Mortgage Broker

18 | spring 2018 cmba-achc.ca CmB magazIne second mortgage thoughts n not provided required cost of consumer credit disclosure, conflict of interest disclosure and lender information to the second mortgage lender; n administered mortgages without required administration agreements in place; n not kept required accounting records; and n taken no steps to ensure the developers were using the mortgage funds as intended. e borrowers' initial lawyer had refused to process the second mortgage because the mortgage lender declined to consent to its registration. e broker, knowing this information, advised the borrowers that the first mortgage lender's refusal was not a problem, as he knew another lawyer who could process the transaction for them. He advised them to proceed. Indeed, the broker found another lawyer to process the second mortgage. e broker advised the borrowers that proceeding with the second mortgage would not put their home at risk, provided the mortgage payments remained current. e broker told the Registrar's staff that he advised borrowers "all the time" to proceed over the objections of a first mortgage lender and this was the first time it had "backfired" on him. e broker was unaware of any requirement which would compel him to tell the borrower's lawyer, or any other party to the transaction, of the first mortgage lender's refusal. e borrowers later went into bankruptcy. e first mortgage lender learned of the second mortgage in that process and commenced foreclosure proceedings based on: n the mortgage having been breached by the claim of bankruptcy; and n the registration of the second mortgage over its objections. While the suspension order made in this case was for a limited time, the broker has not carried on as a registered broker. CIvIl lIaBIlIty e circumstances under which a broker is most likely to be held liable to a borrower for not protecting against a first mortgage lender calling its mortgage due are breach of contract (if there is a contract in place) or being found negligent in providing services to the client (that is, not performing the obligations and meeting the standards of a reasonably prudent broker). It is far less certain that the broker would have liability for the non-client second mortgage lender or the first mortgage lender. at said, the categories of liability are never closed. TakEaWay Not obtaining the consent of the first mortgage lender to registration of a second mortgage can expose the broker to regulatory action and civil liability. A prudent broker can take steps to minimize this exposure. 1 For convenience, this article refers to the existing mortgage as the first mortgage and the mortgage to be arranged as the second mortgage. In fact all mortgages, except the first mortgage, by their registration potentially breach then existing mortgages and accordingly raise the concerns discussed in this article. 2 In the Matter of the Mortgage Brokers Act and Richard Dowding and RBD Financial Inc. dba Mortgage Connection (BC Registrar of Mortgage Brokers) Nov 13, 2008.

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