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.
Issue link: http://digital.canadawide.com/i/407986
36 | fall 2014 mbabc.ca MortgageBroker appraisers, oen find themselves named as defendants in lawsuits started by disgruntled purchasers or upset lenders. What can I do to help avoid being sued? e first thing we recommend in helping you avoid getting sued is to ensure you use an engagement letter with your client. e main purposes of an engagement letter are to define your role as a mortgage broker and identify your client. Although it may seem obvious to you who your client is, the lines can, and do, get blurred from time to time. Your engagement letter should set out what it is that you will do for your client. Clearly defining the terms of the engagement will be very helpful in the event a client later complains you did not do something they thought you were supposed to do. Referring back to a signed document is extremely persuasive in supporting your position with respect to the terms of the agreement. Ideally, you should provide a copy of your engagement letter to your client in advance of your meeting. is allows the client to review the document at their own pace and without the pressure of your eyes glaring down at them from the across the table. With every client, ensure that you either 'paper your file' or keep scans of all-important documentation and correspondence. Mem- ories fade over time and people oen remember versions of events as they wanted them to happen, so having the ability to pull out email exchanges with a disgruntled client, or even emails that you sent to your client to confirm the content of conversations, will be extremely helpful in bolstering your credibility in a 'he said, she said' dispute. If you think you are dealing with an unsophisticated client, take extra time with that client to ensure he or she is fully informed and understands the terms of your agreement to act as his or her mortgage broker and the terms of any mortgage the client enters into. e extra time spent with the client will go a long way to ensuring your client is fully informed and hopefully less likely to later claim that they did not understand what they were signing. What is the legal basis for claims against mortgage brokers? Claims against mortgage brokers are typically for breach of contract or negligence. In a claim for breach of contract, the client will allege that there was a contract between you and the client, that your conduct was a violation of that contractual agreement, and that the breach resulted in loss to the client. e client asks the court to make him or her whole by awarding damages against you for the loss. Claims for breach of contract are typically brought where one party believes the other has not fulfilled its obligations under the contract. In the mortgage broker context, if your engagement agreement says that you will act only for the borrower and you act for the lender and the borrower, then your client may have a claim against you for breach of contract, depending on whether the client suffered a loss because you acted for the lender as well. In our experience, it is more common for mortgage brokers to be sued for negligence than breach of contract as negligence law is more open to a broad variety of claims than contract law. In the mortgage broker context, negligence is the failure to exercise the standard of care that a reasonably prudent mortgage broker would have exercised in a similar situation. In order for someone to successfully sue you for negligence, you must have owed them a duty of care, you must have breached the applicable standard of care, and the breach must have resulted in harm or injury to the client. Whether you owe someone a duty of care will depend on whether it is reasonably foreseeable that the other person would be harmed by your conduct and if so, whether there are any policy reasons to negate such a duty. In the context of the mortgage broker/ client relationship, it is fair to assume that a mortgage broker will owe his or her client a duty of care in virtually all cases. e question is less straightforward when the relationship is less than a typical client relationship or if there is no engagement letter setting out the terms of the agreement. e standard of care of a mortgage broker will be assessed from the perspective of a reasonable and prudent mortgage broker. is means that you will, to some extent, be judged by your peers because the lawyer defending you may obtain an expert report from a respected mortgage broker confirming what the industry standard is so that your conduct can be compared to that standard. What do mortgage brokers do that gets them sued? As we mentioned earlier, anyone who wants to file a lawsuit can prepare their own notice of civil claim, march into the court registry, pay the $200 filing fee, and then they have sued someone. It is therefore impossible for us to say, "If you do X, you will be sued" or "As long as you do not do Y, you will not be sued." at said, it is helpful to know about some cases that have resulted in mortgage brokers getting sued so you can avoid repeating mistakes made by other brokers. In St. Louis v. CIBC Mortgages Inc., a decision from the Ontario Superior Court of Justice, the mortgagors sued their mortgage broker aer he failed to obtain mortgage life insurance. Mr. and Mrs. St. Louis were first time homebuyers. Mrs. St. Louis testified that she specifically asked for mortgage life insurance and it was discussed in each meeting with the broker. Following their purchase, Mr. St. Louis became terminally ill and in organizing his affairs he told his wife the mortgage insurance would pay off the mortgage. Although the broker did not regularly keep notes, he had a note from a phone conversation indicating Mr. St. Louis had declined the insurance because the premiums were too expensive. However, neither Mr. nor Mrs. St. Louis signed a waiver. Aer Mr. St. Louis died, Mrs. St. Louis discovered mortgage insurance was never arranged. At trial the broker testified that he forwarded a waiver to Mr. St. Louis to decline mortgage life insurance and followed up with ensure you use an engagement letter