Mortgage Broker

Summer 2019

Mortgage Broker is the magazine of the Canadian Mortgage Brokers Association and showcases the multi-billion dollar mortgage-broking industry to all levels of government, associated organizations and other interested individuals.

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Page 34 of 47

CMB MAGAZINE summer 2019 | 35 bestpractices fact that all appraisal companies and employees carry errors and omissions (E&O) insurance covering their work. is is most important to any lender because, if the mortgage goes into default and losses are sustained, aer selling the property at a much lower price than the appraisal indicated the value was, upon review of the file the lender may determine that the appraisal was erroneous due to statements made by the appraiser. ey may decide to sue the appraisal firm for their losses. If you as the mortgage broker/agent on the file actually represented an appraisal to a lender (oen a private lender) but it was addressed to another party, you should always obtain a Letter of Transmittal from the appraisal firm. is document issued by the appraiser clearly transfers over to the recipient the attestation of the valuation, the acknowledgement of the report's purpose (mortgage lending) and any comments the appraiser may add regarding the marketability of the property, any and all comments regarding the property's potential uses and the appraiser's E&O Insurance covering the accuracy of his or her work. In short, it transfers over the ownership of the appraisal report. e importance of the appraisal transmittal letter cannot be understated. It is a standard mandatory condition with every lending institution in Canada that if the appraisal is not addressed to their company then a Letter of Transmittal must be provided prior to funding. Without Fail! It is simply considered a prudent business practice to follow. Omission to obtain a Letter of Transmittal where it is required is a flagrant abuse of the standard of care that all mortgage practitioners in Canada would be held to. It would also leave the brokerage open for any lawsuits from losses that might ensue and exposed to the loss of credibility amongst the lenders that the broker/agent deals with. A n appraisal of real estate can be for many purposes. Some typical reasons or need for an appraisal would be: 1 To determine a valuation for tax purposes establishing a value at a certain point in time; 2 To determine a value for marital purposes such as a pending divorce; 3 To establish a value for asset valuations, ie: net worth statements for CRA; 4 To help in determining a value, to assist in buying or selling a property; and 5 To determine a value for mortgage lending purposes. Each purpose has its own unique needs, therefore valuations may differ in each case. As mortgage arrangers, we are looking at need #5. An appraisal or at least a bona fide valuation is required for the purpose of first or second (third) mortgage financing. e appraisal must be directed to whichever lender the buyer or owner approaches for mortgage funding. e appraisal document carries with it not only the professional estimation of the current or dated value, but also all the features of the property and, in the appraiser's view, its monetary value and its projected value based on neighbourhood trends. An important issue with the appraisal is the THE PURPOSE OF A LETTER OF TRANSMITTAL And why it's an essential component in the standard of care brokers provide BY MALCOLM ECCLES TAXES MARITAL STATUS NET WORTH ASSETS PROPERTY VALUE MORTGAGE LENDING 1 3 4 2 5

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