Mortgage Broker

Winter 2014

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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document the RS had indicated to the borrower. e court found the RS 's words limiting the circumstances under which a commission would be payable to clarify the ambiguity in the commission clause. Accordingly, it found no commission to be payable to the MB pursuant to the agreement. A take-away from this part of the decision is that commission clauses need to clearly specify the circumstances which trigger a commission. Of course this need for clarity also applies to other components of the clause such as the amount or calculation of commission, the timing of the payment of the commission, and any conditions that would release the borrower from paying any or all of the commission. Unintended agencies e court determined the RS was sufficiently an agent of the MB to 38 | winter 2014 MortgageBroker ON NOVEMBER 28, 2013, the Supreme Court of BC issued a decision that deals with mortgage broker commissions and is of interest to all mortgage brokers. The Issues e decision addressed, albeit by way of general principles: • e interpretation of commission agreements; • Circumstances in which a mortgage broker may, perhaps unintentionally, cause a referral source to become an agent of the mortgage broker. The Facts ese are the facts of the case: • e borrower contacted a referral source (RS) for a commercial mortgage. • e RS was not qualified to act as a mortgage broker. • Around the same time, the RS was contacted by the mortgage broker (MB) inquiring whether he had any clients looking for financing. • e RS referred the borrower's request for financing to the MB. • e MB referred the request to a lender and the lender issued a letter of interest. • e MB forwarded the letter of interest together with a commission letter to the RS for review and signature by the borrower. e commission agreement provided, in part: In consideration of your accepting this agreement and in consideration of the expense and effort that you have already incurred and intend to incur in arranging a loan on the security as hereinaer appears, we grant to you the exclusive right in accordance with the terms set out below and subject to such conditions and qualifications as the lender deems appropriate, or upon such other terms and conditions as we may approve: … We agree to pay you a service commission of 6.5% of the loan amount to [the Borrower] and an addition of 0% if co-brokered of the loan amount upon a letter of interest or commitment letter in the above terms being issued by a lender during the term of this agreement or in respect of which the efforts of you or your agents were an effective cause. We agree to pay a commission in the same amount upon a lender being found during the term of this agreement ready, willing and able to lend on the aforesaid terms irrespective of whether such lender is found by you or your agents or by any other agent or by us. Such service commission shall become due and payable, if the lender actually advances any funds, upon delivery to us of a loan commitment letter containing the above terms or any other terms which are accepted by us. Except at the end of the relationship, the MB and borrower never met, spoke, or corresponded with each other. All communications between the borrower and the MB were through the RS . During the course of the communications, RS orally represented to the borrower circumstances under which he felt the MB would waive or reduce the commission. Importantly, the RS represented that if the lender found by the MB did not fund the mortgage and the borrower found a different lender, he believed the MB would waive the commission. e lender did not fund the mortgage (or even get past the letter of interest stage) and the borrower, without the assistance of the MB, found a different lender. e borrower wanted a refund of the fee he had paid to the initial lender, while the MB wanted the borrower to pay the brokerage fee. Mortgage broker commission e court found the wording of the most significant term of the agreement was ambiguous, that is, whether a commission was triggered by a letter of interest being issued or a commitment letter being issued. e court then reviewed extrinsic evidence and found that that the common intention was that commission was intended to be payable upon delivery of a loan commitment letter, not simply a letter of interest. Further, while the agreement referred to commitment letters issued by other lenders, the court found the understanding of the parties was that a commission was payable only if the MB was an effective cause in bringing about the funding. In making this finding, the court relied heavily on the referral source having become an agent for the MB and accepted as true the modifications to the written Is Your Referral Source Really your Agent? Ray Basi Director of Policy & Education Key findings clarify mortgage broker commissions p38,39 Legal Ease.indd 38 14-01-27 11:45 AM

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