June 9th - 2005

Merv’s column: Both in a couple are clients

These buyers of modest means purchased a condominium unit and arranged a mortgage through an experienced mortgage broker.

These buyers of modest means purchased a condominium unit and arranged a mortgage through an experienced mortgage broker. The matter of mortgage insurance was discussed and the buyers thought that it was included in their monthly payment. No waiver of insurance was ever signed. When the male buyer died, his wife was told that there was no mortgage insurance.

The broker said that he discussed it with the male buyer and sent him forms. The judge found that since both buyers were clients they both should have been told about the insurance.

Parts of the evidence also disclosed that:

  • The broker was not in the habit of keeping notes; however, he did have a reference on his file folder that the insurance was declined.
  • He would routinely backdate documents.
  • He received a finder’s fee of $100 for every deal he referred.
  • He never spoke to Mrs. Buyer as he "was of the view an oral communication by only one of the parties was sufficient."
  • Another employee was to check the documents. "She was also under the mistaken belief that only one of the clients had to sign. She indicated her belief was based on her experience and from taking the mortgage brokers course."

The judge held that the buyers put their trust and confidence in the mortgage broker and they became his clients making the relationship fiduciary in nature. He knew the importance of life insurance and the necessity to obtain coverage or a waiver from both clients. "Joint instructions were required. To suggest only one of the clients could provide binding instructions defies logic and common sense." He had a duty to inform and was clearly negligent and his brokerage is liable as his employer. The Buyer is entitled to the amount of the mortgage.

St. Louis v CIBC Mortgages 2004 ONSC 11502

MERV'S COMMENTS
Mortgage brokers and REALTORS should make sure that both clients are involved in all discussions - and that both receive copies of all documents. Make notes at the time of the event and use professional procedures. Backdating documents and similar practices may result in large losses.

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