In any job that involves the transfer of money, there is always an opportunity and temptation to be swayed by the Dark Side of the Force. Many times we feel we can bend the rules, however slightly, to justify the means to an end. We try to convince ourselves that we are genuinely serving our clients greater good. We argue, “I’m only trying to get the deal to close,” as our tainted hand slowly slithers under the table.

This is a follow-up to what my distinguished colleague Buckwheat had recently penned about fraud in the real estate industry (see: “Is it a ‘little white lie’ or is it fraud?“)

Recently, another agent in our office (we’ll call him “Bob”) confided to me about a recent challenging situation. He was representing some Buyers on the purchase of an investment property. As per the contract, the Sellers had agreed to pay a specified amount of the Buyer’s closing costs. Just shortly before closing, the Buyer’s Mortgage Officer calls Bob and informs him that the lender will only allow the Sellers to pay up to 2% of the closing costs. As a result, this ceiling amount leaves about $1000 on the table. So the Mortgage Officer matter-of-factly asks/tells my friend Bob to draft a letter, instructing Escrow to credit the $1000 to his commission. And then after closing, to write a check to the Buyers.

Well, last time I looked, this constitutes lender fraud. There is no grey area here. It’s against the law, plain and simple. It doesn’t matter what we think. It doesn’t matter whether or not it seems unfair to the Buyers. It’s wrong! Period! And, if convicted, you could face some rather hefty penalties, lose your license, and possibly serve some jail time!

Ardell DellaLoggia, of Rain City Guide fame, recently posted an excellent blog on this same topic, entitled “Agent FIRED!” In this post she sadly recounts a story concerning a local agent that was fired by her clients because she refused to commit lender fraud! This agent attempted to find other creative and LEGAL ways of resolving the problem, but the client refused to listen to her and trust her counsel. This agent shares her entire story within the comments. Definitely worth the read!

Unfortunately, this is a practice that has become all too commonplace in our industry. Why is that? As licensed real estate agents in Washington State, we’re required to take a Code of Ethics refresher course every two years. You would think that would help deter or reduce this practice!

How do professionals begin the slide down the slippery slope? It typically starts out somewhat innocently. Maybe we’re new to the business. We don’t realize that we’re committing a crime. Someone more senior, more experienced, more seasoned, assures us that it’s ‘okay’ and that we’re serving the best interests of our clients. “Just this once,” they say. The next thing you know, you compromise again. Then again. And again. Pretty soon, it’s common practice. Your clients begin to expect it. One compromise ALWAYS leads to another greater compromise.

So what did my agent friend, Bob, do? Well, Bob’s one of those boring, black & white, ”Take the High Road” kinda guys. That’s why he’s my friend. He told the mortgage officer in no uncertain terms that what she was asking him to do was lender fraud; an illegal action; punishable by law! The officer’s response? “Oh, really?”

Bob later found out that this particular Loan Officer had coerced another agent into committing this offense on several occassions, and that her supervisor, a Senior Loan Specialist, was the one who told her it was an acceptable practice.

I don’t know about you, but I value my reputation way too much to pull this kind of stunt. I have a responsibilty to my managing broker, to my fellow agents, my clients, my family, and to God, to be completely above board and honest in all of my dealings and relationships. If a transaction needs me to do something illegal or unethical in order to succeed, then it’s not worth the success. I would always rather fail with integrity, than to win through deceit.

Remember. Luke Skywalker didn’t turn to the Dark Side all at once. It started with bad advice and a long line of little compromises.

-Sparky-

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