Broker beware: New climate in banking brings food for thought

Up until recent times, certain things were taken for granted. Certain institutions were thought to be self perpetuating. Then came the fall of some of the things we thought would last for ever. Greenpoint Savings, who would have thought, Lehman, Washington Mutual. Stop!! No more!!   So far, we have picked ourselves up, dusted ourselves off and kept going. I say, no longer can we stay on the sidelines and assume that our job is over once the contract has been executed. Let's take a minute to take a look at some possibilities and prevent some possible disasters before they can occur. One time bomb waiting to go off is a banking institution failure. Timing, they say, is everything, so let's say the timing is as follows: large commercial mortgage approved; transaction ready to close; new lender wires funds to bank's attorney escrow account; between time of wire and disbursement of funds, lender's attorney's bank fails. In a recent letter from Christopher Hencke, counsel of the Federal Deposit Insurance Corp. (FDIC) to The American Land Title Association, Hencke states, "Assuming such funds are held in a deposit account at an insured depository institution, and the depository institution fails before the real estate closing, the funds would be insured to the buyer and not the seller (up to the $100,000 limit)." What transactions have you been involved with lately in which the lender's funds were less than $100,000? Certainly, this dictates some precautionary measures. First, let us make sure that all escrow accounts that our down payments and bank funds are held in are specifically labeled "Title/Escrow Trust Accounts" and that the banks in which they are kept in are FDIC insured. Second, let us and the attorneys we use deposit with institutions rated "A" or better from one of the nationally recognized statistical rating organizations ("NSROs," Moodys, S&P, Fitch, etc.) Check ratings also on bankrate.com. Lastly, although this could be quite cumbersome in large transactions, perhaps having several banks involved in the funding process could move the odds more in our favor.   The FDIC is considering the possibility of increasing the FDIC insurance to $250,000. As an industry, let's push for this with our government representatives. Let's take the initiative of moving into a more precautionary arena. How does that saying go? I know my grandmother used to use it. Something like an ounce of prevention is worth a pound of...I know it will come to me.   In the meantime, as real estate brokers, I think the time has more than come where we should take the initiative to start the dialogue going between broker, buyers' attorney, sellers' attorney and bank attorney. What steps should we take to move our transactions into a safe arena. Food for thought. Additional information can be found on the FDIC's website and www.bankrate.com Nan Gill is the president of Gill Abstract, Goshen, N.Y. and New York, N.Y.