Mortgage Broker

MORTGAGEBROKER mbabc.ca summer 2015 | 49 legalease Are mortgAge brokers required to verify all documents they send to lenders to make lending decisions, or can they leave it for lenders to satisfy themselves as to the authenticity and accuracy of the documents? The Obligation e British Columbia Supreme Court in May 2015 concluded that a mortgage broker who has not verified documents before sending them to a lender can be found negligent and liable for losses if the documents are inaccurate, the lender reasonably relied on the inaccuracy and because of the reliance the lender suffered a loss. e Court accepted that mortgage brokers have special skill, judgment and knowledge, and lenders can rely upon documents from brokers having been verified where: • the broker has a direct and substantial financial interest in the transaction (such as fees); • the broker provides the documents in the course of business; • the documents are provided deliberately (such as being provided as part of a package a lender is to consider for lending purposes); and • the documents are provided in response to a specific enquiry or request (or the broker provides them to actively solicit an offer from the lender). How can a broker avoid this obligation? e Court indicated this may be done by the broker giving the lender a disclaimer which would make it unreasonable for the lender to rely on the documents. For example, the disclaimer might state that the documents are being forwarded as received and have not been verified as to source, content or otherwise. e lender could then decide whether to ask the broker to send verified documents, verify the documents himself or herself, or pass on the deal. e possibility that disclaimers will cause lenders to pass on deals may dictate that brokers verify documents and not rely on disclaimers. The Facts In the case referred to above, the borrower was looking for $70,000 and offered a second mortgage. She gave her information to her broker ("referring broker") who referred the deal to another broker ("referred broker"). e referring broker gave to the referred broker the borrower's mortgage application together with a balance statement from the first lender. e referred broker did nothing to confirm the information he had received before providing it to a potential lender he had dealt with in the past. In fact he never met with the borrower and spoke with her only by telephone; during the conversation the borrower indicated she did not speak English very well and directed him to the referring broker. e potential lender made no independent verification of the documents before accepting the deal, on the condition that prior charges on the property not exceed $218,000. e lender hired a notary and the borrower hired a lawyer to handle registration and funding. In the course of closing the deal, the lender's notary required the borrower's lawyer to provide an "updated statement from the present lender … confirming that the mortgage is in good standing and that [the] present balance on the mortgage is equal to or less than $218,000." e borrower's lawyer responded by providing a statement said to be an "updated statement from [the lender]." e second mortgage was registered and funded. Shortly aer the funding, the borrower filed for bankruptcy. e security property was sold in a foreclosure action brought by the first lender and the proceeds were not enough to cover even the first mortgage debt. During the foreclosure action, it was discovered that the balance statement provided by the referring broker to the referred broker and Verifying Documents Ray Basi Director of Policy & Education raybasi@mbabc.ca Take care to thoroughly vet all documents before sending to a lender, or you could suffer the legal consequences the Court accepted that mortgage brokers have special skill, judgment and knowledge to verify documents.

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