Mortgage Broker

legalease 50 | summer 2015 mbabc.ca MORTGAGEBROKER the one provided by the borrower's lawyer to the lender's notary were both forgeries. ey indicated the balance owing under the first mortgage as being less than $218,000 when it was in fact approximately $400,000, were unsigned, and were purportedly on the first lender's letterhead. e Court found the statements did not come from the first lender but rather from either the borrower or the referring broker. As well, the borrower had neither the employment nor assets indicated on the application form. e Court said that the referring broker likely forged the signature of the borrower on the mortgage application form. e lender sued the borrower for fraud and for judgment under its mortgage. e lender sued the referred broker, the borrower's lawyer and the lender's notary for the losses caused by their negligence. The Outcomes Referred Broker What happened to the referred broker and his employing broker? ey were liable for 30 per cent of the lender's loss. e referred broker was the principal source of information as to the creditworthiness of the borrower and the status of the first mortgage. He solicited the lender by introducing him to the transaction and had declared the documents to be accurate in every respect. He would have known the lender would rely on the documents supplied. It was reasonable for the lender to rely on the documents. Essentially the referred broker set in motion a deal that rested on unverified and inaccurate information; a deal that would not, but for his conduct, have been completed and caused loss to the lender. e Court said while no mortgage broker can guarantee an investor the accuracy of every statement or piece of information supplied to them in considering a particular investment, the broker is required to use reasonable care. e referred broker failed to use reasonable care. Borrower's Lawyer How about the borrower's lawyer? He was liable for 70 per cent of the lender's loss. He had agreed to give the lender's notary an updated mortgage statement from the first lender. He indicated the statement he was providing was from the first lender. He had a duty to use reasonable care to see to it that the statement was in fact from the first lender. He failed to use the standard of care a reasonably competent solicitor would have exercised in the circumstances and caused loss to the lender. Lender's Notary Did the lender's notary also fail to use reasonable care? No, he was entitled to rely on the lawyer's agreement to provide a statement from the first lender and to accept the lawyer's indication that the statement was from the first lender indicating the amount owed under the first mortgage. He did not cause any loss to the lender. Borrower How about the borrower? Didn't she cause loss? Whether or not she personally provided the information to her broker, she clearly knew what was going on and was a willing participant in the fraud. For being complicit in the fraud of the referring broker, the borrower was liable for 100 per cent of the loss suffered by the lender. Of course, she was, as indicated above, bankrupt. Lender (Contributory Negligence) Shouldn't the lender be at least partially responsible? Aer all, the lender did nothing to verify the documents. e lender was entitled to rely upon the information provided by the referred broker and was not at all responsible for the loss suffered. e Takeaway for Brokers What have we learned? Mortgage brokers should verify documents before forwarding them to potential lenders. Alternatively, they should clearly advise in writing that the information (documents and contents) has not been verified and it is for the recipient to verify it if desired. legalease

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