Mortgage Broker

CMB MAGAZINE cmba-achc.ca fall 2016 | 17 legal advice The concern for mortgage brokers and lenders You are a mortgage broker in a conflict of interest with your client, perhaps because you are going to lend your own money to the client, borrow money from the client or collect a fee in a mortgage transaction in which your client is at an unusual risk of losing the investment. In these situations (and any number of others), you could be seen to be in a position dominating your client. You are the knowledgeable one, the one with experience and the one to whom the client looks for guidance. You leave yourself open to the allegation of having unduly influenced your client to enter into the transaction. If a court finds you did so, the consequences could include the transaction being set aside or you having to pay damages. In order to minimize this possibility, many brokers would insist their client receive independent legal advice (ILA). But be aware: To rebut a future allegation of undue influence, you may want your client to obtain not just ILA but – a small but crucial difference – adequate ILA. In the case of Cowper-Smith v. Morgan 2016 BCCA 200, the BC Court of Appeal differentiated between the two. While the facts of the case do not involve mortgage brokering, the principles of the case can apply to it. What happened in the Cowper-Smith case? In a series of property transfers, a mother transferred the family home and investments to her daughter. e daughter had cared for her aer her two sons had moved away (one out of the province, the other out of the country) and her husband had passed away. e daughter managed the mother's property, the mother relied on the daughter for advice and information, and the mother accepted the daughter's judgment on various matters. But for the series of property transfers, the family home and investments would have been part of the mother's estate to be divided on the mother's death. ere was little else of value to be included in the estate. e mother trusted the daughter to honour her wish and, upon her death, to share the home and the investments equally with her brothers. Following the mother's death, the daughter (in accordance with the series of transfers) took sole ownership of the family home and investments; she declined to share either with her brothers. e brothers challenged the transfers. e brothers argued that: (1) there was a presumption that the daughter had unduly influenced the mother to transfer the family home and investments solely to her; (2) the mother had not received adequate ILA regarding the transfers and so the presumption was not set aside; and (3) because the presumption was not set aside, the property transfers could be set aside. Domination and the presumption of undue influence e law presumes there has been undue influence where there is potential in the relationship for domination. e daughter accepted that the presumption applied in this case. As indicated above, the daughter had managed the mother's property, the mother had relied on the daughter for advice and information, and the mother had accepted her daughter's judgment on matters. Rebutting the presumption with ILA Full, free and informed thought of client e presumption of undue influence does not apply if the person entered into the transaction with full, free and informed thought. is includes considerations as to: n the other person actually influencing, or having the opportunity to influence, the person; n the person receiving, or having the opportunity to receive, ILA; n the person having the ability to resist influence; and n the person's knowledge and appreciation about what was being done. e ILA received must have been adequate Assessing whether the ILA in a specific case was adequate depends on the specific facts of that case. In some circumstances, ILA may be required to be adequate only as to the person understanding the nature and effect of the transaction. However, where concerns or allegations of undue influence arise, generally the ILA must also be adequate as to the person understanding the merits or the wisdom of the transaction. Assessing whether the ILA was adequate includes considering the following: n whether the person who benefitted from the transaction was present when the advice was You are the knowledgeable one, the one with experience, and the one to whom the client looks for guidance

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