April 20th, 2021
Diamond & Diamond, Joseph Berljawsky – #AskAPrivateLender Podcast, Ep 17
Welcome to the 17th episode of the #AskAPrivateLender Podcast brought to you by Mortgage Automator. Our guest on this episode is Joseph Berljawsky, Head of the Real Estate Practice Group at Diamond & Diamond. Joseph provides legal services for private lenders of all sizes, supported by a massive team of legal professionals that make up Diamond & Diamond’s real estate division.
We talked about certain legal aspects of running a private lending business, and Joseph shared his expertise in the matter. We also discussed the recent integration between Diamond & Diamond and Mortgage Automator, and how it can benefit everyone involved in the transaction.
Listen, watch, or read the interview below. And stay tuned for more episodes coming up!
Lawrence: We hear the name Diamond and Diamond, and I think all of our minds go in one direction and that’s personal injury. So I’m sure a lot of people are wondering, “Why do you have a lawyer from a personal injury firm on your podcast today?” What’s surprising, even to me, when I first found out, was that Diamond and Diamond is actually one of the largest real estate firms in the country.
Joseph B: Yeah absolutely, residential real estate firms, for sure.
Lawrence: A lot of the larger lenders are using you and your services to close their real estate transactions. How did Diamond and Diamond get into the real estate world?
Joseph B: The history of it was, I had my own law firm, who were doing pretty much exclusively real estate. And we started to talk to Diamond and Diamond, I always had in my head that what they did for personal injury should happen in real estate. Big firm resources for transaction work. It’s very hard to do real estate in a small shop. There are so many moving parts to it, whether it’s suing because something went wrong, or moving money around in the trust, and everything from reporting to manpower. So we always thought that big firm would be a big help and the advertising to get the word out was also part of the fit.
But the real reason we thought it was a very good fit for our firm, is because Diamond and Diamond is a bunch of lawyers. You hear Diamond and Diamond and you think personal injury, but you don’t realize that behind the scenes, there’s 50 personal injury lawyers and 200 staff. And it’s a big personal injury law firm that does a lot of good litigation. And they were the first ones to start giving lawyers’ cell phone numbers out for personal injury files… Maybe not the first ones. But they would insist on every lawyer giving every client their cell phone numbers so that the clients can call the lawyers. And I thought that’s a perfect fit with real estate. It’s very lawyer-heavy, lawyer-driven, and private lenders want to call their lawyers. That was really how we set up our firm and with that on a larger scale, we thought it would jive well.
Lawrence: I think that most law firms have you dealing with the corps there. Right? Very seldomly do you have that personal relationship with the lawyer themselves, and when you’re going through your transactions, you’re actually dealing directly with the lawyer, so I think it’s definitely a good strategy. Doesn’t hurt to have that marketing machine behind you as well. Diamond and Diamond, they’re master marketers. That’s how they pretty much grew. So on the real estate side, how many lawyers are there? And are you guys all across Canada or in certain areas?
Joseph B: So we’re 10 lawyers, but 50 staff overall in real estate alone. And Diamond and Diamond has six offices in Ontario, and I think 12 total across the country. So we operate in all of the Ontario ones and we’re just setting up in Alberta and BC right now for real estate. And then the goal is to make it a national solution.
Lawrence: Not to speak about your existing clientele, but from a transactional perspective, when a new client comes to you and they want to test you out, maybe they want to hire you for their legal files. What sort of interaction is it ahead of time? Do you have to do a meet and greet? Do you have to know what their expectations are? Can they just start sending in files and learning as they go? What’s the process?
Joseph B: One of the nice things about being a real estate lawyer is we won’t bill by the hour. We’ve always looked at our clients and our closings as things we have to service. So sometimes, whether it’s a private lender, or regular real estate deal, or it’s a first-time homebuyer, some clients take more time, some clients take less time. But we don’t care, we just service all of the deals as they come through, and some are preliminary even before the deal comes to fruition. Sometimes it’s during, sometimes it’s after.
Because we’re talking about private lenders, in particular, the first thing we do when we meet the new private lender… Obviously, we have to have a conversation and make sure there’s a fit, they have to meet the private lending team. The first thing we do is look at all of their documents, so their loan commitments for sure. If they’re an administrator, we look at their servicing, participation agreements, whatever documents they have that they run their practice with. We always take a look at those, we don’t usually charge for that kind of stuff. I look at it from a transactional perspective, litigators take a look from a litigation perspective, and then we give them feedback. And then I always just tell them, “Try a deal. We’ve got to work out the kinks, we’ve got to see how it works.”
Getting back to why we are trying to be national and why we think a big firm is a good solution for people, there’s a lot of big lenders out there, big brokerages, and they need a one-stop solution too. For their systems, they want a consistent client experience on all accounts. If you’re doing 30 to 60 loans a month, you need to know what’s happening on the other side of the line. And one of the big things that we’ve been doing, as you guys know, is integrating our systems with theirs, from a tech perspective. So that’s the next step. Once we run through a deal, we start seeing how we can get some efficiencies going, especially if it’s a volume lender.
Lawrence: That’s how we actually started chatting, right? It was through the technology piece, I believe. And we had heard through the grapevine, you had a great piece of technology to help speed up the process from actually getting the deal into getting closed. And with our technology, we thought it’d be a great bit. We’ve just recently completed our integration with your software.
Joseph B: What we want to do is create efficiencies and kind of make a better mousetrap. And we actually have our own software firm, just dedicated to us. It’s three full-time developers developing our software all day, every day. And the software we have is called Nexera Hub, we call it NexHub. And it sort of connects what we do to run the file with all the different pieces of that file. Mortgage instructions from a bank or lender flow in and client information are all kind of part of this hub, documents exchanged, status updates, and things like that.
And for the integration with Mortgage Automator, it’s as simple as if you’re a private lender and you normally instruct your lawyer the way that used to work since before we reinvented the wheel, is you would send an email to the lawyer. The lawyer would start putting it into his computer systems. If he saw it, he’d open it up in two or three different places, and then he’d eventually instruct the file. He’d send a letter out and then send them instructions.
With our system, and with the integration with Mortgage Automator, all the information they have in Mortgage Automator, all the pertinent information, with a click of a button will get pumped right into our system. Instantly open the file. It’s a pre-programmed introductory letter for each individual lender that goes out directly to the borrower’s lawyer, immediately. The clerk on the file is automatically assigned based on how much availability everybody has, the lawyer’s automatically assigned. And everybody has all that information the second somebody clicks the button in Mortgage Automator. And as the file progresses, updates are kicked back also. So, when instructions are sent out, when did we get documents back from the ILR, when is the file closed? And we even have the functionality to update the broker at the same time, right? Everyone knows what’s going on.
Joseph F: It’s quite interesting because what you guys have done is you’ve found something in the industry that had a little bit of a clog in the system, which is the delay from when a lender sends their lawyers instructions to the time they get to it, the time they opened the file, assign a clerk to it. In this industry, especially in today’s world with how competitive things are, it’s all about expediting the legal transaction, because now you’re putting this transaction in somebody else’s hands. For the first time as the lender, it’s not up to you to decide how quickly this can close. And I think that by doing what you guys are doing, you’re letting the documents go out much quicker.
Talking to all the Automator clients, the one part of the process that they feel like they’re sort of kept in the dark on is the legal process. Even if they want to reach out to the lawyer and the lawyer is on speed dial, they’re still at the mercy of the other side. They have to get the clerk to call the other lawyer, to find out when the appointment was set. But the way you guys are doing it, essentially all that information is being streamlined, passed back down to you, which in turn is being passed down to Automator, which in turn is being passed down to the lenders and the brokers. So everyone’s being kept in the loop throughout the entire process. And I think that is something the industry needed for a very long time. And we’re very excited to be doing it with you guys.
Joseph B: Yeah, I really think it’s the Holy Grail of where this is all headed. Even if it was an institutional lender, it goes to the lawyer’s office and it’s a black hole. And it’s just because of the way lawyer’s offices work. They’re not really set up for connectivity. Even for us. We spent a lot of time connecting our systems to something called Unity, which is the software that most real estate lawyers use so that when the mortgage instructions come into Unity, when the title insurance is finalized in Unity, when the searches are done in Unity, like the title searches and all that kind of stuff, we have an API with Unity, and all that gets pulled out into our system, and we can put it wherever we want. We can pump it right back to a CRM that a brokerage has or Mortgage Automator. Our integration is starting with data, but there’s going to be a lot more stuff that we can send back and forth.
Not too far away before we start doing title searching for private lenders directly through Hub. Right? You don’t have to call up your lawyer, “And by the way, can you send me this title search.” Click a few buttons and you get back to titles. That’s where this is heading.
Lawrence: That definitely makes sense. And I think that the industry needed some… Transparency is maybe the wrong word, but a vision. There are so many spots where you don’t have that vision and you don’t know what’s going on. So I definitely think it’s a benefit. And I think that as time goes on, it’s going to be something that you’re going to have to have these systems in place because everyone else will have them. And you’re going to be the one left out.
Joseph F: Joe’s creating an industry-standard, to be honest. I think he’s creating the new industry standard with the way that legal transactions should be completed, just because it saves the lawyers time, it saves everybody time. It tends to keep costs down. There’s full transparency, all along the process. I don’t see why the industry should be still doing things the way it was doing them 30 years ago.
Joseph B: It’s also human error, right? It’s not just about time. It’s doing it better. You send special conditions through Mortgage Automator, you send the interest rates. I’m not going to accidentally put a 4 instead of a 14 when I’m putting that information into my systems, generate the documents, because it’s going to be pushed through electronically. Reasons abound for sure.
Lawrence: What’s your average turnaround time to get deals out the door and closed? If someone instructs Diamond and Diamond, how quickly do those instructions go to the other side?
Joseph B: I usually like to tell people 24 hours is the upper limit. If the deal is very far out, then maybe we won’t rush to do it in 24 hours. I have some lenders insist that I instruct within four hours.
I think it really depends on the lender’s model in particular. Some lenders like the initial letter to go out right away and they don’t care when the instructions go out. And my philosophy was always, we want to reflect what the business practice of the lender is.
And again, we do that with technology. I know when a file comes in from a particular lender and which letter then automatically has to go up because it’s all pre-programmed, and there are no breaks.
I really don’t like sending preliminary letters. It irks me. You get these long templated letters of all the things that the private lender’s lawyer needs you to do before they’ll even look at the file. When we started doing private lending, I said, “We’re not doing this. I’m going to do the title search. I’m going to pull the last instrument. It’ll cost the borrower $4. And I’ll know if they were married or not.” That’s a full packet of instructions right off the bat. And then they can go and do what they need to do.
Joseph F: Do you find that you’re doing a lot more of the work? Whereas some of the firms will do the basic stuff and put everything back on the ILR. Because I know you guys wear both hats and you do represent borrowers as well. But do you find that if you’re representing the lender, you’re doing, let’s say 85-90% of the work, just because in your world, you feel it’s just easier to get it all done as quickly as possible without having to waste time going back and forth?
Joseph B: Yes. Most of the time we’re ordering the statement, they’re ordering the tax certificate if we need one. The ILR side is so inconsistent and it’s going to be my fault if it’s not done on time. So we just take charge and just solve the problem. And on the ILR side too, we try to get ahead of it.
One of the things we’ve done for a long time in the broker role, now with private lenders, like on the ILR side, is we try to speed up the timeline. So we don’t need mortgage instructions from Scotiabank before we can start our file and do the basic information. Get the client to sign our retainer agreement, send us their IDs point check, are they married? We can do all that stuff, even before more instructions come in. And it’s the same thing with an ILR. If I have a copy of the commitment before the instructions come in, I could do a lot of that work in advance. And that way, by the time I get instructions, all we have to do is sign up the client. And it’s only two days, but two days when people are expecting a certain amount of money to come in, it makes a big difference.
Lawrence: You said earlier, every time you get a new lender, you like to review their documents, you’ll just make sure you understand what’s going on. What are some things that you find that people are leaving out of their documents that should be there?
Joseph B: 100% it’s the fees. It’s all of the default fees, I’ve heard it all. Sometimes you put it in there, they know it’s illegal or they know it won’t fly, but they just want it in there, so the borrower knows that that’s what they’re thinking of doing if they defaulted and that’s their hammer. But the first thing we look at is what fees they have listed and what fees they don’t. And sometimes even the wording matters greatly. Some of the penalties, if you don’t word it right, you won’t be entitled to charge it. And when push comes to shove and it goes to court and it’s contested, you won’t be able to defend it. But you could, if you worded it right. So that’s probably the number one thing we change in most people’s commitments.
Joseph F: Obviously you represent the lenders when you close the deals. You mentioned at some point you have the litigators who will go to court and deal with the litigation side of the power of sale. So you do offer a full-service shop from that perspective, correct?
Joseph B: Yeah. The first thing that all of my lawyers who come from other firms notice and that I noticed the second we merged with Diamond and Diamond, is when you can actually CC litigation and they’re in the office right next door to you, and your name is Diamond and Diamond, they know you’re going to sue them. It’s not a bluff, when you’re a regular real estate firm and you’re CCing litigation, everyone knows that means that maybe it’ll go to litigation, maybe it won’t. They’ve got to get a retainer, the whole thing. That lawyer doesn’t do litigation. Diamond and Diamond does litigation. So I noticed right away when I started sending out demand letters or anything like that, people just back down now.
You don’t actually have to send it to litigation. We just send that letter. And in particular with fees, whether an ILR is contesting the fees or we’re on the ILR side, and we’re bugging the lender about fees, they know we’ll sue. And even the reputation that we’re kind of every man’s law firm, like a little bit of a blue-collar… Not blue-collar, but accessible law is sort of how we like to do it. Our retainers aren’t going to be $10,000- $15,000. They’re going to be $2,000 for litigation. So, because we have that reputation, even the lenders think that when we’re on the ILR side, we might actually sue them. Whereas you might dismiss an ILR as somebody, maybe they don’t have money or maybe don’t have the inclination to go hire a lawyer. They already hired Diamond and Diamond. We’re ready to go.
Lawrence: What’s your view on the three-month penalty?
Joseph B: So, this is not legal advice. We demand it. If the wording is right, depending on the situation. So that’s one of the things. The first thing you always want to make sure of is that if you are going to note a borrower in default, or you are going to start a power sale, then your commitment actually says that you can charge a three-month penalty in that situation. If it just says you get a three-month penalty, for this reason, that reason, or whatever that won’t hold up.
But if it specifically says in that situation, that you get the three-month penalty, I think you have a chance of getting it. I’m not going to say it’s a hundred percent chance because it does depend on the judge sometimes and on the other lawyer and how hard they fight. But if it’s worded properly, I think you can get it. And I don’t give up demanding it unless the client instructs me specifically. So that’s how we approach it.
And then on the ILR side, tooth and nail I’ll break up their wording most of the time. Because I think that’s really what it comes down to. That’s where the cases fail or succeed.
Lawrence: I think for the lender, you’re explaining why they’re entitled to it. Acting for the borrower, you’re explaining why it shouldn’t happen. And if you’re acting for the lawyer, you’re going to make sure that that document is rock solid and you’ve gone through line by line to make sure that they more or less will receive what they believe they’re supposed to receive. Obviously, there are the anomalies that a judge throws something out and that’s part of the game, I guess.
Joseph F: COVID’s new. It’s interesting. How has it been dealing with the power of sales during a time like COVID when the courts are closed, obviously in the beginning creating a backlog? Would you say certain regions like Toronto are more backlog than, let’s say, Peel or York region?
Lawrence: Before you answer. So with this lockdown, they just said, once again, you cannot enforce right now? You can’t kick someone out of their house.
Joseph B: I’m not a hundred percent sure of that. I think that’s only residential. I don’t know if that’s the current lockdown. I’ll tell you. So I don’t do the power sales myself. I’m obviously involved in them, but we have a litigation team. You don’t want to do litigation just alone. You need a lawyer, you need a junior lawyer, you need a clerk, you need a paralegal, you need a whole system. So we have a department that just has sort of mortgage enforcement work and they’ve been very busy. Definitely busier during COVID than they were before. There was that scary backlog where we were back a month or two. And I was telling people at the time, “That’s how you have to underwrite your files. You have to underwrite that extra couple of months and take into consideration that the power sale will take longer.” Not at all. There hasn’t been any slow down. We haven’t had any problems. It’s pretty rare in general that we have to kick somebody out of their house. That we really need a right of possession. It’s like 1 in 10 maximum.
Joseph F: I don’t see it ever really going the full mile. I always feel like they get served their documents, they have some time to defend the documents, they then take that time to either refinance because they have enough equity to do so or they realize they’re pretty much not in a position to make payments, and they end up negotiating with a lender. We tend to see actually a lot of privates, especially during COVID, have been more willing to work with the borrowers to allow them to sell their homes on their terms in a very decently rising real estate market. I don’t hear from a lot of our clients about things going all the way these days.
Joseph B: Private lending is sort of the canary in the coal mines. The first sign that things are going south and it’s not usually how it ends. So it’s been going fine. We have been busy and the courts haven’t slowed us down. In fact, the litigators love it, they don’t have to go in.
Lawrence: There are a lot of new lending companies popping up lately. People are coming to us. They’re saying, “Hey, I need a software platform. I have no deals currently. I’m just raising money.” Or “I have money. I’m about to start.” For those types of companies who maybe don’t have a legal firm yet, why should they choose Diamond and Diamond?
Joseph B: Personally I have been involved with many private lenders who have started up. I’m not going to say I taught them how to do it, but I definitely was an integral part of their team as they were building up and figuring out what they want to do as a private lender. For all of our referrals and our clients, I like to think that we’re partners exactly because we don’t bill by the hour. It’s hard to pick up your phone and call up your lawyer at McCarthy who’s going to charge you $650 an hour. My clients are texting me. They’re asking me quick questions, and I don’t care because I’m servicing the deals.
I really think that part of the reason we attract private lenders is that we really try to be their partner and we’ve seen it all. I think there are very few firms who’ve seen as many private deals as we have, on both sides. It’s hundreds of months. And get a sense of what’s working, what’s not working. And I think that’s a lot of why they come to me and our private lending team. All the lawyers who work in private lending, it’s all they do. They don’t do other things.
Lawrence: So the accessibility, the experience. If something’s going on, you’ve probably seen it before, you know how to handle it. And what is it? 24 hours a day, Joseph? Or what’s the cutoff?
Joseph B: I think we’re one of the few residential firms to have an on-call system. In Suits, you have to be available at all times. We actually have a rotation among our lawyers. So we’re 10 lawyers and everyone has to take a call one week at a time. We do after hours, evenings, and weekends.
But when people have a status certificate to review, it’s now because they’re going into an offer at 8:00 PM. It’s not the “I need it tomorrow.” It’s the nature of the business. So if you want to win the client, that’s how you have to do it.
The area of real estate law that I like the most is private lending. I find it such an interesting area. And there are so many different things you can do. When I first started doing it, one of my clients told me, he said, “The words ring true that the regular garden variety stuff, that’s going to pay the bills. That’s like tax returns. But private lending is where you’ll feel like you’re living and you’re practicing law.” And really that’s really what it is. You roll up your sleeves and you get into it. And it’s always a different situation. And the nuances, I think, from a legal perspective are very interesting. Everything from like you were talking about, the three-month penalty to how you word the actual charge is very particular and I really enjoy it.
Lawrence: Again, Joseph Berljawsky with Diamond and Diamond.
They had the technology, you can get that transparency with what’s going on in the deal, where the deal is at. If you have borrowers that don’t have lawyers, they also do ILR. If you’re plugged in through Automator, you can get those live updates when the borrower is signing, what’s still outstanding. I think it’s a great partnership. We love having a partnership with you guys.
We’re very excited about it. We know we’re going to keep growing it over time. Joseph, thank you so much for stopping by today. Really appreciate it.