Mortgage Broker

CMB MAGAZINE cmba-achc.ca winter 2019 | 43 e security property was ultimately sold for $390,000 in foreclosure proceedings brought by the first mortgage holder. e sale proceeds were not enough to pay out even the first mortgage; the second mortgage interest was extinguished from title. e second mortgage holder lost the entire investment and sued, among others, the broker who had brought him the deal. He also sued the brokerage who he claimed employed the broker at the material times. While the case involved several related issues, a central issue related to the standard of care a broker owes a lender in presenting and broker to the lender, the Court said that although a broker does not function as a guarantor as to the information provided to the lender, reasonable care is required. at may extend to verifying information if the broker has reason to believe the information is suspect. e broker met the standard of care with respect to the first advance. He acted honestly and in good faith and he applied his knowledge and experience to the best of his ability when assessing the investment and recommending it to the lender. e Court said the broker considered all the available information and that, applying his knowledge and experience, he considered the investment to be a reasonable one for the lender. Further, he had no basis to believe that any of the information supplied was false or inaccurate. ere was nothing inaccurate in the information provided by the broker in support of the first advance: n e appraisal was prepared by an indepen- dent and qualified appraiser for mortgage purposes. (While the appraisal was much higher than the ultimate sale price, there was no admissible evidence to either explain the discrepancy or to suggest that the broker had reason to question its accuracy at the time it was presented to the lender.) n e accuracy of the credit report indicating a top-level rating for the borrower was not challenged. (e report showed a high cred- it-card debt, but it did not show an inability to service that debt. e borrower had qualified for bank financing and had a history of making payments without default.) n e loan to value ratio, based on the apprais- al, was 80% but the values were known to the lender who was in a position to assess the risk. n No income confirmation was obtained regarding the guarantor. (e broker said it was not needed given the value of the property and the credit rating and history of the borrower.) n e shares taken as additional security were of no value, but the lender did not indicate they were a factor at all in the lending decision. n e location of the property was not misrepresented to the lender; the location was apparent on the materials provided. e lender was not a complete neophyte investor. He had previously completed one successful mortgage investment with the broker, is a former lawyer who had run his own recommending a mortgage application on behalf of a borrower client. DECISION e Court came to different decisions concerning the first and second advances. FIRST ADVANCE e broker, at the time of the first advance, was not affiliated with the Defendant broker- age; accordingly, the Defendant brokerage was not responsible for the broker's conduct at the relevant time. As to the standard of care owed by the brokers'obligations

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