RESPA Rule 5B (and the Tooth Fairy)
by Attorney William Bronchick
RESPA Rule “5b”. Do you know it? If not, you can get sued, go to jail and have your property condemned for up to 18 months by the Federal government.
Actually... I just made that up. Why would play a dirty trick on you like that? To make a point – learn the laws and the customs that are common to your real estate business, and make it a point to learn the difference between the two. Too many people just “wing it” without learning the laws and the customary practices in their business. Such an attitude can lead to lost profits, failed businesses, and unnecessary lawsuits.
Reliance on the “Professionals”
Most investors rely on advice from real estate brokers, title company representatives, and lawyers when it comes to their real estate. Most so-called “professionals” do not know anything other than what was told to them by their bosses, their colleagues, and from word of mouth. Like the game “telephone” in which each participant secretly whispers a phrase or sentence whispered to them by the preceding participant, the end result is a hodge-podge of half-truths and urban myths. Case in point, ask 10 real estate brokers if flipping is legal, and you get 10 different answers.
Attorneys Aren’t Much Better
Surprisingly, most attorneys don’t know the law or misstate the law when you ask. An attorney’s answer is often a knee-jerk “don’t do that” response because the attorney fears being sued for giving bad advice that might lead to the client losing money. Challenge the answers you get from attorneys and ask for a citation of the law so you can read it yourself.
Recently, I attended a closing at which it was demanded that I place my fingerprint in black ink on all the closing documents. "Why?", I asked. "I don't know - our legal counsel said it is required", was the reply. "Let me speak to your legal counsel", I demanded. The lawyer walked in the closing room and insisted, "It's now required by the Patriot Act". "Really... which provision?", I inquired. He gave me a blank stare, then admitted, "Well, I was at a legal conference last month and I was told it was their interpretation of the Patriot Act that all closing required the fingerprint". Can uou see how things get twisted around so that people accept these things as legal gospel?
In short, you should seek advice of experts in areas where you are not sure. But, you should always question things, research the law, and know what it says. Don't take the "expert's" word for it - learn the law and be able to recite it.
Know the Difference Between Law and "Custom"
Many uninformed investors also accept what is customary practice without questioning it. For example, a title company may say, "We can't do double closings... they aren't legal". The reality is, many title companies won't do them for fear of potential fraud, but that is a company decision, not law. Ditto for many mortgage companies, who insist on 6 or 12 months of seasoning before they will refinance a loan on a recently-purchased property. Seven out of ten mortgage brokers will tell you that "nobody does it anymore", when in fact that's their own reality in their own small world. In short, don't accept the answer you get from one person as "that's the way we do things". Challenge the professionals you do business with to make an exception for you, or take your business elsewhere.
In
summary, learn the law, learn the local customs, and take the time to
learn the difference. You will close more deals, avoid more problems
and have a leg up on your competition, 99% of which doesn't have a clue.
by Attorney William Bronchick
RESPA Rule “5b”. Do you know it? If not, you can get sued, go to jail and have your property condemned for up to 18 months by the Federal government.
Actually... I just made that up. Why would play a dirty trick on you like that? To make a point – learn the laws and the customs that are common to your real estate business, and make it a point to learn the difference between the two. Too many people just “wing it” without learning the laws and the customary practices in their business. Such an attitude can lead to lost profits, failed businesses, and unnecessary lawsuits.
Reliance on the “Professionals”
Most investors rely on advice from real estate brokers, title company representatives, and lawyers when it comes to their real estate. Most so-called “professionals” do not know anything other than what was told to them by their bosses, their colleagues, and from word of mouth. Like the game “telephone” in which each participant secretly whispers a phrase or sentence whispered to them by the preceding participant, the end result is a hodge-podge of half-truths and urban myths. Case in point, ask 10 real estate brokers if flipping is legal, and you get 10 different answers.
Attorneys Aren’t Much Better
Surprisingly, most attorneys don’t know the law or misstate the law when you ask. An attorney’s answer is often a knee-jerk “don’t do that” response because the attorney fears being sued for giving bad advice that might lead to the client losing money. Challenge the answers you get from attorneys and ask for a citation of the law so you can read it yourself.
Recently, I attended a closing at which it was demanded that I place my fingerprint in black ink on all the closing documents. "Why?", I asked. "I don't know - our legal counsel said it is required", was the reply. "Let me speak to your legal counsel", I demanded. The lawyer walked in the closing room and insisted, "It's now required by the Patriot Act". "Really... which provision?", I inquired. He gave me a blank stare, then admitted, "Well, I was at a legal conference last month and I was told it was their interpretation of the Patriot Act that all closing required the fingerprint". Can uou see how things get twisted around so that people accept these things as legal gospel?
In short, you should seek advice of experts in areas where you are not sure. But, you should always question things, research the law, and know what it says. Don't take the "expert's" word for it - learn the law and be able to recite it.
Know the Difference Between Law and "Custom"
Many uninformed investors also accept what is customary practice without questioning it. For example, a title company may say, "We can't do double closings... they aren't legal". The reality is, many title companies won't do them for fear of potential fraud, but that is a company decision, not law. Ditto for many mortgage companies, who insist on 6 or 12 months of seasoning before they will refinance a loan on a recently-purchased property. Seven out of ten mortgage brokers will tell you that "nobody does it anymore", when in fact that's their own reality in their own small world. In short, don't accept the answer you get from one person as "that's the way we do things". Challenge the professionals you do business with to make an exception for you, or take your business elsewhere.
In
summary, learn the law, learn the local customs, and take the time to
learn the difference. You will close more deals, avoid more problems
and have a leg up on your competition, 99% of which doesn't have a clue.
