RBC under fire for missing coverage

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A Harvey, N.B., man is asking Royal Bank – the same lender that refinanced his mortgage without a lawyer’s signoff – why his home burned to the ground without fire insurance. 
Brad McCullough didn’t realize he wasn’t insured until his home was gutted by fire, and his bank informed him that it was putting the house into foreclosure. Months earlier he had refinanced his mortgage with RBC, assuming that the fire insurance was included in the mortgage payments.
"When we remortgaged then that (fire insurance) should have been brought up, and I thought it must be added into my payment, type of thing. I don't want to step on anybody's toes. It's my fault, plain and simple,” McCullough told the CBC.
“I was disgusted at the incompetence of the bank employee and the lack of due diligence in the process,” says Andrew Galea, a mortgage agent with Calum Ross Mortgage in Toronto. “It also was not surprising, as there should be a need for internal mortgage specialists to be licensed and also governed by FSCO and the bank act. I was a top producing sales advisor at FirstLine and some of my fellow colleagues barely knew the basics of mortgage 101.”
Banks require third parties – like lawyers or brokers who handle mortgages – to have proof of fire insurance; they do not apply that same rules to themselves.
Although McCullough may not want to step on toes, Galea is ready to point the finger of blame squarely at RBC.
“Clients rely heavily on the advice of these representatives to later realize the information provided was inaccurate or from out in left field,” Galea told MortgageBrokerNews.ca. “What do you expect when basic training is three weeks and the philosophy is one of a call centre?”
For mortgage brokers, it is an excellent example why clients should always have an independent third party negotiator working on their behalf when dealing with a bank, says Cathy Gingras, a mortgage broker based out of Fredericton, N.B.
“Definitely, it was an oversight on RBC’s part,” says Gingras, with Mortgage Alliance Front Gate Mortgages. “The standard for brokers is so much higher than for bank employees. I used to work at RBC – that was the biggest change when I came to work as a mortgage broker eight years ago. We as brokers are doubled checked and tripled checked. 
By comparison, she says, “it is kind of lackadaisical at the banks.”
RBC has since put the foreclosure on hold and says it is “actively investigating details around this case and discussing options.”
Gingras told MortgageBrokerNews.ca that such an oversight wouldn’t have happened if a mortgage broker had been involved in the refinancing process – and if it somehow had slipped through, the broker would be held accountable.
“I’m not sure what the coverage is for a mortgage specialist who works at the bank,” she says. “But we have errors and omissions insurance. But that is a problem with how the bank specialists operate. If they were held accountable to the same standards we as brokers have, it wouldn’t have been missed.” 
Friends of McCullough are donating money and volunteering to help rebuild his home.
  • Kevin Anderson on 2013-07-22 7:59:51 AM

    Brokers only pass on a request for fire insurance if the lender conditions it. Stop with the RBC finger pointing

  • Broker on 2013-07-22 8:45:05 AM

    This article is so Canadian. Someone screws up who should have known better and wants to blame the bank. We all gang up on the bank. Really this is 100% in the consumers fault. I agree the bank process should have it caught, but don't blame the bank..

    The thought of fire insurance being part of his mortgage payment come on.. REALLY!

  • Natalie Wellings on 2013-07-22 8:45:42 AM

    Mortgage brokers don't normally ask to verify fire insurance, as Kevin mentioned, only if specifically asked by the lending institution. This has nothing to do with brokers vs. bankers! Very strange article in my opinion.

  • Omer Quenneville on 2013-07-22 8:46:06 AM

    Why does this not surprise me. Banks don't explain the insurance that they sell because if they did, no one would take it so it is fair that this person may have made the wrong assumption.

  • Ron Butler on 2013-07-22 8:51:47 AM

    I think a fair comment is that it is up to the homeowner to make sure that they have house insurance. We also know that very few if any mortgage payments automatically include fire insurance coverage. In this case RBC looks bad because their in-house closing service missed "insisting" there was house insurance in place but that does not absolve the homeowner from his responsibilities.

    I think we overstate our role to pretend that every single mortgage broker always insists on seeing house insurance for every single deal before it closes. I think in many cases we rely on lawyers and the lender's funding department to do that final checking.

    This looks like an administrative break-down on RBC's part but as I said; it does not mean the homeowner is off the hook for looking after his own affairs. It's a sad story all around, a house fire is a devastating event.

  • Omer Quenneville on 2013-07-22 8:57:16 AM

    While I agree with what you say Ron, lets not forget a mortgage is not a loan, it is a shared interest in the property and RBC has an obligation to protects its interest by making sure the insurance is in place. Maybe instead of selling useless mortgage term insurance, they should include useful fire insurance.

  • Gale Tracey AMP, Mortgage Architects on 2013-07-22 8:58:54 AM

    Isn't it the lawyer or Title companies job to obtain the clients home insurance information and change the 1st loss payee if changing financial institutions?? I normally obtain a copy of the insurance and forward details to the lawyer to save them time but it is not required of me normally as it is part of the lenders requirements to have fire insurance in place. If it is a switch/transfer the lender normally conditions for a copy of the insurance.

  • John Panagakos on 2013-07-22 8:59:26 AM

    Sounds like this was a Title Closing deal where client signs up in the Branch . So somewhere there should of been a checklist for Fire Insurance. Not all the owe nous is on the bank. this looks like a case of contributory negligence where both may be responsible? I know with my policy I make sure I have the right coverage and that direct payments are made from my account each month. Hopefully they can work something out.

  • Janice Moran on 2013-07-22 8:59:43 AM

    All of my mortgage commitments from lenders have the fire insurance requirement in it. At Invis we are also aligned with an insurance company who calls the clients. I have to agree with the comment about the bank employees who do not give accurate information, however.

  • woodd7 on 2013-07-22 9:10:17 AM

    This is the weirdest article I have read and there have been some extraordinary ones. Fire insurance, or insurance of any kind is the owners responsibility. I am not aware of any lender providing fire coverage, flood coverage, earthquake coverage. The idea that the owner who allowed whatever insurance he had to lapse and now tries to blame the lender is outrageous and frankly the "experts" who support this notion are being pathetic.

  • Omer Quenneville on 2013-07-22 9:15:58 AM

    So Mr. Woodd7, it is easy to sound off when hide without posting your name. Are you one of those mortgage brokers that don't explain these things to you clients because they should remember what they did 5 years ago? And even though you do this every day (assuming you are a mortgage broker) and know better, you don’t feel like you should explain this to your clients? Banks do call their customers “clients” so buyers beware should not apply.

  • M. Robertson on 2013-07-22 9:17:22 AM

    The lenders REQUIRE fire insurance on the home to protect their investment, it is not their obligation to ensure that it is insured, the mortgage documents that the client signed states that they will obtain fire insurance. Even if they did not, the customer has a duty to protect his home – I would wager that they did not even have content insurance.

    This story is horribly one sided, we have no idea what the closing discussion actually was - but I notice that most of the brokers on here, and in the story, are quick to blame the bank employee and claim his/her ignorance and lack of skills. Not fair statements at all given that none of you know the individual, nor were present at the closing. I just love the way mortgage brokers are so quick to fly their flag about how much better they are than everyone else, how superior, etc.

    The consumer has an obligation to READ AND UNDERSTAND everything they sign, and the signature line of any mortgage document, or legal for that matter, states: "I have read and understand the terms". The easy way out of all of this is to blame the RBC Employee and remove any accountability from the consumer. Sure most people (brokers) would respond saying that the documents are too complicated, but the reality is – since the legislation was introduced some 8 years ago requiring all mortgage terms be in plain language, they are not as complex as one might think.

    Our world has become one where there is little to no personal accountability – why, you can even sue a company if you spill hot coffee on your lap! Yes there may be some fault with the bank in all of this, but to soundly lay all blame at the feet of RBC and remove any accountability from the borrower is ridiculas.

  • QuanLe on 2013-07-22 9:20:59 AM

    Yeah yeah always blame for big bad banks. This is the borrower sole responsibility to have his house insured.

  • Kevin Anderson on 2013-07-22 9:29:38 AM

    FYI - I am a broker and was first to say it's not the Banks fault. In fact, any insurance the bank requests is purely to protect their own interests...

  • Omer Quenneville on 2013-07-22 9:34:57 AM

    And fire insurance wouldn't protect the banks interest? While I agree that the owner is ultimately responsible have you gone into a bank lately and see the level of service they provide? Nothing is explain and everything is steered to what is best for the bank, not the "client".

  • Omer Quenneville on 2013-07-22 9:35:06 AM

    And fire insurance wouldn't protect the banks interest? While I agree that the owner is ultimately responsible have you gone into a bank lately and see the level of service they provide? Nothing is explain and everything is steered to what is best for the bank, not the "client".

  • Broker 2 on 2013-07-22 9:37:22 AM

    I financed my car through RBC and I don't have insurance. No really I thought it was in the payment LOL.

  • M. Robertson on 2013-07-22 9:39:26 AM

    Omer Quenneville - It is up to you the consumer to ask questions and take the time to understand when you are signing a document - if you do not do that, you can't blame someone else for not doing your due dilligence. YES the bank should do a better job explaining things, but to claim ignorance because they did not... it is ridiculas.

    When you buy a car you don't just walk into a show room - point and buy the first one you see. You test drive it, you research it, you ask questions. The same due dilligence should be done by the consumer for any purchase they make, or for any document they sign.

  • Kevin Anderson on 2013-07-22 9:39:26 AM

    Last time I checked, I request fire insurance on all my private deals to protect my lenders, not the borrower.

  • Gale Tracey AMP, Mortgage Architects on 2013-07-22 10:01:27 AM

    If client did the purchase through Royal Bank he would have had to have insurance before they would fund. His insurance company would have advised of his renewal date in advance or that the policy was about to expire. If he chose to ignore renewing his most valuable asset then the responsibility falls in his lap. Coverage does not stop when you refinance your mortgage although it may not be enough to cover the new amount refinanced.

  • woodd7 on 2013-07-22 10:18:33 AM

    Omer Quenneville, I am not trying to hide behind anything. I registered this handle a long time ago and to this point no one has ever questioned it. I try to be professional in my comments and may be critical of a process or presentation of an issue. I apologise if my comments cause you a concern, they were not intended to be addressed to any particular party, just to the idea that anyone would consider the lender wrong in this situation doesn't make legal, ethical or even moral sense. The owner has the responsibility to pay for insurance just they have the responsibility to have their taxes paid.

  • Wane Davis on 2013-07-22 10:52:34 AM

    Really?? I thought my fire insurance was included in my mortgage payment...Really??

  • Lior, Mortgage Edge on 2013-07-22 12:35:27 PM

    It can be argued that this is the bank's fault. After all, the mortgage rep should have requested the binder letter showing there is fire insurance in place. Given that RBC is the biggest mortgage lender in the country, I am sure this incident is a one off.

    That said, the borrower's excuse is preposterous! Even if the mortgage rep didn't ask to see proof of fire insurance (that rep is probably polishing up their resume as we speak), the charge clearly states that the homeowner must have fire insurance in place.

    Perhaps the borrower was referring to mortgage CREDITOR insurance which is the kind of crap banks love to sell because they never have to pay up anyway.

  • Corinna Smith-Gatcke on 2013-07-22 12:38:06 PM

    I have been told from a very reliable source who used o work for another large blue institution that there is a checkbox on their refinance forms that the client checks to say "I have fire insurance." There is no policy number required or binder #/letter from a broker. This is a chronic problem as far as the client thinking it was included in the payment as insurance is included often with bank mortgages. Life Insurance....people don't pay attention, they are bombarded with tons of information at the time of closing. While I don't think the client is absolved of knowing whether he had fire insurance or not, the banks are plain crazy not asking for a copy of the policy or a letter from the broker confirming insurance. But the last time I checked they were so busy trying to be insurance brokers as well, they have no idea whats been covered. I feel bad for the bank employees who are told to SELL SELL SELL.

  • Sheila MacLean on 2013-07-23 3:58:43 AM

    Blaming the bank,come on, the owner should take responsibility for providing insurance, when you buy a car do you assume the insurance is include in the payment. I think not, nor would(should) you assume its included in your mortgage payment.

  • Omer Quenneville on 2013-07-23 6:24:29 AM

    When you go into a bank for a mortgage:

    They call you a "client" which implies putting your needs over the bank, which is not the case. Their promotion and bonus needs comes first making it buyer beware. Do you know the difference between a client and a customer? How a bank can call you a client and get away with it is beyond me.

    They up sell you on mortgage insurance that you don't need and is pretty much useless.

    They confuse you with so many variations of mortgage rates, posted versus a preferred rate, none of which is usually the best rate available.

    IN TD's case they don't tell you that it is going to be registered as a collateral charge or the ramification.

    They do not discuss discharge penalties until you will be faced with it years later when you want to renovate or move up.

    A mortgage is a shared interest in a property not a loan, which could imply equal responsibility.

    They up sell you on mortgage insurance that you don't need and is pretty much useless.

    You are sold title insurance and in most cases high ratio mortgage insurance.

    While I agree it is ultimately the client’s responsibility, if you don’t see how a virgin buyer might not know, understand or get confused than you are not doing your job as a mortgage broker.

    This confusion is exactly the key to differentiating ourselves from the bank.
    Tell your “clients” to bring you their quote from the bank, run through the above list and explain to them the items and they will be asking you very quickly for a pen and where to sign.

  • Paul Mangion on 2013-07-23 8:34:46 AM

    How about RBC just being negligent in protecting themselves and the borrower being negligent in protecting him himself. They bank will probably loose and the borrower will definitely loose. Now the borrower ignored the registered letters from the insurance company so he definitely wins the wing nut award in my books. The only real winner here is the bank that he left to go to RBC!

  • M. Robertson on 2013-07-23 9:40:50 AM

    Once again - and I reiterate – not ONE mortgage broker who is commenting here, or commented in the story, was present during the closing session for the mortgage. Too many people are jumping to conclusions based on a story that is being told from a one sided perspective, and too many are taking it as an opportunity to bash the banks.

    Let’s consider some possible OTHER scenarios from the banks perspective: (a) The consumer is a long time customer of the bank, perhaps at closing he was asked to provide proof of fire insurance and he said he forgot it, but he really needed the money so could he bring it in the next day? Then… never brought it in. (b) it is a refinance of an existing mortgage at RBC where on the previous there was fire insurance. The bank asked him if the fire insurance was still in place, and he confirmed that it was, since they already had the certificate on file and he was a good existing customer, they said OK and funded the deal.

    As I mentioned before, it is possible that the bank rep screwed up as well, but we don’t KNOW that do we? No instead it is easier to just blame the big bad bank, and who cares if an employee of that bank loses their job over this? Maybe they then can’t find a new job, can’t make their mortgage payments, and they too lose their home. But hey, it doesn’t really matter does it? They are just a big bad bank employee who is not properly trained, uneducated, etc (at least according to some mortgage brokers) – they are not human are they? Brokers never make mistakes do they? Or have situations where a customer complains about something and it is not an accurate complaint. That never happens, does it? No, not to the all powerful mortgage broker.

    Is it really a mystery to anyone why the banks are slowly withdrawing their support from the broker community? There used to be four that dealt with brokers, now there are two – and how long will that last? Brokers forget that today the banks are the largest backers of the monoline lenders in Canada, don’t be too quick to bite the hand that feeds you. The hand might stop.

  • M. Robertson on 2013-07-23 9:56:36 AM

    OH and just to add some more fuel to the fire. Harvey, N.B. where this all occurred has a total population of 363 people and the ONLY bank in town is the Royal Bank. So just what are the chances that that bank rep is just some young fresh out of high school kid? Pretty unlikely in a small town like that. Chances are the rep has been there for years and knows what they are doing just fine. What are the chances that the bank rep knew the customer really well and has for years? Pretty good?

    OH and let’s not overlook that the customer is a carpenter, and builds houses. That and he is not a first time homeowner, he is an older fella, grey hair and all. Probably not his first mortgage, so he likely knew that he needed to have fire insurance in place. Maybe he did not renew because work was slow and the extra money came in handy at the time, then forgot about it. Who knows right? But then again, let’s just blame the bank. It is so much easier.

  • cathy r. on 2016-05-26 4:43:52 PM

    These errors can happen when the client does not obtain a lawyer for the refinance. Instead the bank handles the legals - never a good idea...it does save the client some money but generally not worth the savings.

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