To Avoid Assuming Fiduciary Duties, Mortgage Lenders Should Take Care To Avoid Acting As Mortgage Brokers


"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.

Please see full article belowf or more information.

LOADING PDF: If there are any problems, click here to download the file.

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.

© Sheppard Mullin Richter & Hampton LLP | Attorney Advertising

Written by:


Sheppard Mullin Richter & Hampton LLP on:

JD Supra Readers' Choice 2016 Awards
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.