Brokerage arms itself against potential litigation

Lawsuits brought forth by private lenders have become such a problem in the industry that one broker network has decided to implement a policy to help protect its brokers

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.