Originate Report- November 2017

NOVEMBER 2017

THE OFFICIAL MAGAZINE OF GERACI

Inside November:

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2 Originate Report | November 2017

ANTHONY GERACI CEO/Editor

RUBY KEYS Marketing/Editorial Director

JOHN PELACHE Account Executive

ALICIA CARTER Marketing Coordinator

PAM HUBER Graphic Artist

CONTRIBUTORS George Blackburne III • Gene Clark Ruby Keys • Kevin Kim Tim Malburg

FOUNDING UNDERWRITERS

Letter from the Editor For our fifth issue, I wanted to take your pulse. Are you getting value from this publication? Does it move you? Connect with you? Does it live up to the promise we made when we launched it?

MARK HANF President, Pacific Private Money

I want to hear from you. Please email me at a.geraci@geracillp.com and let me know your thoughts.

This issue brings our first lead article not written by the person who is being written about. John McMonigle has such an interesting and polarizing story we had our staff

DAVID OWEN CEO, A List Partners

write a detailed piece about him. You can catch up with his successes and failures

herein. Also, we bring more education to you regarding referral fees, mortgage funds and driving a marketing campaign.

ORIGINATE ONLINE www.originate.report

GERACI ONLINE www.geracilawfirm.com Interested in advertising in Originate Report? Please reach out to John Pelache at John@Originate.Report or (949) 379-2600 For Advertising Submissions, Article Submissions, and Inquiries contact Submissions@Originate.Report

ORIGINATE MAILING ADDRESS Geraci LLP 90 Discovery, Irvine, CA 92618 PHONE (949) 379-2600

Is there anything you want to read about? Let us know.

To Your Success,

Anthony

GERACI CONFERENCES www.geracicon.com

www.originate.report 3

contents NOVEMBER 2017

Profile

6

John McMonigle

His rise, fall, and rise again in real estate

By Originate Report Staff

Features

8 10

6

How Mentoring Can Propel Your Career It can benefit both mentor and mentee equally.

By Gene Clark, 5 Arch

Driving a Marketing Campaign Without Spam Flagging Building your team to build success.

By Ruby Keys, Geraci

14

18

Mortgage Funds

How pooled investor funds can contribute to your earnings and business growth

By Kevin Kim, Geraci

20

Are Referral Fees Legal on Commercial Loans?

It’s not always a simple answer.

By George Blackburne III, Blackburne & Sons Realty Capital Corporation

20

22

Getting a Mortgage After a Divorce

What both parties need to understand about how the decree will affect their future borrowing capacity.

By Tim Malburg, Capstone Mortgage Company

Vendor Risk Management

16

When the outsider becomes the insider threat

By Synoptek Staff

Special Sections

16

Industry Spotlight

24

Upcoming Events

26

Mark Hanf, President & CEO, Pacific Private Money, Inc.

Loan Home

4 Originate Report | November 2017

14

18

www.originate.report 5

PROFILE

John McMonigle and His Rise, Fall, and Rise Again in Real Estate

By Originate Report Staff

6 Originate Report | November 2017

J

left the agency, which he blamed on negative press and

affluent people to aspire to and I am forever committed

by his grit: falling down twice, including once where he

To make matters worse, his wife of 16 years, Nicole, filed

With this devastating turn of events, it’s hard to imagine

strength to get up again a third time to do it all over

ange County Register, “The divorce was devastating to

nigle worked for a variety of agencies, including Teles

ohn McMonigle is defining his legacy in a

variety of ways. While he has made several

friends and enemies, his legacy can be defined

went both bankrupt and got divorced, but having the again.

From Rags to Riches

John McMonigle is well-known throughout the California

competition.

for divorce. Around that time, McMonigle said to the Or-

me and the sense of loss immeasurable. I love my wife

very much and my children are the most important thing

ry, 17,000 square-foot mansion, private lake and horse

John and his McMonigle Group represented some of the highest listing prices in the nation. He sold $438 million in real estate in 2010 and expanded from 26 to 71 agents.

And yet in 2011, John McMonigle filed for bankruptcy and nearly lost the empire he built.

once asked $87 million for the property. It eventually sold

to me. This is 100 times harder to deal with than busi-

real estate market. Before he became a real estate mogul,

however, he arrived in California from Oklahoma with $73 in his pocket in 1989. Nearly 15 years later, he be-

came the top-grossing U.S. salesperson in the Coldwell

Banker chain. He did so well that he bought an inland parcel in Newport Coast and developed a plan for what he dubbed Villa del Lago, which would include a “three-sto-

stables,” according to the Orange County Register. He during the downturn for $18.5 million.

During this run, McMonigle lived in a 10,700 square foot home in exclusive Shady Canyon, a gated luxury enclave

in Irvine, Calif. But some people at the time didn’t credit McMonigle with personal success; rather, they named his

marriage to the daughter of former Nestle USA Chairman and CEO Joe Weller as the reason for his success.

During its heyday, John and his McMonigle Group repre-

sented some of the highest listing prices in the nation. He led Oprah Winfrey’s television crew on a tour of the Por-

tabello Estate in Corona del Mar for her show. He sought $75 million for the property. He even told the Orange

County Register that he sold $438 million in real estate

ness. My business associates and friends have been very supportive and I have learned a great deal about who my friends truly are.”

Reflecting back, he said, “It is easy to look back and say

yes we took on too much risk. I take full responsibility for the failures. There were several factors I never expect-

ed, such as construction lenders that went bankrupt and investors that simply did not answer cash calls, which I

cannot blame them for, due to the sharp drop in values and breach by lender. I put my money where my mouth

was. I believe that we live in the most beautiful part of this great country, and this will always be an enviable place for

a roll. Over a 5-year period, McMonigle sold an astound-

Properties and Berkshire Hathaway, where he slowly built up his realty empire again. Fast forward to 2017, and McMonigle is back with a new team and a reality TV show.

...to Riches?

John relaunched McMonigle Group with five agents and is showcasing once again some of California’s most expen-

sive properties, including a $30 million lot in Santa Monica and a $42 million dollar property in Laguna Beach.

Further, he is starring in a new show on Bravo called “Real Estate Wars,” which showcases his career achieve-

ment of $6.1 billion in real estate sales and his “unapolo-

getic life of luxury.” The show will pit him against another

real estate firm called Relegance Group who are pitted against each other to obtain the highest listings and sell the best properties in Southern California.

So How Did He Come Back?

While he declined to sit down to be interviewed by Orig-

inate Report, we believe his renaissance can be found in the ashes of his decline. When asked by the Orange County Register if both his critics and supporters believe he’d

be back, he stated, “I think people who get clobbered in this economy have to stay strong, grounded and focused,

and change with the environment. I get up every morning grateful to be alive and healthy. I understand that in this type of market there are equal parts catastrophe and op-

portunity. I have experienced the former; I anticipate the

On his Twitter account, he stated that motivation is the

ing $2 billion worth of properties. And yet the next year,

key to staying on top of his industry and shared an article

2011, John McMonigle filed for bankruptcy and nearly

that had 7 tips on how to stay motivated:

lost the empire he built.

1. Make a difference.

2. Treat Yourself.

...to Rags

3. There is no win too small.

On or about April 11, 2011, McMonigle stated to the

4. Recharge the batteries.

Orange County Register, “In a necessary move brought

5. Trick yourself.

about by an ongoing stalemate with uncooperative lend-

6. Get healthy.

ers in an unrelated real estate development business, John

7. Define your legacy.

McMonigle, founder and principal of Newport Beachbased luxury real estate firm, McMonigle Group Inc., has

filed for Chapter 7 bankruptcy protection.” Both Villa del being foreclosed on by his bankers. Many of the 71 agents

him ever coming back. Between 2011 and 2017, McMo-

latter. I am focused on working hard and doing my best.”

in 2010 and expanded from 26 to 71 agents. He was on

Lago and his luxurious new office in Fashion Island were

to serving our clients and investing in this Gold Coast.”

Photo of John McMonigle ©mcmoniglegroupcorp.com

This article was researched and reported by the Originate Report staff using sources that are believed to be true and correct.

www.originate.report 7

While you consider ways your mentee can help you in

FEATURE

the office, think about those social media tasks you may

find tedious. Millennials spend up to six hours per week on social media, according to a recent Nielsen report. Experienced loan professionals could learn lots about mar-

keting through Instagram, Twitter, and LinkedIn from the younger generation.

While you may instinctively think mentoring other loan originators will only create more competition in a highly competitive marketplace, there are actually a number of benefits for the mentor.

Yes, time is money for loan originators. You may be hes-

How Mentoring Can Propel Your Career

W

e have all seen the reports: The new gen-

Becoming a mentor can increase your network in a mean-

preneurs, heavily focused on work/life

of mentorship — also happen to be the key demographic

balance and the desire to make a difference in the world

through their work initiatives. This makes millennials —

and their follow-up demographic, the “founders” — ideal for real estate and finance careers, such as investing or loan origination.

As a seasoned loan originator, is it time for you to take on a younger professional and mentor them toward suc-

cess? While you may instinctively think mentoring other loan originators will only create more competition in a highly competitive marketplace, there are actually a num-

ber of benefits for the mentor. In addition, your career experience probably has also given you the knowledge to

mentor young real estate agents, investors, and others in the industry.

Broaden Your Network

Real estate is a people business, explains Shawn Miller,

CEO of 5 Arch, a private mortgage company for residen-

tial real estate investors. “Loan originators earn money based on how many deals they close. The larger your net-

work, the more loans you can place in your pipeline, and the more you will profit,” he says.

8 Originate Report | November 2017

hardly know. But mentoring does not have to take a lot of

time. It can be as simple as letting a young investor take you out to lunch and answering his or her questions.

Personal Enrichment

“Whatever time you spend with a young loan profession-

al will be appreciated,” says Miller. “And as cliché as it

By Gene Clark, 5 Arch eration is regarded as a group of entre-

itant to spend too much of yours helping someone you

ingful way. “Millenials — the demographic most in search

right now that is buying homes. Help your protégé suc-

ceed, and you gain instant credibility with their friends and associates,” advises Miller. “That can translate into a measurable increase in profits.”

sounds, helping others simply feels good. Chances are,

you will leave the meeting refreshed, invigorated, and inspired by their untarnished enthusiasm.”

If you are actively seeking to mentor someone, consider hosting a workshop at a local hotel or library. From the

pool of attendees, choose one or two promising young minds to take under your wing. You may find it worth-

Lighten Your Workload

Do you often think it would be nice to have someone assist you? A smart, tech-savvy junior associate can assist

with administrative tasks, such as scheduling appoint-

ments or placing ads. It is all part of your business, and it is important for a young professional to understand these basic — yet fundamental — aspects of the job.

while in several ways, as it helps to build your personal brand and generate fresh leads. The right mentee can also reduce the burden of some of your administrative tasks.

“Teaching an ambitious young person can pay off finan-

cially. But the real value of helping others and building your legacy is truly immeasurable,” concludes Miller.

ABOUT THE AUTHOR: Gene Clark serves as the President and Chief Legal Officer of 5 Arch, and is the CLO of its parent company, 5 Arches, LLC. Prior to this, he was the COO and General Counsel of Arch Bay Capital, and the General Counsel of 3 Arch Financial Services. He also co-founded the law firm of Miller & Clark, specializing in bankruptcy, real estate, and corporate matters. Mr. Clark started his career at an international law firm before taking an in-house counsel role at a publicly traded finance company. Mr. Clark earned both his J.D. and his B.A. in Communications from Brigham Young University. CONTACT: (866) 973-6278 | www.5arch.com

www.originate.report 9

FEATURE

Driving a Marketing Campaign Without Spam Flagging

By Ruby Keys, Geraci LLP

10 Originate Report | November 2017

E

mail marketing campaigns have been around since, well, email. Real estate brokers and lend-

ers who previously used snail mail marketing to drive leads suddenly found they could reach a

much wider audience, faster and cheaper than ordinary

Common Reasons Email is Flagged as Spam

mail correspondence. However, the two methods have one

Email service providers are constantly updating

instead of tossing it in the trash can.

several common issues that can send your message

thing in common: getting people to read your message

Whether you are creating your own email marketing or are running a paid campaign, you want the same results: People reading your message.

But how do you know how many of your emails are getting through and how many get flagged as spam before ever reaching their intended recipient?

Generating leads is a time-consuming and costly task.

The advent of email and the internet have made message

marketing easier, but a marketing campaign is still only

as good as the response it generates. Whether you are

creating your own email marketing or are running a paid campaign, you want the same results: People reading your message. But how do you know how many of your emails are getting through and how many get flagged as spam before ever reaching their intended recipient?

A recent study showed over 56 percent of worldwide email traffic was flagged as spam. In the U.S., the num-

bers are a little better. These numbers are on top of the amount of people who intentionally trash it before reading. Taking this into consideration, you would waste your

time and money if you did not try to improve your inbox placement.

their security rules that tag emails as spam. Here are to the spam box:

Blacklisting: This is when an email server rec-

ognizes the sending email server as an origination point for spam. Your email server is checked against

an internal list of serious spam offenders maintained by service providers. Once your email address or

server is blacklisted, it is tough to get it removed.

You may need to start over.

Sender Reputation: The reputation of the

sending server or IP address is an important factor in whether your email breaks through a spam filter.

Using a mail service that has a poor rating may re-

sult in legitimate marketing messages being tagged.

Research your email service to ensure they have a

solid reputation and don’t allow spammers on their system.

Domain Reputation: Email service providers

have begun to track domain names to determine which is more commonly used (or misused) for

spam delivery. Many times, an email account on a domain can be hacked and used to send out spam.

This abuse could put the domain at risk and affect its score.

Email Recipient Activity: If your email is

consistently getting rejected by the recipient mail

Testing your Message

Some email services do provide statistics about your cam-

paign, but typically they only track open clicks and link click-throughs and do not offer much information about

volume delivered. Because of this, it is prudent to test your email marketing pieces against a spam catcher be-

fore you send them off. There is a web-based program

that helps email marketers tighten up their pieces before launching the campaign.

The web site mail-tester.com allows users to test their emails and provides details about how your mes-

sages will appear to a spam filter. By sending a copy of your email to their email address, their spam bot

evaluates your message and offers a spam score, followed up with advice on improving your message.

severs, it could cause problems for your email list.

Spam filters now look at the activity of certain email lists to determine how the messages are treated. If a small number of emails are opened, or even more

are deleted before being opened, it returns a “low

quality� response to the mail server, which, in turn, could lead to an unfavorable spam score.

Email Content: The content of your email mes-

sage plays an integral part in how the spam filter views it. The subject header, images, links, or text content can all lead to an unfavorable score. While drafting a message, you should place just as much

emphasis on word and image choices as you would on performance.

CONTINUED PG 12

www.originate.report 11

Too many well-meaning emails are lost due to spam filters. Don’t be a statistic. Educate yourself and protect your campaign!

The feedback includes:

•H ow your message will appear to recipients in various text and HTML formats

•H ow Spam Assassin (an aggressive spam filter) reacts to your email message

•Y our sending email address and mail server’s authentication status

• Confirmation your email address and mail server are not blacklisted

• Confirmation of valid hyperlinks These items may seem insignificant to some users, but this

Writing and Designing a Spam-Proof Campaign

A great email marketing campaign begins with a great sub-

scriber list. Ensure the email addresses on your list consist of those who are expecting your email. Review your list for

membership and ensure that those who request removal are removed.

Also, consider using a third-party email platform that has a

solid reputation. Many drip email providers have taken the

necessary steps to make sure they are not blacklisted and have a solid history of providing effective email delivery.

feedback will, in all probability, save you money and re-

At the end of the email, provide a prominent link for re-

can be used to create more precise and targeted messages.

unsubscribe rather than report your message as spam.

sources down the road. This is valuable information that The spam filter analyzes words and phrases that flag an email as spam and confirms the authenticity and security of the sending email address and server. An email address

and mail server can get flagged for spam at any time, even without the owner’s knowledge. This tool allows you to confirm your server’s status before you launch your ad campaign. If you have technical issues, consult your service provider or IT administrator.

12 Originate Report | November 2017

cipients to unsubscribe. It is better to have a subscriber

And finally, write content and a subject line that is not filled with spam words. Terms like “free estimate” and “good

credit” are red flags. Remember, spam filters work on al-

gorithms that make calculations based on keywords. Red letters and large bolded text will also trigger a flag.

You are spending resources and money on your email marketing plan. Take a time to ensure your content is bullet-

proof — it doesn’t read as spam, your servers are clean, your email address is not blacklisted, and your subscriber

list is solid — to increase your deliverability statistics and drive more prospective clients.

ABOUT THE AUTHOR: Ruby Keys is the Marketing Director at Geraci LLP. As a graduate from Vanguard University with a degree in Communications and an

emphasis in Marketing and Public Relations, Ms. Keys joined Geraci to promote all aspects of the firm services in the media and coordinate educational resources for clients and trade associations. Ms. Keys focuses on the marketing, public relations, and communication details at Geraci Law Firm, plans all Geraci Media’s corporate conferences, and facilitates the dissemination of Originate Report.

CONTACT: (949) 379-2600 | ruby.keys@geracilawfirm.com | www.geracilawfirm.com

www.originate.report 13

H

ave you wondered what a mortgage fund could

FEATURE

do for you? I bet you’re wondering why you would even want one. Simply put, a mortgage

fund is a mutual fund that invests in mortgages, and it has many advantages over the traditional route of seeking investors for individual loans. Consider the benefits: (1) more profit for you as the mortgage broker and lender,

(2) more profit for your investors with less risk, and (3) more deals as you become a direct lender. With a mort-

gage fund or pool, you can scale up your loan production and grow your business.

Advantages For You

As a mortgage broker, you’re working for your points.

But what if you could earn a percentage of the assets under management of the mortgage fund? Our clients typi-

cally earn between 1 percent and 3 percent more on their mortgage fund. While that may not sound like much, you

could have an extra $1-3 million in your pocket if you managed $100 million.

If you want more control, more money and more deals, you should look into forming a mortgage fund.

You’ll wonder why you went so long without one.

Mortgage Funds How pooled investor funds can contribute to your earnings and business growth

By Kevin Kim, Geraci

Further, mortgage funds are less hassle for you. As a mortgage lender, you are constantly chasing investors,

convincing them to invest in each loan, and getting their buy-in. As the manager of a mortgage fund, you no longer

have to do that. You can set the general parameters of loans you will fund, and as long as you stay within those parameters, you can fund the loan.

In addition, you could fund loans faster as a result of the shortened investor sale cycle. When you have con-

trol over the fund and investors’ automatic permission to fund loans, you are in a position to say yes to every deal.

A mortgage fund protects you as well. Brokering loans

to investors is fraught with omissions and “the lender

didn’t tell me X” when investing in the loan. If the loan goes bad, the investor could look to you to make them

whole. In a mortgage fund, everything that could possibly go wrong is disclosed to the investor already. The SEC

14 Originate Report | November 2017

requires you to do so. But it isn’t a blind disclosure. You are required to disclose everything that may possibly go wrong in a mortgage fund to your investors.

Further, the SEC allows the fund to indemnify you ex-

cept in cases of fraud or willful neglect. Assuming there isn’t fraud or willful neglect, the fund’s assets will in-

demnify you from an investor lawsuit. This can have a

chilling effect on lawsuits from your investors, allowing

you to have freedom from stress if you’re doing things the right way.

Advantages for Your Investor

Given the advantages of running a mortgage fund, your investors want to be in one as well.

loan is paid off. Rather, the investor will be hunting for his or her next deal to continue earning interest.

Another benefit is investors are automatically diversified in a mortgage fund. A mortgage fund typically owns

several loans. If one loan stops performing — i.e., the

borrower stops making payments on the loan — the

other loans in a mortgage fund are still producing and the investors are earning a return on their investment.

If an investor owns the loan and the borrower stops making payments, the investor is not earning anything.

If the loan stops performing, the investor is now faced with myriad issues revolving around the default of the borrower: Should the investor foreclose? Work out a

Your investors’ money will be working for them 24

ABOUT

THE

loan modification? Sell the loan on a note platform at a discount and not worry about collecting? In a mortgage

fund, the manager of the fund — i.e., you — makes those decisions for the investor, leaving the investor as a true owner and trusting their reliable CEO to make the necessary decisions to generate passive income for them.

If you want more control, more money and more deals,

you should look into forming a mortgage fund. You’ll wonder why you went so long without one.

For a free consultation about mortgage funds, contact Kevin Kim at (949) 379-2600.

AUTHOR: Kevin Kim is an experienced corporate and

securities law attorney with Geraci Law Firm. Mr. Kim focuses his practice

hours a day, 365 days a year. In a mortgage fund, an

on real estate matters, focusing on private placements and other alternative

ed by the mortgage fund, which will own several loans

preparing complex private and public securities offerings for alternative

investor will earn their percentage of the yield generat-

of varying maturity dates. When the investor owns one loan, the investor is no longer earning money once the

investments for private lenders, real estate developers, and other real estate entrepreneurs. Mr. Kim’s securities and corporate practice also includes investment platforms for clients throughout the United States and abroad.

CONTACT: (949) 379-2600 | kevin.kim@geracilawfirm.com | www.geracilawfirm.com

Quit Guessing.

Start Knowing.

Be confident knowing that your IT systems are managed by the best, so you can focus on growing your business.

SYNOPTEK.COM 888-SYNOPTEK

www.originate.report 15

SPOTLIGHT

Industry Spotlight: Mark Hanf

President & CEO, Pacific Private Money, Inc.

16 Originate Report | November 2017

M

ark is president and CEO of San Francisco Bay Area-based Pacific Private

Money Inc., an alternative real estate

loan provider to consumers and investors in Cali-

fornia. Mark’s real estate career spans 35 years, in-

cluding 25 years in commercial development and management, and 10 years in private lending. He

founded Pacific Private Money in 2008, and has grown the company to over $100 million in annu-

al volume, 350 investor clients and is manager of

three mortgage funds. A recognized authority in the private lending space, he is an author and radio

personality, and frequent guest speaker at industry events.

Originate Report: How did you get into lending?

Mark Hanf: In 2007, I worked for a developer who

Mark Hanf

originated a few hard money loans as a side business

OR: What is the most important characteristic in a loan

living with multiple software solutions and the inef-

the market downturn, and in 2008 I decided to try my

MH: The ability to know when and how to say no. We

paigns, we recently started using Infusionsoft. So far,

to help cover his overhead. His company didn’t survive hand at originating privately-funded real estate loans.

OR: What excited you about the mortgage industry?

MH: At the time I started Pacific Private Money in 2008, I had 25 years’ experience in the real estate in-

dustry, mostly running the back office for a development company. My experience included raising equi-

ty, obtaining financing, creating offering packages and buying and selling property. Once I understood the private lending business model, I felt that my experience would give me an advantage in growing a successful lending company.

OR: What made you want to start Pacific Private Money?

MH: Quite frankly, I didn’t know what else to do that would leverage my specific real estate experience. I knew I no longer wanted to work for someone else.

It was 2008, and I didn’t have enough capital to buy

property, but it turned out that I knew a lot of real estate professionals who still had money and who liked to invest in notes. My introduction to the business

model in 2007 was serendipitous, and I just ran with it.

OR: What advice do you have for loan officers trying to close loans with you?

MH: Know your borrower. We’re all about under-

standing the story and the exit strategy. We get a lot of calls from brokers who are selling a deal they got from

another broker and it’s not uncommon when the story we hear is not the true story of the borrower.

originator/broker?

track our daily and weekly inquiries, and we say no to 9 out of 10 loan requests. To be this discerning, you

ficiencies that creates. For our email marketing camwe like it.

need to have a lot of deal flow, which is a function of

OR: What tools are essential to Pacific Private Money?

request, trying to make it something that it’s not. That’s

today. Google Street View, LoopNet, the MLS, and Zil-

marketing. Too many brokers try to “package” a loan a recipe for disaster. When we turn down a request, we try and be nice about it, and we explain why.

MH: There are many important tools at our disposal

low just to name a few. We recently signed on with a great online valuation service that we’re excited about.

OR: How is your company reacting to changes in the

OR: Have you had to learn any lessons the hard way?

MH: Private lending and alternative finance is start-

Every loan that falls into trouble provides a lesson on

marketplace?

ing to become crowded with the emergence of these many so-called Marketplace Lenders. In California,

we’ve seen a huge increase in competition for the fix

MH: Of course. Everyone I know in this business has.

improving our underwriting guidelines. So far, though, we’ve been blessed with no principal losses.

& flip borrower. As a result, we have been focusing on

OR: What is one fun fact that most people don’t know

purpose loans, as well as ground up construction. Also,

MH: My two daughters know that I am still a kid at

niches including owner-occupied and other consumer

we try and leverage our regional expertise. Rather than compete on price, we sell borrowers on our speed and reliability. We’re more nimble and holistic in our lending practices, which gives us an advantage over nationwide lenders.

OR: What CRM systems do you use to email your target market?

MH: CRM has been a frustrating part of this business.

We have had two costly failed CRM deployments, and

the reason was that we tried to create an end-to-end solution. Like many in our industry, we’re resigned to

about you?

heart. I make them laugh all the time with silly behavior and jokes.

OR: What is one piece of advice you have learned and carried with you throughout your life?

MH: My father taught me how to listen to people in order to gauge their integrity. He would often ask me

“How did he sound?” which meant how did my gut feel about this person’s personality. I’ve learned to become

a good listener, and believe I am an effective judge of character as a result.

CONTACT: 415-883-2150 | www.PacificPrivateMoney.com www.originate.report 17

FEATURE

Are Referral Fees Legal on Commercial Loans?

By George Blackburne III, Blackburne & Sons Realty Capital Corporation

I

So while it is NOT illegal to pay a banker a referral fee

on a commercial mortgage referral, the loan officer can still get in trouble because it is against the policy of most banks for their loan officers to receive referral fees.

However, if the banker asks for a referral fee, you should

gladly pay it. It’s perfectly legal, and there is nothing sweeter than a banker sending you one or two referrals every business day.

s it legal to pay referral fees for commercial

a house, condo, townhouse, duplex, triplex, or four-plex.

Yes! Even in states where a license is required to

are called loans on one-to-four family dwellings.

How large should the referral fee be?

Is it legal to pay a banker a referral fee for a com-

cial mortgage referral fee is 20% of your company’s

mortgage referrals?

broker commercial loans (California, Florida, Ne-

vada, Arizona, etc.), you can legally pay a referral fee

on a commercial mortgage loan, as long as the referring source does nothing more than call you with a name and phone number of a prospective borrower.

However, if the referral source — say, a commercial real

estate broker — starts to negotiate terms (rate, points, term, etc.), then he is working as a commercial mort-

gage broker. In those states requiring a license to broker

commercial loans, the referral source is now breaking the law. Therefore, don’t let your referral sources gather

In the parlance of the Federal government, such loans

mercial mortgage referral?

Never be the first to suggest a referral fee to a banker!

Most bankers consider referral fees — even on commer-

cial loans — to be kickbacks. A kickback is an illegal and immoral payment to a real estate broker to steer his trusting buyers to a particular lender. So, if you offer a referral fee to a banker, 90 percent of them will be horrified and probably cut you off.

It’s whatever you negotiate, but the standard commergross commission. A small, flat fee or 10 percent is also common.

ABOUT THE AUTHOR: George Blackburne III is an attorney licensed in California and

documents for you or issue loan quotes.

Most banks also forbid their loan officers from receiv-

Indiana. He is the

When is it illegal for a mortgage broker to pay a

banks have been sued for referring customers to mort-

& Sons Realty Capital

referral fee?

Under RESPA (Real Estate Settlement Procedures Act),

it is illegal to pay a referral fee (called a kickback) on a

residential loan. A residential loan is a mortgage loan on

18 Originate Report | November 2017

ing referral fees because of the potential liability. Many

owner of Blackburne Corporation, a $55

gage companies. For example, if the mortgage company

money commercial lender (est. 1980); C-Loans Inc.;

deposit, the borrowers may sue the bank for a negligent

george@blackburne.com | (574) 360-2486

is negligent, and the borrower loses a large purchase recommendation.

million private and CommercialMortgage.com. CONTACT:

You’re going places.

Don’t stop until that place is the top.

If you’re a loan originator looking to build your business and gain insight from the nation’s top mortgage brokers, bankers, lenders, and lawyers, Originate Report is for you. Distributed to 35,000 professionals in the private lending industry every month, this is where you come to see and be seen.

To discuss submitting original articles, or for general Originate Report questions, email us at submissions@originate.report.

behind you all the way. find us online at www.originate.report

www.originate.report 19

FEATURE

Getting a Mortgage After a Divorce

By Tim Malburg, Capstone Mortgage Company

H

ave you ever seen the cartoon where two surgeons are having the following conversation at a funeral?

Surgeon #1: “I thought you said the surgery was successful.”

Surgeon #2: “It was. He died in recovery.”

A similar cartoon could be written using divorce lawyers. Their charge was successful: The couple is no longer married, but they continue to be adversely affected by surprises related to the divorce. Namely, their separate ability to obtain a mortgage as individuals.

The financial terms of a divorce seem pretty straightforward. Party A is required to pay Party B a specific amount of money for a specific period of time. However, many lenders throw common sense out the window when reviewing the creditworthiness of an individual obligated to make alimony payments.

For example, let’s assume someone’s divorce decree requires him or her to pay $5,000/month in alimony. Conventional wisdom dictates that a lender would evaluate this person’s creditworthiness by deducting the alimony payment from their monthly income.

But, that would be an erroneous assumption. Many lenders do not consider alimony payments to be an income deduction; they consider the payments to

20 Originate Report | November 2017

be a monthly liability. The nuance of this classification will often cause a loan application to be denied.

Why? Because a payment liability of $1/month requires an income offset of almost $3/month. In our example, an alimony payment of $5,000/month requires an income offset of almost $15,000/month. If our loan applicant earned $16,000/month, then only $1,000/ month remains for future mortgage payments (i.e. $16,000 - $15,000 = $1,000). With “verifiable” income of only $1,000/month, the applicant would not satisfy the lender’s debt-to-income ratios. It sounds crazy, but this is a standard underwriting guideline for many lenders.

Lenders may also have stringent underwriting guidelines for recognizing the receipt of alimony income.

These guidelines include, but are not limited to: • The alimony must continue for at least three years after the purchase date, • The alimony must be stable and received in a timely manner • The alimony must be seasoned 12 months (i.e. it must commence 12 months prior to the loan’s application date).

If the borrower is unable to satisfy these requirements, then the lender will not recognize their alimony income.

The intent of a divorce is to bring closure to an irreconcilable marriage. However, closure is not achieved if surprises related to the divorce continue to surface.

The terms of a divorce decree may contribute to a big surprise: the denial of a mortgage application. Prior to finalizing a divorce, it is important that both parties understand how the decree will affect their future borrowing capacity. If the divorce has already been finalized, then it is important that divorced borrowers work with lenders that have common sense underwriting guidelines.

ABOUT THE AUTHOR:

Tim Malburg has 30 years of experience in financing residential properties.

During that time, he has originated over $1 billion of mortgage loans. In 2000, Mr. Malburg became President of Capstone Mortgage Company, a full service mortgage brokerage firm, specializing in prime paper. Mr. Malburg received his BS from North Carolina State University and his MBA from Cornell University.

CONTACT: (203) 834-6293 | TWM41@aol.com

You have knowledge. You have ideas.

Let us showcase your voice.

Currently we’re looking for articles showcasing: Business Development • Fintech/Newest Loan Programs • Automation in Today’s Evolving Society • Upcoming Trends & Changes • Marketing & Outreach Essential Tools & Technologies • New Legal Issues and Regulations.

Another idea? We’d love to hear that, too.

Write for us. Email submissions@Originate.Report for more information.

www.originate.report 21

FEATURE

Vendor Risk Management: When the Outsider Becomes the Insider Threat

By Synoptek Staff

C

ybersecurity should already be one of your

Companies of the past might approach these problems

running a small credit union or an interna-

ers. Although these methods may provide temporary

top priorities, regardless of whether you’re tional bank. The safety of your most precious

by imposing firewalls or by hiring white-hat hack-

peace of mind, they can’t stop what experts are calling

made by many financial institutions (FIs), and offered some solutions as to what you can do to keep your

FI safe, even from those whom you may have given the “keys to the kingdom.”

What’s the Risk?

“It’s not uncommon for FIs to outsource pretty much

every function,” Avery said. “Things you think FIs are managing themselves are often managed by a third par-

ty — everything from development to deployment, to ATMs and call centers to IT.”

an even greater risk: third-party vendors.

Although third-party vendors — such as management

Even worse, it’s slated to become even costlier as areas

To investigate what many deem “the insider threat,”

they carry with them an immense risk, even under the

insurance, and IoT security.

Manager, John Avery. John identified key oversights

information — your clients’ information — is one of the most expensive building blocks of any company.

of growth in cybersecurity expand to cyber risk, cyber

22 Originate Report | November 2017

we spoke to Synoptek’s Information Security Program

and HR companies — are not inherently dangerous, noses of the companies who contracted them. A 2016

Bomgar study reported that, on average, 89 vendors

is because if there’s a breach and you can validate you performed your due diligence, there may be some cost

benefits to it,” he said. “On the other hand, if you’re asked, ‘why did you choose this vendor?’ and you say, ‘because it was the cheapest,’ you’ll be in hot water, be-

cause you didn’t do your due diligence by validating that they had proper security controls in place.”

“We’re talking about providing access to non-employees … to critical data.

How do we control what they do with that access? What’s the vendor’s risk mitigation strategy? FIs aren’t just on the hook to shore up their own environment, but they share responsibility for what these third parties are bringing to the table.”

Avery suggested some further tips for practicing due

diligence. “[Of third-party vendors] we ask, what are

their policies? What sorts of vulnerability scans are they leveraging within their own environment, and how are

they using those scans? What about penetration tests?

What do they do with the information they find? How are they managing their own security?”

What can you do to Mitigate Risk?

“FIs are a top target for cyber-attacks, they need to un-

derstand that they need a dedicated team around the access a company’s network every week; furthermore,

every situation is different, FIs are universally high-risk.

vendors has increased by almost 25% since 2015. Recent

those in most danger of attack. Avery identified Health-

the number of data breaches attributed to third-party

high-profile breaches at Target and Home Depot are just

the beginning, Avery said, and the consequences for FIs

are likely more devastating due to the high number of third-party vendors they use.

“We’re talking about providing access to non-employees

… to critical data,” he said. “How do we control what they do with that access? What’s the vendor’s risk miti-

gation strategy? FIs aren’t just on the hook to shore up their own environment, but they share responsibility for what these third parties are bringing to the table.”

The costs of investigating an internal breach add up quickly, even if you can’t identify the source. Although

As “critical infrastructure,” they are categorized among care ($369 per record), Education ($260 per record),

and FIs ($222 per record) as the “most expensive” data, due to their roles in fraud and identity theft. FIs, he not-

ed, can easily get wrapped up in these breaches because they supply money on the back end.

Breaches may be costly, but to some the price of vetting

third-party vendors is equally prohibitive. As a result,

these companies often contract to the lowest bidder, resulting in risky vendors and opening them to attack.

Why Should FIs Preform Third-Party Due Diligence?

“Part of why they’re throwing so many resources at this

clock to monitor and investigate anomalous activity,” Avery said. “Most FIs don’t have the resources to do

that — which is why it makes sense to partner with a firm like, Synoptek, to manage their security for them.”

When gone unchecked, third-party vendors can easily

become an inside threat, and wreak costly havoc on a company. And perhaps more importantly, it’s the re-

sponsibility of the contracting company — those who “give the key” — to properly vet their vendors.

ABOUT SYNOPTEK:

When you engage Synoptek,

you engage an IT partner that provides high caliber, endto-end technology management exuding confidence and trust to help grow your business. Our technology solutions promise forward thinking and innovation that leverages the strengths of your people, processes, and technologies to attain your business objectives.

CONTACT: tsuss@synoptek.com | synoptek.com

www.originate.report 23

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