Subject: File No. S7-26-07
From: John L. Cordova, MBA
Affiliation: International Association of Registered Consultants, California Community College Teaching Credential in Accounting, Business and Industrial Management, Finance, Registered Principal FINRA, California Real Estate Broker

November 14, 2007

I have been Registered Prinicpal with the NASD and now FINRA since 1996. A registered representative since 1986. A real estate broker since 2006 and a real estate agent since 1996 ?. I have served as an NASD (FINRA) Arbitrator since 1996 on more than 30 Arbitrations. I have sold Tenant In Common programs over the past 10 years. I have experience on both sides of the table.

Arent we overlooking the real issue. The protection of the investor. Right now A major TIC Sponsor has a TIC that is non performing and in Foreclosure. Another has two properties that are in Foreclosure and at least an additional 7 that are non performing. Another had a property that was sold at a loss to the investors and distributions had been stopped. A monster Sponsor that has had 70 plus TICs in the system has at least 1 Non Performing Property presently and has had 6 more that lost money for the investor. Another has a property that had to cut distributions. Another has or had a property that is non performing. And the list goes on.

I have no problem with Real Estate Agents getting referral fees from the sale of a TIC as long as the TIC is sold by a licensed Registered Representative. Or if the Commercial Real Estate Agent is a licensed Registered Representative. As an arbitrator I have experienced what happens when individuals are taken advantage of. Taking the Regulatory responsibilty away from FINRA eliminates the protection afforded individual investors who invest in TICS. Because that is what a TIC is, an investment. It is a security. Registered with the SEC. Who will regulate the sale of TICS? The department of real estate? They do not have a regulatory system to protect and compensate the investor. Who arbitrates issues regarding TICS gone bad. I know of at least 15 TICS right now that are going bad where the investor will suffer major losses. Under the present system they can bring an action in arbitration in FINRA against the brokers, and broker dealers. What would happen if the Commercial Agent had put it together? Nothing.
Absolutely Nothing because there is no suitability rules You open the door to investors being taken advantage of. Think about it. A person has one rental that represents their entire life savings and retirement. They have a small IRA and no pension or a small pension. Their total networth is the house they live in and that rental. The equity in the rental is $250,000. The house they live in is paid for and represents another $300,000. The IRA has $200,000 and they get social security. A commerical Agent could put them into a TIC with 65% loan. If it goes bad and they have a capital call they couldnt do it. If it went completely south thier entire investment is gone. Under the Real Estate Rules the sale was perfectly authorized as it was financially sound at the time of the sale. So the investor has no recourse. Under FINRA the Investor would have an action because they didnt meet the suitability rules, and the Accredidation rules. Under your proposal the Investor has no recourse. The commercial agent is not a member of FINRA. As such would not be punishable for FINRA regulatory offenses. The investor would not be protected for suitability issues if the TIC was sold by the AGENT. Because there is no suitability issues in a real estate transaction. Only Due Diligence. If the property at the time of sale had the proper Due Diligence but was not financially suited under FINRA rules it could still be sold by commerical agents.
If you allow the Commercial Agent to get compensated for the sale of the TIC who is the Commercial Agent accountable to?
Does that mean that Registered Reps would soon be able to receive compensation from Real Estate Agents for the sale of houses or any real property transaction on a referral fee basis? Right now even as a Licensed Real Estate AGent and a Registered REpresentative we are regulated by FINRA. Under the Outside Business Activities Rule.
You allow commercial real estate agents to get compensated for TIC transactions you open the door on the other side.
Maybe that is good. Maybe at some point after it takes place there will be a challenge to the authority of FINRA and the SEC over Regitered Representatives. Do you see where I going with this.
Allowing an unregistered representative to sell or be compensated for the sale of a TIC is against the rules of FINRA. You open the door to referral fees or allowing an individual to collect fees as an unlicensed agent.
Why would I want to get a Securities license and subject myself to FINRA rules and regulations if I can get compensated for the sale of a security without the FINRA license?
You are opening up a pandoras box if you allow this to happen.
Regulatory issues. Who is responsible for the transaction if it goes sour.

My final comment is: I sincerly believe that NO TICS should be sold by either a Commercial Real Estate Agent unless that person is licensed by FINRA with a series 7 license. I dont believe that a TIC should be sold by Registered Representatives who do not have a Real Estate License and a series 7.
Making TICS easier to sale by non licensed individuals in either discipline is not the answer. TICS should only be sold by individuals who are licensed by the department of real estate and FINRA. Not series 22 but series 7. A series 22 license is a joke. I believe the only license acceptable is a series 7 for the registered representative selling TICS and the REP must have a Real Estate License. Likewise the opposite is true for Real Estate Agents.
In summary it very simple:

YOU MUST HAVE A SERIES 7 AND A REAL ESTATE LICENSE TO SELL TICS. THAT WAY THE INVESTOR IS PROTECTED BY FINRA. AND The registered Rep is now required to be bound by continuing education for both real estate and securities and so is the real estate agent. Isnt that what your really want? Protection and accountability to and for the investor.
John Cordova