The Greene Room
Here’s a familiar conundrum. A broker places a $250,000 transaction and earns a $7,500 commission. The lender approves the customer, prepares the documents and pays the vendor. Six months later, the customer stops paying.
Then comes the repurchase demand. The lender says the customer’s financial statements were false. The broker says, “The customer gave them to me. You approved the credit.” The lender points to the broker’s warranty that everything submitted was accurate.
That $7,500 commission suddenly looks less attractive. The broker may have had nothing to do with the deception. But what did the broker promise?
What Nonrecourse Actually Covers
“Nonrecourse” may mean only that the lender bears the risk that the customer cannot pay. It may still leave the broker responsible for breached warranties, missing documents or other specified events. The exceptions deserve at least as much attention as the appealing label “nonrecourse.”
Look for early payment default provisions. If the agreement requires repurchase whenever the first payment is missed, regardless of cause, the broker has accepted that credit risk. Calling the program nonrecourse does not erase the exception.
Promise What You Can Verify
Promising that you have not knowingly submitted false information is different from warranting that every customer statement is true. An unqualified warranty may support a contract claim even when the broker was also fooled. The language and governing law matter.
Match each promise to the work you perform. If the lender confirms delivery, why are you independently warranting that the equipment arrived? If you promise genuine signatures or clear title, what are you doing to verify them?
Where appropriate, negotiate a knowledge qualification and define the investigation required. Then follow the agreed procedure. Disclose warning signs and document any waiver the lender grants. “They knew about it” is a much stronger argument when you can produce the email.
Allocate Responsibility for Vendor Fraud
Suppose a vendor invoices equipment that never existed. Does the agreement require repurchase for any fraud, or only fraud involving the broker? Does it impose liability for failing to perform specified checks? Those provisions allocate very different risks.
Identify whose conduct triggers repurchase. Consider requiring a material breach and a causal connection between that breach and the lender’s loss. These are terms to negotiate; do not assume they are already part of the bargain.
Read Indemnity Alongside Repurchase
Now read the indemnity. A carefully limited repurchase provision offers little comfort if another paragraph makes the broker responsible for every loss arising from the transaction. Check whether the indemnity also requires you to defend a claim before liability is decided. Address defense costs, settlement approval and losses caused by the lender’s own misconduct.
Put a Process Around the Demand
Negotiate written notice identifying the breach, supporting facts and amount demanded. Obtain access to the relevant file and a reasonable opportunity to investigate and cure defects that can be corrected. A missing document and a forged signature need not receive the same treatment.
Then check the price. Are you buying back unpaid principal, or also future income, an assumed residual and legal fees? How are payments and collateral proceeds credited? What contract rights, guaranties and collateral interests do you receive when you pay?
Also check whether the lender can withhold commissions on unrelated transactions while the demand is disputed. You may find your new business financing the argument over your old business.
Know What You Are Signing
Read any incorporated program guide or checklist, too. Identify which version applies and how later changes affect your obligations. Before signing, ask what happens if the customer fails, the vendor disappears or a document proves false. If you cannot answer, you do not yet know what the commission is paying you to risk.
I have reviewed, revised, negotiated, battled over and litigated countless broker agreements. I know the golden rule: He who has the gold dictates the terms. Some lenders will not negotiate, and some provisions will remain nonnegotiable. That does not mean you should skip the review or abandon the request for reasonable changes. It cannot hurt to ask. It can hurt badly to sign just to bring on a new lender.
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