a borrower should only hire one broker to secure funding for your commercial project. Do not fall prey to the pleadings of a broker to let them simultaneously search for commercial financing on the side – no matter how appealing their promises sound.

At Spectracom, we do not work with borrowers who work with another commercial mortgage broker. The only exception to this policy is when another mortgage broker asks us to assist them with securing commercial financing. This happens when a broker is not able to find financing for a client or they are a residential broker. This actually represents a substantial percentage of our business. However, this circumstance must be disclosed at the outset of a transaction.

Other than our single exception, we withdraw from commercial financing projects when we discover that a client is using another broker. You might ask why? First of all, we just do not have time to work with uncommitted borrowers. We represent a large number of committed borrowers at any given time. Our time is best spent helping a committed borrower to be successful. When we represent uncommitted borrowers, our time is wasted with fruitless efforts and we neglect our serious, committed clients. We also find that uncommitted borrowers will ultimately not take action on important steps in the lending process until it is too late. When we observe this happening, we just simply terminate our brokerage relationship.

This is best illustrated by a recent transaction on which we worked. We represented a client that was trying to refinance a mobile home park. We explained our policy of client loyalty, but discovered that our client was not acting in good faith. After getting a commercial lender interested in the project and issuing a letter of intent, the lender called us one day to inform us that they received another loan application from our client through a different channel of the company and … represented by another broker.

Because of our relationships, our commercial lender simply refused the second application and assured us of their loyalty. Unfortunately, receiving a second loan application did not look good to the lender. They questioned how serious and committed the buyer was. In their mind, they also do not want to waste a lot of time, effort, and money in due diligence. As a brokerage, we had the same questions and concerns. Commercial lenders have pulled a term sheet or a letter of intent when they discover situations of dual brokerage. Fortunately, our lender gave us time to put this situation right.

You need to know that the commercial mortgage industry is a narrow niche with substantially fewer lenders than residential loans. When we submit a commercial loan application, we submit the application to the only lenders likely to fund the project. That usually represents a small population of lenders when you take into account all of the commercial underwriting criteria that must be considered. When a borrower uses two or more brokers, the chances that the brokers (and lenders) involved will discover the dual agency is extremely high.

In this case, the lender gave us the benefit of doubt and the time to determine the facts and circumstance of the situation. We called the borrower, who represented that the application was submitted by a former broker whom they had fired a few months prior. The borrower assured us that we were their only broker and committed to inform the other broker to cease all brokerage activities in their behalf. Coincidentally, the borrower had not disclosed to us that she had previously used the services of another commercial broker.

After deciding to continue representing our client, we proceeded with the due diligence process with the lender. Unfortunately, the client began to engage in stall tactics and did not keep their commitments. This was a major red flag. In fact, the client failed to sign an important document. We needed the signed document to proceed with the transaction. Because time is of the essence in commercial mortgage transactions, we immediately jumped on the phone to determine where we were. Our client promised to fax the signed document to us that evening. Unfortunately, we had to clearly communicate the consequences of failing to fax a signed document that evening. Guess what, no faxed document came that evening. We left a voice mail the next day, but failed to get a return call. At the end of the day, we simply notified the client that we were terminating the brokerage agreement.

We usually know what’s going on behind the scenes and our keen sense of instinct told us that the client had not terminated the other broker. Why you might ask? Experience tells us that the other broker will make unrealistic promises and countersell against us until they ultimately fail to deliver. By then, the situation is usually bleak.

In this case, the client suddenly appeared 10 days later … pleading with us to help them. They are now facing a balloon payment that may pass and trigger foreclosure proceedings. They now also do not qualify for the original mortgage that we had secured. What a tragedy! This did not have to happen. This was a waste of everyone’s time and money and a sad situation for the owner of a great income property. We don’t yet know how things will turn out, but we’ll hope for the best.

In conclusion, when borrowers engage in dual or multiple brokerage relationships, they jeopardize their transaction and limit the effectiveness of their commercial mortgage broker. Why do we require single agency? In a nutshell, “we would rather turn you down than let you down.” Our best advice is only hire ONE commercial mortgage broker.

If you want us to consider your commercial project, please submit an application. We now have a link at the top of the page on the right side of the page for submitting a commercial mortgage application. Best wishes to you and your families during this Thanksgiving holiday.