Mortgage Broker

New Brunswick bans commercial brokers from accepting advance fees Advance Fee Fraud BY SAMANTHA GALE 12 | winter 2016 cmba-achc.ca CMB MAGAZINE transactiondelayed THE NEW BRUNSWICK GOVERNMENT has settled on some exceptionally strict rules in the Mortgage Brokers Act which prohibit mortgage brokers from charging or taking fees in advance of mortgage funding. ese provisions will go into effect on April 1. e new rules specifically prohibit a mortgage brokerage from accepting fees or other remuneration directly from borrowers for mortgage brokering services until the mortgage funding is confirmed and a mortgage agreement is entered into, and the mortgage has been FUNDED and SECURED by a mortgage. Of significant note is that this provision is not restricted to only residential transactions, and will fully apply to commercial mortgage transactions. Prohibitions against advance fees are nothing new and are intended to protect the public from advance fee fraud, wherein borrowers are promised financing aer paying a lender (or purported lender) a fee, and the financing never materializes. Advance fee prohibitions therefore serve an important public protection purpose. e question for law makers has always been where the line should be drawn between protecting the public and enabling industry to earn a living by collecting fees aer performing services, such as rendering a mortgage commitment to a borrower. Ontario, for instance, permits brokers to take advance fees for residential mortgages if the principal sum of the mortgage is over $400,000, with no restrictions on commercial fees. e $400,000 principal sum was just increased as of January from $300,000, so in a sense, Ontario can be seen to be relaxing its advance fee prohibition, albeit quite minimally. British Columbia is more restrictive: mortgage brokers are prohibited from taking advance fees on all residential transactions, without any exceptions. Recently, the B.C. Registrar elaborated on this rule in a policy bulletin and explained that advance fees include application fees, commitment fees, cancellation fees and any "other non-third- party fees charged in advance of the mortgage being funded, or in the event a borrower elects not to proceed with the mortgage arranged by the mortgage broker." However, these types of advance fees for commercial transactions are not caught by the advance fee prohibition, and therefore are permitted in B.C. e law makers in New Brunswick reviewed comments from the public in considering the scope of their advance fee provisions. Commenters had expressed concern that advance fees are necessary to "compensate the mortgage broker in circumstances where the mortgage amount is too small and the compensation would not reflect the effort to secure the financing." On the subject of commercial transactions, commenters explained that, "Advance fees in a commercial context reflect the additional complexity of these types of transactions, the additional time and effort needed to secure financing." e policy rationale for permitting advance fees in commercial deals has always been that the protection is not needed, as the commercial mortgage client is more sophisticated than their residential counterpart, and they oen have their own slate of in-house lending experts and lawyers looking aer their interests. In the end, the New Brunswick government weighed all of these comments but viewed it necessary "to support the prohibition, as it is essential to promote consumer confidence in the mortgage brokerage industry." It can only be assumed that the New Brunswick policy makers have good reason to impose an advance fee prohibition that is so strict and captures both residential and commercial transactions. ey must be aware of significant public protection issues on both sides which warrant such a strict measure.

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