Mortgage Brokers: What Fiduciary Duties Exist?


As the incidence of brokered mortgage loans increases, the question of what legal role mortgage brokers play in arranging loans has come to the fore. Many mortgage brokers consider themselves mere intermediaries between borrowers and lenders, with no particular legal duty to either side. Borrowers, on the other hand, tend to believe that mortgage brokers represent their interests in arranging loans and are sometimes surprised to find that the broker has been paid a commission by the lender, or that the broker has not sought out multiple loan products before committing the financing. The law on the fiduciary duties applicable to mortgage brokers has been developing in the courts, with decisions scattered throughout the states on the fiduciary duties of mortgage brokers. This article reviews the principal/agent theories applicable to fiduciaries and analyzes the cases that have applied those theories to the finding and arranging of real estate loans.

This article appeared in the October 2007 issue of Mortgage Banking magazine, a publication of the Mortgage Bankers Association and is reprinted with permission.

(Note: The law of mortgage brokers' fiduciary duties continued to develop in the courts and through legislation between the time of this article in 2007 and 2010 and an updated review of the subject was published in Mortgage Banking magazine in October 2010, titled "Meltdown Pushes More Fiduciary Duties on Brokers.")

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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