Brokerage arms itself against potential litigation

Brokerage arms itself against potential litigation

Brokerage arms itself against potential litigation One major network is implementing the use of an indemnification form for private lenders to sign to avoid suits brought forth against brokers.

“In the last few years the industry has experienced an increased number of lawsuits from private lenders,” Ron De Silva, president of RMA, writes in an email sent to all of the network's brokers. “Many of these suits are as a result of losses incurred from the non-performance of the mortgagor who we have no control over.

“However, the lender’s intent is to sue the broker and try and recover losses from our Errors & Omissions insurance provider.”

The email, which was shared with MortgageBrokerNews.ca, explains that an increase in E&O claim payouts results in higher insurance coverage costs for brokers.

“Therefore, RMA is taking its own steps to try and protect you and the company and reduce the instances of lawsuits from private lenders,” De Silva writes. “We are implementing an indemnification form that all private lenders will be signing along with the Form 1.”

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.

Private lending has become more prevalent in the mortgage industry over the past few years, with many clients, including self-employed Canadians, falling outside the lending parameters of more conventional lenders.

And their increase in use appears to have resulted in an increase in suits filed against brokers.

As De Silva explains in the email, it’s a similar reciprocal indemnity agreement the network currently has in place with institutional lenders.
12 Comments
  • James 2015-10-07 9:49:19 AM
    Have a central list of private lenders who do this....brokers shouldn't have to put up with this waste of time.
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  • Ron Butler 2015-10-07 10:59:31 AM
    There is an important fact to understand: under torte law, prior indemnification is meaningless in the face of fraud, misconduct, or any form of negligence and let's face it, at least one of those elements is going to be part of any private lender's litigation.

    I am not saying this is a terrible idea because it may stop a few private lenders from going to a lawyer in the first place but as soon as the lender sees a lawyer the lawyer will laugh out loud at the indemnification.
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  • Ron Butler 2015-10-07 11:23:05 AM
    James, I suggest you re-visit the mortgage broker's coarse. As brokers we have a profound responsibility to review, vet, investigate and carefully judge each private mortgage offering we make to investors.

    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.
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