Mortgage Brokerage - Agent for Lender

Purpose: To explain the requirements for a mortgage brokerage acting as an agent for a lender.

This bulletin applies to all mortgage brokerages, brokers and associates.

Mortgage brokerages may choose a business model in which they represent lenders. There are two types of lenders.

The first type of lender includes persons that are in the business of making loans secured by a mortgage, such as financial institutions, loan corporations, insurance companies, etc. Mortgage brokerages are not required to enter into a written service agreement with these types of lenders.

The second type includes private lenders, investors in syndicated mortgages and mortgage investment corporations. The level of service to each of the respective types can vary significantly and create different relationships for each type. For the purpose of the Information Bulletin, we use the term private lender to refer to the second type of lender. When the lender is a private lender, the mortgage brokerage may only represent the lender. The brokerage treats the borrower as a customer.

Representing private lenders
Agency describes a consensual relationship that you may create by contract or by law where one party, the principal, grants authority for another party, the agent, to act on their behalf. The agent is under the principal’s control to deal with a third party and the agent accepts responsibility for representing the principal.

You may create an agency relationship through express agreement (verbally or in writing) or implied (by actions). When a brokerage is representing a lender, the agreement must be in writing.

An agency relationship is fiduciary in nature, and the actions and words of an agent with a third party bind the principal. Agency law sets out rules and principles for these relationships.

When a brokerage is acting as the agent of a lender (representing the lender) it has a duty to protect that lender client’s interests. In this relationship, the mortgage brokerage has the highest level of legal responsibility to the lender. These responsibilities include:

Private lenders typically rely more on the mortgage brokerage’s expertise to conduct due diligence on the borrower and property. When a lender is considering committing to a loan, they will often rely on the mortgage brokerage’s recommendation.

To receive commission or remuneration, the brokerage must prove that a contract exists. The best solution is to execute a written service agreement.

Obligations to a lender client
When representing lenders, the mortgage brokerage must enter into a written service agreement. That agreement must:

Mortgage brokerages that represent private lenders must ensure the lender receives:

Best practices
A mortgage brokerage representing a lender client should:

Requirements and best practices when you administer a loan
When administering a mortgage for a lender, the mortgage brokerage must:

All written mortgage administration agreements should:

A mortgage brokerage should not sell interests in mortgages or represent lenders in relation to mortgages where the value of the mortgage exceeds the value of the real estate while acting as a mortgage broker under the Real Estate Act.

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