🤝 Brokerage Relationships, Fiduciary Duties, Disclosure, Privacy and Liability

1. Which statement BEST describes an agent in a mortgage brokerage agency relationship?

1. A person who arranges financing for a fee paid by whichever party closes the transaction
2. A person who must treat the borrower and the lender with equal loyalty in every mortgage deal
3. A person who completes a lender's standard forms for a borrower without advising either side
4. A person authorized by a principal to act on the principal's behalf with third parties

FMB Blueprint LO 4.1 asks candidates to define an agency relationship: the agent acts on behalf of a principal, with the principal's consent, in dealings with third parties. RECA's Consumer Relationships Guide says the same thing in plain words: an agent is someone who acts on your behalf with your permission. Completing forms without advising describes a customer service, and equal loyalty to both sides is not agency.

2. A mortgage brokerage has a written service agreement with a private lender to find and assess borrowers for the lender's funds. In this deal, how is the borrower classified?

1. As a second principal, because both parties benefit from the brokerage's work on the deal
2. As a third party, because the lender is the principal and the brokerage acts as its agent
3. As a sub-agent, because the borrower supplies the documents the lender relies on to fund
4. As the principal, because the borrower is the person who signs the mortgage application

FMB Blueprint LO 4.1 distinguishes the three components of agency: agent, principal and third parties. When the brokerage represents the lender under a written service agreement (Real Estate Act Rules s. 73(1)), the lender is the principal and the borrower is a third party, to whom the brokerage still owes honesty. Signing the application does not make the borrower a principal.

3. Under the agency principle restated in Real Estate Act Rules s. 48(a), when is an agency relationship established?

1. When the person expressly or implicitly consents and the licensee agrees or acts for them
2. When the licensee first receives the person's credit report and mortgage application
3. Only when the person and the licensee have both signed a written service agreement
4. Only once the licensee has been paid a fee or commission for the services provided

Real Estate Act Rules s. 48(a) restates the common law test for real estate trades, and the same principle governs mortgage agency: an agency relationship is established when a person expressly or implicitly consents that a licensee act on their behalf and the licensee consents to act or so acts. FMB Blueprint LO 4.1 asks candidates to outline how agency is created; a written service agreement is still mandatory for mortgage clients (s. 43(1)), but agency does not depend on the signature or on payment.

4. Which of the following is a duty that the principal owes to the agent?

1. Accept the first financing option the agent presents unless its rate is above market
2. Give the agent any facts that could affect the transaction or the agent's ability to act
3. Obtain independent legal advice before giving the agent any instruction on the mortgage
4. Keep the agent's commission details confidential from any lender involved in the deal

RECA's Consumer Relationships Guide lists the client's responsibilities to the agent: give the agent any information or facts that could affect the transaction or their ability to act, pay the agreed fees, and pay the agent's expenses as set out in the agreement. FMB Blueprint LO 4.1 asks for these duties of the principal to the agent. There is no duty to accept the first option presented.

5. What distinguishes a brokerage client from a brokerage customer?

1. A client is an individual borrower; a customer is a corporation or an institutional lender
2. A client pays the brokerage directly; a customer's brokerage fee is paid by the lender
3. A client is represented by the licensee; a customer is served without any representation
4. A client has signed a credit consent; a customer has given only oral consent to collection

FMB Blueprint LO 4.1 asks candidates to compare clients and customers. Real Estate Act Rules s. 48(b)-(c) state the distinction for real estate trades, and it applies equally in mortgage brokerage: a person in an agency relationship with the licensee is a client, and a person who is not is a customer. The difference turns on representation, not on who pays or on the type of party; a lender can be a client (s. 73).

6. When a licensee deals with a person as a customer rather than as a client, which duties does the licensee still owe that person?

1. Only the duty to avoid fraud, since customers accept all the risk of relying on the licensee
2. Act honestly, use reasonable care and skill, and make sure the information given is correct
3. Undivided loyalty, full disclosure and obedience, as for a client but without an agreement
4. Confidentiality and full accounting only, because advice is reserved for represented clients

RECA's Consumer Relationships Guide explains that in a customer relationship the licensee does not provide the services of an agent but must act honestly, use reasonable care and skill, and make sure any information given is correct. Loyalty and obedience are agency duties owed to clients only, while the honesty standard in Real Estate Act Rules s. 41(a) protects everyone the licensee deals with.

7. A borrower's intermediary service agreement ended when the mortgage funded. Which brokerage duty continues after the agreement ends?

1. Obeying the borrower's lawful instructions about the mortgage
2. Keeping the borrower's confidential information confidential
3. Negotiating the borrower's renewal terms with the same lender
4. Reporting rate changes to the borrower until the term matures

Clause 3.7 of RECA's intermediary service agreement states that the brokerage's duty to keep the borrower's information confidential continues after the agreement ends, and the Consumer Relationships Guide says the same of confidentiality in agency. FMB Blueprint LO 4.1 asks which obligations continue after a relationship ends; service duties such as obedience stop when the mandate ends.

8. Under RECA's sample intermediary service agreement, which event ends the agreement immediately, before the loan funds?

1. The first lender approached declines the borrower's financing request
2. The borrower asks a second brokerage for a rate quote on the property
3. The brokerage's licence to deal in mortgages is suspended or cancelled
4. The mortgage associate handling the file moves to another brokerage

Clause 8.1 of RECA's intermediary service agreement ends it immediately if both parties agree in writing, if the brokerage's licence is suspended or cancelled, if the brokerage is bankrupt, insolvent or in receivership, or after a material breach and written notice. One lender's refusal does not end it, since it normally runs until funding (clause 1.1), and the contract is with the brokerage, not the associate.

9. A borrower client instructs the mortgage associate not to disclose a material fact that the law requires to be disclosed to the lender. What must the associate do?

1. Make the disclosure but keep acting, since the client cannot end the relationship
2. Refuse to provide further services to or on behalf of the client who gave it
3. Have the broker sign a written waiver that releases the associate from the duty
4. Follow the instruction, because the duty of confidentiality to a client prevails

Real Estate Act Rules s. 41(j) requires licensees to refuse to provide further services to or on behalf of a client who instructs them to withhold a disclosure required by the Act, Regulations, Rules, Bylaws or any other law. Obedience is owed only to lawful instructions, and confidentiality gives way where disclosure is required by law (s. 44(1)(b)). No broker waiver can override the rule.

10. In an intermediary relationship, what is the brokerage's relationship with the borrower and with the lender?

1. Dual agency with both, with full fiduciary duties owed equally to each of the parties
2. Agency with the borrower only, since the borrower signs the intermediary agreement
3. Agency with the lender only, since the lender pays the brokerage's fee on funding
4. Non-agency with both: the brokerage represents neither the borrower nor the lender

FMB Blueprint LO 4.1 describes the intermediary relationship between the brokerage, the borrower (non-agency) and the lender (non-agency). RECA's intermediary service agreement states that the brokerage acts as an intermediary between the borrower and lenders (clause 4.3) and lists limited duties to each. Being paid by the lender (clause 7.1) does not make the lender a principal.

11. Under RECA's intermediary service agreement, each of the following is a brokerage responsibility to the borrower EXCEPT:

1. Disclosing and explaining the finance options available for the borrower to consider
2. Gathering the borrower's property and financial information to find lending options
3. Completing and submitting documentation to the lender and reporting on its progress
4. Advocating for the borrower with undivided loyalty in negotiations with the lender

Clause 4.3(a) of RECA's intermediary service agreement lists the responsibilities to the borrower: be honest, exercise reasonable care and skill, gather property and financial information, disclose and explain finance options, complete and submit documentation, and keep the borrower informed. Undivided loyalty and advocacy belong to an agency (representation) relationship, which an intermediary has with neither party.

12. Under RECA's intermediary service agreement, which responsibility does the brokerage owe to the lender?

1. Keep the lender informed of the progress of the borrower's application to it
2. Share the borrower's other financing quotes so the lender can match its competitors
3. Guarantee that the borrower's income and down payment information is all accurate
4. Negotiate the highest rate the borrower will accept so that the lender's yield rises

Clause 4.3(b) of RECA's intermediary service agreement lists the responsibilities to the lender: be honest, exercise reasonable care and skill, complete and submit documentation, disclose the verification steps taken, and keep the lender informed of the progress of the application (clause 4.3(b)(v)). Pushing the rate up or sharing the borrower's quotes would breach honesty and confidentiality toward the borrower, and nothing in the agreement makes the brokerage guarantee the borrower's information.

13. Acting as an intermediary, a brokerage knows the borrower would accept a rate 0.25% higher than the one offered. The lender asks what rate the borrower would accept. Which response fits the brokerage's duties?

1. Answer, because the lender pays the brokerage's fee and is therefore the deal's principal
2. Decline, because an intermediary is the borrower's fiduciary and must advance her interest
3. Decline, as this is the borrower's confidential information, given out only with consent
4. Answer, since an intermediary owes the lender the same full disclosure an agent would owe it

In the intermediary relationship the brokerage represents neither party (FMB Blueprint LO 4.1.13); it owes each honesty and reasonable care, not fiduciary loyalty. Clause 3.6(a) of RECA's intermediary agreement bars giving out the borrower's confidential information without consent unless required by law, and Rules s. 42(c) bars using confidential information for any purpose other than that for which it was obtained. The trap is believing an intermediary is a fiduciary to one or both sides.

14. Under RECA's sample intermediary service agreement, who pays the brokerage's fee for the mortgage transaction?

1. The borrower's lawyer pays it from trust after registration
2. The borrower pays it on funding, out of the mortgage advance
3. The borrower and the lender each pay half, per the commitment
4. The lender pays it, and other lender benefits are disclosed

Clause 7.1 of RECA's intermediary service agreement states that the brokerage receives its fee for the transaction from the lender, and clause 7.2 lists other monies or benefits the lender may pay, such as volume bonuses, trips or equity shares. Real Estate Act Rules s. 65(c)(iv)-(v) require written disclosure to borrowers of how the brokerage is compensated and of any other monies or benefits.

15. A lender pays a brokerage an extra bonus whenever a borrower accepts a rate above the lender's best available rate. What must the brokerage do?

1. Disclose to borrowers in writing the bonus and the factors that trigger its payment
2. Disclose the bonus orally if a borrower asks how the brokerage will be compensated
3. Report the bonus to RECA each year, since lender payments are not a borrower matter
4. Nothing more, because a lender's bonus is not a cost of credit paid by the borrower

Real Estate Act Rules s. 65(c)(v) requires a mortgage brokerage to disclose to borrowers in writing the nature of any other monies or benefits it will receive from the lender and the factors that influence their payment. RECA's intermediary agreement (clause 7.2) gives the example of additional fees paid because the borrower is paying a higher rate than otherwise available. Oral disclosure on request does not meet the written standard.

16. A consumer borrower signed an intermediary agreement promising to pay for the credit report and appraisal, but the mortgage never funds. Which statement is correct?

1. The brokerage may recover the costs only from the lender, which used the appraisal
2. The brokerage may recover these actual third-party costs even though nothing funded
3. The brokerage may recover its own fee and the costs, since the borrower signed the deal
4. The brokerage may recover nothing, since no fee is allowed before a commitment exists

Real Estate Act Rules s. 71(1) bars fees for helping a consumer borrower obtain a mortgage until a commitment is accepted and the initial disclosure period has run, but s. 71(2)(b) excludes actual fees disbursed to third parties for credit reports, Alberta Registries, courier and appraisal services when a written agreement exists. Clause 5.4 of RECA's intermediary agreement has the borrower pay these whether or not the loan funds.

17. When must a licensee deliver to the client a true copy of a signed written service agreement?

1. Within five business days after the client asks for it in writing
2. Before the mortgage funds, at the meeting with the client's lawyer
3. Immediately upon its signature, and likewise for any later amendment
4. Within two business days after signing, by e-mail or by courier

Real Estate Act Rules s. 43(3) requires a licensee to deliver to the client a true copy of a service agreement, and of any amendment or addition, immediately upon its signature. The two-business-day period in the Rules belongs to the initial disclosure statement under s. 71(1)(b), not to service agreements.

18. How does the written service agreement requirement in Real Estate Act Rules s. 43 differ between dealing in mortgages and trading in commercial real estate?

1. It is mandatory for both, but mortgage agreements may be oral under a dollar threshold
2. It is mandatory for mortgage clients but only recommended for commercial real estate
3. It applies only to lender clients for mortgages but to all clients for commercial deals
4. It is only recommended for both, unless the client asks to have the terms in writing

Under Real Estate Act Rules s. 43(1), a licensee who establishes a client relationship when dealing in mortgages must enter into a written service agreement, while s. 43(1.1) says a licensee trading in commercial real estate should do so. Lender clients have their own written agreement rule in s. 73(1). No dollar threshold applies.

19. Under Real Estate Act Rules s. 43(2), which term must every written service agreement with a mortgage client include?

1. A list of every lender the brokerage has approached about the client's application
2. The name of the lawyer the client will use to register the mortgage on the title
3. The interest rate and term the client will receive from the lender on final approval
4. How the client's personal or confidential information will be used and distributed

Real Estate Act Rules s. 43(2)(b) lists the required terms: names of the parties, the property and effective date if applicable, duration, services, responsibilities of each party, the use and distribution of personal or confidential information, remuneration, and termination provisions. The rate and term come later in the lender's commitment, not in the service agreement.

20. A mortgage brokerage agrees to represent an individual private lender in mortgage deals. What does Real Estate Act Rules s. 73(1) require?

1. A written service agreement between the brokerage and that lender client
2. A separate trust account opened in the lender's name for each mortgage
3. A signed acknowledgment from each borrower that the lender is the client
4. A Consumer Relationships Guide signed by the lender and sent to RECA

Real Estate Act Rules s. 73(1) requires mortgage brokerages that represent lenders in a mortgage deal to enter into written service agreements with lender clients, and s. 73(2) sets their content. Trust terms are needed only if the brokerage is expected to hold trust funds (s. 73(2)(b)(x)); no filing with RECA is required.

21. For which lender do the written service agreement and document delivery rules in Real Estate Act Rules s. 73(1)-(4) NOT apply?

1. An out-of-province relative funding one mortgage for a family member
2. A retired couple making their first private loan on a rental property
3. A credit union that the brokerage represents in a residential mortgage deal
4. A private individual investing her own savings in a single second mortgage

Real Estate Act Rules s. 73(6) states that s. 73(1)-(4) do not apply if the lender is a bank, treasury branch, credit union, loan corporation, trust corporation, insurance company or any person engaged in the business of making loans secured with mortgages. Individuals making occasional private loans keep the full protection of the written agreement and document delivery rules.

22. Under Real Estate Act Rules s. 73(2), a service agreement with a lender client must state the lender's risk tolerances respecting which matters?

1. The lender's tax position, estate plan and other investments outside the brokerage
2. Rate floors, renewal options, prepayment penalties and the brokerage's commission
3. Borrower credit scores, debt service ratios and the amortization set by the insurer
4. Title priority, loan-to-value, property type, foreclosure costs and source of capital

Real Estate Act Rules s. 73(2)(b)(vii) requires the lender service agreement to state the lender's risk tolerances respecting priority on title, ratio of loan to property value, nature and type of property used as security, costs and outcomes associated with foreclosures, and source of loan capital. Credit scores and debt service ratios are underwriting criteria, not the listed risk tolerances.

23. To save time, a mortgage associate gives a private lender client a pre-printed form waiving the written service agreement. Is the waiver valid under Real Estate Act Rules s. 73(5)?

1. Yes; any written waiver signed by the lender is valid, whoever first proposed it
2. Yes, but only once the broker countersigns it and files a copy with the Registrar
3. No; the Rules do not let a lender client waive the written service agreement
4. No; a waiver is valid only if the request comes from the lender and is in writing

Real Estate Act Rules s. 73(5) lets a prospective client waive s. 73(1) (written agreement) and s. 73(3) (delivery of documents) only if the waiver request originates with the prospective client and is in writing. A waiver proposed by the associate on a pre-printed form fails the first condition. The Rules do allow waivers, so an outright ban is wrong.

24. Unless an exception applies, what must a brokerage that represents a lender in a mortgage deal ensure the lender receives?

1. Copies of the registered mortgage, the certificate of title and any solicitor's report
2. Copies of the appraisal, the Real Property Report and the brokerage's commission invoice
3. Copies of the borrower's credit report, tax returns and all of the bank statements seen
4. Copies of the signed application, the borrower's ID and the Consumer Relationships Guide

Real Estate Act Rules s. 73(3) requires a brokerage representing a lender to ensure the lender is provided with a copy of the registered mortgage, a copy of the certificate of title for the property, and a copy of the solicitor's report, if any, on the registration and the effect of the transaction. The Real Property Report and title insurance appear in the borrower's list in s. 74(1)(b), not here.

25. A brokerage represents an individual private lender who has retained her own lawyer, and the lawyer has undertaken to give her every document that s. 73(3) covers. What is the brokerage's s. 73(3) obligation?

1. It must certify in writing to the lender that the lawyer's copies are complete
2. It must first obtain a written waiver from the lender before relying on the lawyer
3. It must still send its own copies, since the duty cannot be passed to a lawyer
4. None for those documents, since the lender's lawyer undertook that work for her

Real Estate Act Rules s. 73(7) states that s. 73(3) does not apply if the lender has retained legal counsel and the lender's counsel has undertaken these activities on the lender's behalf. A written waiver under s. 73(5) is needed only when no exception applies, and the Rules impose no certification step.

26. A brokerage directly represents a lender in its dealings with a borrower. When must the brokerage give the borrower a copy of the disclosure statement required by the Consumer Protection Act?

1. Within two business days after the mortgage is registered at Land Titles
2. Before the borrower agrees to the mortgage commitment issued by the lender
3. At the signing meeting with the lawyer, attached to the mortgage document
4. As soon as practical after funding, with the registered mortgage and title

Real Estate Act Rules s. 74(1)(a) requires a brokerage that directly represents the lender to give the borrower a copy of the Consumer Protection Act disclosure statement prior to the mortgage commitment being agreed to by the borrower. The 'as soon as practical after funding' timing in s. 74(1)(b) applies to the registered mortgage, title, solicitor's report and any title insurance or RPR.

27. A brokerage directly represented the lender in its dealings with a borrower. After funding, the borrower's own lawyer has already given her every document listed in s. 74(1)(b). What does s. 74 require of the brokerage for those documents?

1. Send them before funding in future, because s. 74 requires delivery in advance
2. Obtain the lender's written consent before releasing any copy to the borrower
3. Nothing more for those documents, because the borrower has already received them
4. Send its own copies anyway, because the duty is owed by the brokerage personally

Real Estate Act Rules s. 74(1)(b) requires the brokerage to give the borrower, as soon as practical after funding, the registered mortgage, the certificate of title, any solicitor's report and any title insurance or RPR obtained, but s. 74(2) says this applies only if the borrower has not already received the information. Only the disclosure statement in s. 74(1)(a) is due before the commitment.

28. When must a licensee disclose to clients how the licensee will be paid for services?

1. At funding, when the fee appears on the lawyer's adjustments
2. Within 30 days after the client asks for it in a written request
3. Only once the lender has issued a written commitment to fund
4. At the earliest practical opportunity in dealing with the client

Real Estate Act Rules s. 41(c) requires licensees to disclose to their clients, at the earliest practical opportunity, how they will be paid for their services. For mortgage brokerages, s. 65(c)(iv) adds a written disclosure to borrowers of how the brokerage will be compensated for the transaction. Waiting until the commitment or funding defeats the purpose of the disclosure.

29. A mortgage associate's brother runs a private lending company that could fund a client's second mortgage at a competitive rate. Which statement about this connection is correct?

1. It is not a conflict, since the associate holds no shares in the brother's lending company
2. It is not a conflict, since the brother's company is a lender and not a competing brokerage
3. It is a potential conflict to disclose, even if the brother's rate is the best available
4. It is a conflict only if the associate will share in the lender's fee on this second mortgage

Real Estate Act Rules s. 41(f) requires licensees to disclose to their clients any conflict of interest they may have in providing services, and FMB Blueprint LO 4.1.33 asks candidates to detect conflicts of interest. A close relative's lending business can sway the associate's recommendation, so it is a potential conflict whether or not the associate owns shares or shares in a fee, and a competitive rate does not remove it; the client needs the information before relying on the advice.

30. An associate who holds shares in a mortgage investment corporation (MIC) recommends the MIC's loan, planning to disclose the shareholding in the commitment package the borrower signs. What is the problem?

1. None; holding shares in a lender is not a conflict unless the associate is also a director
2. The disclosure comes too late; the borrower must learn of it before relying on the advice
3. None; written disclosure in the commitment package fully meets the standard in the Rules
4. The disclosure must go to RECA instead, as borrowers cannot assess conflicts on their own

Real Estate Act Rules s. 41(f) requires conflict disclosure at the earliest practical opportunity, so the client can weigh the recommendation knowing the conflict; disclosing it in the commitment package, after the advice has been relied on, defeats that purpose. A financial interest in a lender is a conflict even without a board seat, and s. 75 adds written disclosure of any direct or indirect interest when a licensee deals on their own behalf.

31. A conflict of interest arises after a borrower has engaged a brokerage. Which response BEST protects the borrower?

1. Disclose it promptly so the borrower can consent or be referred to another brokerage
2. Disclose it orally once funding is approved, so that the borrower's file is not delayed
3. Keep it confidential and manage it internally so that the borrower is not worried
4. Have the borrower sign a release waiving any claim that may arise from the conflict

FMB Blueprint LO 4.1 asks candidates to outline remedies available to the principal and to recommend conflict mitigation methods. Real Estate Act Rules s. 41(f) requires disclosure at the earliest practical opportunity; the client can then give informed consent, or the licensee can refer the client to another licensee or end the relationship. A release does not cure a conflict.

32. Real Estate Act Rules s. 65(c) requires a mortgage brokerage to disclose each of the following to borrowers in writing EXCEPT:

1. How the brokerage will be compensated for this mortgage transaction
2. Any additional fees payable by the borrower for the brokerage's services
3. The commission split between the brokerage and its mortgage associate
4. The nature of its service relationship with the borrower and the lender

Real Estate Act Rules s. 65(c) lists the written disclosures to borrowers: the nature of the service relationship with the borrower, the nature of the relationship with the lender, the range of lenders whose products it offers, how it will be compensated for the transaction, other monies or benefits from the lender and the factors influencing them, and any additional fees payable by the borrower. How the brokerage is paid must be disclosed, but the internal split with the associate is not on the list.

33. A brokerage is set up with ten lenders but in practice offers borrowers the products of only two of them. What does Real Estate Act Rules s. 65(c) require it to tell borrowers?

1. Orally, the names of the two lenders it uses most, if a borrower asks about it
2. In writing, the range of lenders whose products it actually offers them
3. In writing, each of the ten lenders' market share in Alberta's mortgage market
4. Nothing, as borrowers can ask which lenders were approached on their own file

Real Estate Act Rules s. 65(c)(iii) requires a mortgage brokerage to disclose to borrowers in writing the range of lenders whose products it offers. A borrower who assumes the brokerage shops the whole market needs to know when it effectively offers only a few lenders. Oral answers on request or market statistics do not meet the rule.

34. Real Estate Act Rules s. 72(1) requires a brokerage to disclose in writing the steps it took to verify information. Which information does the rule expressly include?

1. The borrower's income and down payment, but not identity, which the lender confirms
2. The items that the lender has asked the brokerage in writing to verify on its behalf
3. The borrower's identity alone, as the lender verifies the application information itself
4. The application, other borrower or lender representations, and the parties' identity

Real Estate Act Rules s. 72(1) requires a brokerage to disclose in writing to the parties what steps, if any, it took to verify the information obtained or supplied, including information in the mortgage application, other representations made by the borrower or lender, and the identity of the parties. The rule is not limited to identity, to income or to items the lender requests; under s. 72(2), the brokerage keeps copies of the supporting documentation in its file.

35. On a rushed file, a brokerage did not verify the borrower's stated income at all. What does Real Estate Act Rules s. 72 require?

1. Disclose in writing to the parties that no verification of that information was done
2. Tell the lender orally, since only the lender relies on the verification information
3. Verify the income after funding and then add those documents to the brokerage file
4. Nothing, since s. 72 applies only to steps that the brokerage actually chose to take

Real Estate Act Rules s. 72(1) requires written disclosure to the parties of what steps, 'if any', were taken to verify information, so the parties learn when nothing was verified. The disclosure goes to the parties to the deal, not only the lender, and verifying after funding does not cure the missing disclosure. Under s. 72(2), the brokerage keeps supporting documentation for any verification it does.