Representing the Borrower, Borrower Consent & Disclosure
Understanding Consumer Broker Relationships and Written Service Agreements:
When you enlist a broker to help you find the right mortgage for your real estate purchase, it is important to have a written service agreement in place. The purpose of this is to protect your interests and clarify the obligations of both parties, reducing the possibility for conflict or confusion. These agreements have several elements in common:
They delineate your obligations as the borrower — and the obligations of the broker.
They describe what the mortgage broker will do to service your loan.
They clarify any applicable fees as well as the method of payment.
They receive your consent for gathering, maintaining, utilizing and distributing your personal information.
They provide a blueprint for handling any possible conflicts of interest.
They establish consent for running a credit application to approve your loan.
They often establish an option for you to receive your communication from the broker electronically after funding.
In Canada, mortgage brokers who set up a relationship between a client borrower or lender, or who act as the lender for the borrower, have to put together a written service agreement. All of the above elements are required to be a part of any written service agreement.
Now let’s take a look at some of the different types of agreements that arise in this sort of relationship. If the broker is representing a borrower, he or she has to establish a “Representing the Borrower” agreement. There are several elements in this type of agreement:
1. The Agreement Term (the establishment date when the agreement becomes effective, and setting the termination date at the point when the loan is funded.
2. The Services — basically, this involves determining whether a borrower is eligible for credit and is who he says he is. There could be some other optional services here, such as homeowner’s insurance or life insurance choices.
3. Personal Information Protocol — Without the consent to use your client’s personal information, you cannot represent their loan application effectively. You have to have their consent to see their information so that you don’t run afoul of the Personal Information Protection Act (PIPA), though. This section indicates the approved destinations for the personal information as far as supporting the application and notifying third parties of the transaction’s progress (your realtor would be an example). This section allows you either to give or withhold consent for your broker to send you electronic messages after the mortgage has been funded.
4. Responsibilities — This section indicates what the broker is responsible for handling during the agreement’s term.
5. Relationship Disclosure — Here you can read that the broker is obligated to act in your best interest and act on your behalf in recommending a particular mortgage option.
6. Borrower Responsibilities — This has to do with your duties for paying for the broker’s services and providing information.
7. Consent to the Credit Bureaus — This satisfied the Fair Trading Act’s requirement that the broker get consent from you before he pulls your credit report. Consent must be in an email, a written document or in a recorded conversation. The broker must be able to demonstrate that you consented to your credit being pulled — and that you are who you say you are.
8. Brokerage Fee (if applicable) — In some cases, only the lender pays the broker a fee, but if you are paying one too, this section will indicate that.
If the broker is acting as an intermediary between you and the lender, there will be a slightly different agreement for you and the broker to fill out. The structure of the agreement is the same, but it’s important to know that the broker is not there to give you help and advice. Instead, the broker is simply connecting you and the lender, so the broker isn’t acting in your interests. If you want to retain a lawyer to look over the agreements before signing them, this can be a wise step.
In some cases, the broker is representing the lender, so the agreement you sign with him will simply indicate that you realize that the broker is advocating for the lender, rather than remaining neutral, and that you are merely consenting to the pulling of your credit and the completion of your credit application. It is important to understand that not only is the broker not neutral in this case, but that the broker is representing the lender’s interests. It is definitely wise to have an attorney look over all of the paperwork before you sign your mortgage paperwork. While unethical mortgage brokers are definitely the minority, the amount you’re investing in paying back this mortgage is worth the extra few hundred dollars to have an attorney review papers before you sign them.
DLC Brokers For Life Inc. (The Brokerage) acts primarily as a Borrower Representation based brokerage providing advice and looking out for the best interests of the applicant/client. Amansad Financial Services operates under DLC Brokers For Life Inc and acts primarily as a Lender Representation based relationship looking out for the best interest of our clients; The Private Investors & Lenders that we work who provide the solutions that the banks can’t offer.