Is it legal to pay referral fees for commercial mortgage referrals?
Yes! Even in states where a license is required to broker commercial loans (California, Florida, Nevada, Arizona, etc.), you can legally pay a referral fee on a commercial mortgage loan, as long as the referring source does nothing more than to call you with a name and number of a prospective borrower.
However, if the referral source - say, a commercial real estate broker - starts to negotiate terms (rate, points, term, etc.), at that point he is working as a commercial mortgage 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 try to gather documents for you or to issue loan quotes. As long as he merely gives you the name and number of someone seeking a commercial loan, it is perfectly legal to pay him a referral fee.
When is it illegal to pay a referral fee for a mortgage borrower? Under RESPA, it is illegal to pay a referral fee (called a kickback) on a residential loan. A residential loan is a mortgage loan on a house, condo, townhouse, duplex, triplex, or fourplex. In the parlance of the Federal government, such loans are called loans on a one-to-four family dwellings.
Is it legal to pay a banker a referral fee for a commercial mortgage referral?
Never be the first to suggest a referral fee to a banker! Most bankers consider referral fees - even on commercial 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.
Therefore, if you offer a referral fee to a banker, 90% of them will be horrified. They will look at you as a leper and probably cut you off.
Most banks also forbid their loan officers from receiving referral fees. The reason why is because of the potential liability. Lots of banks have been sued for referring customers to mortgage companies. If the mortgage company is negligent and the borrower loses a large purchase deposit, such borrowers have been known to sue the bank for a negligent recommendation.
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.
That being said, if the banker asks for a referral fee, you should gladly pay it. There is nothing sweeter than a banker sending you one or two referrals every business day.
How large should the referral fee be?
It's whatever you negotiate, but the standard commercial mortgage referral fee is 20% of your company's gross commission. Ten percent is also common.
My own hard money commercial mortgage company, Blackburne & Sons, will gladly pay you a referral fee of 20% of our gross loan fee for commercial mortgage referrals. Please call Tom Blackburne at 574-210-6686 or email him at firstname.lastname@example.org.
Blackburne & Sons is looking for commercial first mortgages nationwide of $1.5 million or less on standing commercial properties. Sorry, no construction loans, no land loans, and no land development loans.