Now I understand it. When you say “contract”, you meant purchase agreement for cash, not land contract. What the attorney wants is a kickback on the profit you make on reselling the property. This may or may not be ethical on his part depending on whether he’s discounting the payoffs on his clients’ mortgages. Also, it’s possible that he’s advised his client about what he’s doing and it’s okay with them as long as they get the payoff they want.
It’s really not your problem to judge his ethics. The question is whether or not you can make enough to pay him the kind of referral fee he’s asking. 3-6% of sale price (3 sounds okay,6 is way too much) can be a lot of money, and if you sell on l/o or carry a second and you don’t get paid, what happens then? These are things that you have to work out with him.
Posted by Don Baker on April 30, 1999 at 13:21:55:
I’ve been dealing with an attorney on pre-foreclosures. I am a mortgage broker trying to flip houses. He has been referring houses to me that are going into foreclosure and wanting me to put a contract on the house that will be in his clients best interest (ie. A house with CMA of $112,000, my contract went from $85,900 to $97,900 to accommodate his clients needs). He is making his money from his clients and from the mortgage company. He wants me to pay him a referral fee of at least 3% for referring these houses to me, otherwise he won’t submit my contract to the mortgage company. He wants more than 3% if there is more spread. Is this legal? Is there a set fee for referrals to attorneys?
Let me get this straight. This attorney is taking money from both parties in a transaction. If I’m correct, most states have LAWS against attorneys doing this sort of thing. It’s not just an ethical matter. Protect yourself – call the state bar association and make sure that you can legally do this.
Don: I’m very confused by your description of what this attorney is asking you to do. I don’t know what CMA is, and don’t understand what “put a contract on a house” means in the context of a home in foreclosure. He wants 3% of what? What spread are you referring to? How are you supposed to make money in this deal? Generally speaking, it sounds like the attorney might have a conflict of interests, but without a better explanation of the arrangement, it’s hard to tell.
Don: I’m very confused by your description of what this attorney is asking you to do. I don’t know what CMA is, and don’t understand what “put a contract on a house” means in the context of a home in foreclosure. He wants 3% of what? What spread are you referring to? How are you supposed to make money in this deal? Generally speaking, it sounds like the attorney might have a conflict of interests, but without a better explanation of the arrangement, it’s hard to tell.
CMA is Comparitive Market Analysis, a way of determining market value of a house. What he is doing is trying to save the house from going into foreclosure and then acting as a listing broker and selling the house to the highest contract to buy the house he receives from investors. He then wants a referral fee (3%-6% of the selling price) from the investor when the investor in-turn sells the house. The spread that I refer to is the difference between what I buy the house for and what I can sell it for. My money in these deals is made form that difference. I either make the whole spread or I can carry a second lien to help the buyer get the house or I can pay up to 6% of the closing costs to help the buyer get into the house. The spread determines what options I have to help someone get into the house. He wants me to pay him a referral fee for him giving me the opportunity to bid on the house. If I don’t agree to pay him he doesn’t submit my offer to the mortgage company.
CMA is Comparitive Market Analysis, a way of determining market value of a house. What he is doing is trying to save the house from going into foreclosure and then acting as a listing broker and selling the house to the highest contract to buy the house he receives from investors. He then wants a referral fee (3%-6% of the selling price) from the investor when the investor in-turn sells the house. The spread that I refer to is the difference between what I buy the house for and what I can sell it for. My money in these deals is made form that difference. I either make the whole spread or I can carry a second lien to help the buyer get the house or I can pay up to 6% of the closing costs to help the buyer get into the house. The spread determines what options I have to help someone get into the house. He wants me to pay him a referral fee for him giving me the opportunity to bid on the house. If I don’t agree to pay him he doesn’t submit my offer to the mortgage company.
Now I understand it. When you say “contract”, you meant purchase agreement for cash, not land contract. What the attorney wants is a kickback on the profit you make on reselling the property. This may or may not be ethical on his part depending on whether he’s discounting the payoffs on his clients’ mortgages. Also, it’s possible that he’s advised his client about what he’s doing and it’s okay with them as long as they get the payoff they want.
It’s really not your problem to judge his ethics. The question is whether or not you can make enough to pay him the kind of referral fee he’s asking. 3-6% of sale price (3 sounds okay,6 is way too much) can be a lot of money, and if you sell on l/o or carry a second and you don’t get paid, what happens then? These are things that you have to work out with him.