Dominic Vale…, Real Estate Pro in Chicago, IL

Is there an Identity of Interest issue when the Realtor involved in the transaction is also the....?

Asked by Dominic Valenti, Chicago, IL Sat Feb 4, 2012

...contractor doing the work in an FHA renovation loan? As a HUD Consultant I've seen a few of these and I've not seen anything in the HUD Guidelines prohibiting this. However I recently had one rejected by the lender for that reason. As a HUD Consultant I can't be the contractor on a project I'm consulting on for obvious reasons however I don't see the same reasoning behind that argument. I would think Real Estate and construction are companion industries. How can I present this to that lender?...Should I?

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I contacted HUD to get your answer and the answer is no you cannot be the Realtor in the transaction and the Contractor. I have also been contacted by several major 203k Lenders in regards to this question and they all have commented that a Realtor cannot act as they're own General. Most of these lenders do not even allow the borrowers who are full time contractors to act as their own General.
Please feel free to contact me and I would be happy to help you further.

Thank you,
John G Moustis
President / Owner
SPARTAN CONSTRUCTION & DESIGN, INC.
Phone & Fax: 630-963-6020
Email: jmoustis@spartancontractor.com
Website: http://www.spartancontractor.com

Quality building, remodeling & consulting services in the Chicagoland area since 1991
1 vote Thank Flag Link Tue Feb 7, 2012
While there may not be any specific rules in the HUD guidelines prohibiting a Realtor who is either the listing or selling agent from acting as a contractor in an 203K renovation, I'd have to say the Realtor is out of their minds to do so and there's absolutely a high potential for conflict of interest.

Let's be honest, Conflict of Interest is a perception crime. If the buyer and/or lender ever feels there was a possible conflict of interest then the Realtor/Contractor is guilty as charged. I would be appalled if the Realtor/Contractor called the Illinois State Real Estate Commission and asked if they could do this if they would be given the thumbs up. I would be equally surprised if the buyer were to ever sue them if their E&O insurance would cover them.

Home Inspectors who are contractors should never ever work on a home they've inspected for a buyer and Realtor/Contractors should never work on a home they've sold to a client. The only upside is they earn money, the downside is they get sued, they lose a client and/or possibly their license gets suspended. In my mind the downside far outweighs the upside. I never work for clients thought I will share resources with them including referring them to honest, qualified contractors whom I know will treat them fairly and do a good job. I'm always suspicious of Realtors who attempt to get involved multiple aspects of a clients transaction. It makes me wonder just how good they are at any of the jobs their doing given that they have so much available time.

I don't know if it's your duty to report this, but it's certainly worth having a conversation with the Realtor/Contractor and letting them know that they may be blowing the deal for the buyer as the lender may very well refuse to permit this. Thanks for a great question.
1 vote Thank Flag Link Sat Feb 4, 2012
It is my understanding in a 203k transaction that you can only wear 1 hat. If you are the Realtor you cannot be the contractor, consultant or appraiser. I believe it's that way for any transaction really.
1 vote Thank Flag Link Sat Feb 4, 2012
John's answer is 100% correct.

Here's an excerpt from the HUD handbook (the short answer):

4155.1 2.B.2.a Definition: Identity-of-Interest Transaction

An identity of interest transaction is a sale between parties with family or
business relationships.

On a tangent here, John's comment about owner-generals was a good one... What you don't hear outside of the lending circle (and very well-informed circle within that circle) is that the foreclosure rate on "self-help" transactions (owner-general) is astronomically higher which is why lenders don't allow it. The upside is only on the buyer's side and the lender takes all the risk.

Nice job here guys on the question/answer, I wish the other questions on here were answered as professionally as you all have done so far in this thread.
Web Reference: http://RobWeber.com
0 votes Thank Flag Link Mon Apr 9, 2012
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