"A mortgage broker has fiduciary duties to a borrower. A mortgage lender does not." A decision published on March 28, 2011 by the California Court of Appeals (2 Dist.) clarifies the differences between duties owed to a borrower by a mortgage broker and those owed by a mortgage lender. To avoid potential lawsuits for breach of fiduciary duty or negligence, mortgage lenders should take care not to assume the mantle a mortgage broker (e.g. soliciting lenders or negotiating loans with third party lenders on behalf of a borrowers for a fee).

In Smith v. Home Loan Funding Inc. (2011) 192 Cal.App. 1131, the California Court of Appeal affirms the lower court's award of damages based on breach of fiduciary duty and misrepresentation against a mortgage lender that acted as a broker. The Court found that Home Loan Funding, Inc., ("HLF") acted as a mortgage broker when its agent represented that he was a mortgage broker, would "shop" Smith's home equity loan to other lenders, and would secure the best loan available to Smith. In addition, the Court considered the fact that HLF conceded that it had placed some if its loans with brokers and that HLF's agent admitted that, during his employment, he had placed loans with other lenders. Under these circumstances, the Court of Appeal found that there was ample evidence to support the trial court's finding that HLF acted as a mortgage broker and had, therefore, assumed fiduciary duties to Smith, which HLF breached.

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