Broker accountability on private mortgages

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As private deals become more prevalent, brokers need to be aware of their responsibilities not only to the client, but to the lenders as well.

“As brokers we have a profound responsibility to review, vet, investigate and carefully judge each private mortgage offering we make to investors,” Ron Butler of Verico Butler Mortgage wrote in the comments section of “It seems only reasonable that if facts about the borrower, the property or any other covenant issue were missed or willfully ignored by the mortgage broker recommending the investment that an investor have recourse to the law.”

Butler’s comment was in response to a major broker network, RMA, announcing it would provide an indemnity form to its brokers to protect them from suits on by private lenders.

The form indicates the private lender will not take legal action against RMA and its brokers and agents in case of borrower default or because of any other mortgage or market issues. It will be required for all privately funded deals as of October 31.

And while brokers admit they do have a responsibility to properly examine all private deals submitted to lenders, the move by RMA to implement an indemnity form could help deter frivolous suits.

“If the default occurs because of fraud, misconduct or negligence of the broker, he/she should held accountable regardless of indemnification form,” Ad Lakhanpal, a broker with Mortgage Alliance, wrote on “However, if the default occurs because the borrower's inability or unwillingness to pay, the lender should take legal action against the borrower/property instead of the broker.

“An indemnification form would prevent frivolous law suits in such circumstances.”
  • Gerry Van Donkersgoed on 2015-10-13 10:16:30 AM

    I find the comments in this article completely miss the mark. What private lenders are we talking about? Frankly, there is NO private lender in my rolodex that is going to come after me for non-payment on a mortgage. None! Further, there is NO private lender in my rolodex whose law firm will rely on what I say - they do their own inquiries. That having been said - telling the truth is the only way forward. If the lender in front of you won't do the deal, based on accurate information, you are dealing with the wrong lender! Move on to the next lender on the list, whose lending profile and risk level actually fits with your deal.

  • George C. on 2015-10-13 12:47:18 PM

    Ron states it to be an obvious point that a mortgage broker would be responsible IN LAW for a mortgage recommended to a lender. Is he saying that it is the recommending or the mere fact of having referred the mortgage that triggers liability. It seems a very fine point which should be only carefully generalized. Ron, any details?

  • Ron Butler on 2015-10-13 6:03:44 PM

    @ Gerry, I am sure YOU, as a lawyer as well as a mortgage professional have a very clear concept about what deals to show your private investors and which deals you will simply say "NO" to. I assure you that there are many brokers who could care less about the quality, reasonability and future results of a private mortgage investment. There are brokers shoving private mortgage deals indiscriminately under client's noses simply based on the premise of 19.00% yields. Also to your point, the lawyers at a investor client's law firm will review all the points of the title and registration but I know of no law firm that will vet the reputation of the appraiser or the veracity of the income verification.

    @ George: I think my statement was self-explanatory, under the Act that governs mortgage brokers in Ontario FSCO insists we take responsibility for the private mortgage recommendations we make, we must defend the suitability of mortgage to both parties to the private mortgage transaction as well as vetting all the details of the transaction.

    The reference I made to torte law in the case of payment default were those cases where negative items were "missed or willfully ignored by the mortgage broker" naturally those types of mistakes can result in a claim under law, the claim may or may not be successful but under the circumstances I described there are clearly grounds for a claim.

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