In New Brunswick, a mortgage brokerage can act for either the borrower or the private investor, but not both. This means that an associate or broker representing one side of a private lending transaction must have another brokerage represent the other party.
When associates and brokers act on behalf of a brokerage, they have a duty to act fairly, honestly and in good faith in all of their activities and this includes additional obligations when acting for borrowers or private investors.
Sections 26 and 27 of the Mortgage Brokers Act set out a duty to act in the client’s “best interest”. As per s. 27, where there is a private investor involved in the transaction that the brokerage is soliciting, negotiating or arranging with to make an investment in the mortgage or advising about the appropriateness of investing in the mortgage, the brokerage can no longer act in the borrower’s best interest and must therefore ensure that the borrower is represented by another mortgage brokerage.
Simply having an associate or broker from another brokerage discuss the transaction with one of the parties does not meet the best interest requirement; nor can the borrower or private investor opt out or consent to having the brokerage represent both sides.
Best interest for the borrower means performing actions and making suitability recommendations that benefit or favour the borrower. A duty of care is established between the brokerage and the borrower, ensuring that only the interests of the borrower are represented.
Conversely, if the brokerage is acting for the private investor, the best interests of the private investor must be represented. In this scenario, the duty of care is now between the brokerage and the private investor.
Although it is considered a clear violation of the Act for a brokerage to represent both the borrower and the private investor in a mortgage transaction, recent compliance reviews conducted by FCNB suggest this practice seems to be taking place.
During compliance reviews, compliance officers are ensuring adherence with the Act. Serious violations of the Act, including representing both sides in a transaction, may prompt further investigation into the circumstances of the transactions and enforcement action.
Mortgage brokerages and their associates and brokers need to ensure they understand their obligations and comply with them. For complete details respecting the representation of borrowers and private investors and the rules that apply, please refer to the Mortgage Brokers Act and Rule MB-001.
Alaina M. Nicholson
Director of Mortgage Brokers
20 May 2020