In the main action, the Plaintiff alleged that his mortgage agent and brokerage were negligent and liable negligent misrepresentation after the Plaintiff failed to close on the purchase of a property in Brantford, Ontario (the “Property”).  While the Plaintiff secured a suitable mortgage commitment from an institutional lender well in advance of the closing date, the mortgage proceeds were not advanced in time for the intended closing on June 28, 2018, or the extended closing date of July 13, 2018.  As a result, the Plaintiff sought to recover $11,000 in pecuniary damages for the forfeited deposits and associated fees following the failed purchase of the Property and $5,000 in aggravated damages.  The Plaintiff sued the mortgage agent and brokerage that assisted him with the transaction (the “Defendants”) for his financial losses.

The Defendants denied any liability in the main action and issued a Defendant’s Claim against our client (the “Third Party Brokerage”) alleging that one of its mortgage agents was solely responsible for assisting the Plaintiff with securing mortgage financing.  The Defendants asserted that any broker related failings were the responsibility of the Third Party Brokerage.

In turn, the Third Party Brokerage denied that they acted for the Plaintiff in connection with the proposed mortgage financing but, in fact, acted as the brokerage representing the lender.

The trial judge found there was no evidentiary basis for finding that the Defendants or the Third Party Brokerage were responsible for any act or omission that could be connected to the lender’s failure to finance the purchase in time for the original and extended closing dates.  Notably, the trial judge also found that the Plaintiff did not rely on the Third Party Brokerage or its mortgage agent in connection with the failed purchase or the lost deposits.

In the absence of sufficient proof to establish causation and a breach of the standard of care, the main action and the Defendants’ Claim were dismissed with costs to be determined.

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Vicarious Liability: A Broker’s Personal Promise Does Not Bind the Brokerage

In Ceballos v. Pearl Hospitality Inc., 2020 ONSC 769, FCL LLP Associate, Sienna Molu obtained a favourable decision for the defendant brokerage after persuading the Ontario Superior Court that there was no genuine issues requiring trial. The court agreed that, contrary to the plaintiffs’ claim, the broker could not bind the defendant brokerage for a personal promise he made to the plaintiffs, without the express authority or knowledge of the brokerage.

In this case, the plaintiffs alleged that when securing their second mortgage, their mortgage broker, Mr. Lewis promised them a reimbursement of $5,000.00. This amount was never paid. The plaintiffs asserted that the brokerage, Mortgage Centre Canada (“MCC”), should be held vicariously liable for Mr. Lewis’s breach of agreement. Ms. Molu brought a motion for summary judgment to dismiss the claim against MCC. The court granted the motion.

In deciding this case, the court deliberated on two issues: whether there was an agreement between Mr. Lewis and the plaintiffs and beyond that, whether if there was an agreement, Mr. Lewis had the authority to bind MCC. The court declared that even if there was an agreement, this did not automatically establish the liability of MCC. Mr. Lewis’s intention was to do a personal favour for the plaintiffs and he did so without seeking the approval of MCC.

Vicarious liability of a company for the wrongful acts of its agents can only be established if the agent has the ostensible or apparent authority to bind the company. In addition, the agent or employee must commit the act in the course of their employment. An employer however, is not generally liable for wrongful acts committed by an independent contractor. In this case, Mr. Lewis was an independent contractor, and he acted beyond the scope of his employment. The plaintiffs failed to show that MCC authorized the agreement or that it was closely connected to any authorized acts. As such, the plaintiffs failed to establish a cause of action against MCC.

Arguably, this case stands for two important points: first, that to hold the brokerage vicariously liable for the negligence of the broker, the brokerage must have provided actual or ostensible authority to broker to bind the brokerage; and second, that a brokerage will not be held vicariously liable for unauthorized acts committed by an employee, unless said acts are closely connected to authorized acts.

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Every five years, an appointed Panel reviews the operation of the Mortgage Brokerages, Lenders and Administrators Act and its Regulations to make any necessary recommendations for change.

The Ministry of Finance has now released the Panel’s Report which is entitled Protecting and Modernizing Ontario’s Mortgage Broker Industry. The recommendations (set out below) are meant to create greater accessibility to the housing market for current and aspiring homeowners, streamline the framework for brokers and lenders, and increase consumer protection and anti-money laundering oversight.

PART 1: Reducing Burden and Increasing Access for Homeowners, Lenders, and Investors

1. Reducing Red Tape for Commercial Mortgage Transactions
2. Reducing Regulatory Burden by Establishing New Classes of Licensing
3. Reducing Regulatory Burden in Guidance, Bulletins and Forms
4. Maintaining Current Licensing Exemptions

PART 2: Strengthening Consumer Protection and Anti-Money Laundering Oversight

5. Raising and Streamlining Educational and Professional Standards for Agents and Brokers
6. Incentivising Registration for Private Lenders
7. Strengthening the Administrative Monetary Penalty Framework

If accepted, the newly created Financial Services Regulatory Authority of Ontario, which governs mortgage brokers, insurance, credit unions, loan and trust companies and pensions will play a key role in executing any accepted recommendations in the Report.

The impact of such changes will substantially alter the mortgage brokering/lending regime and incite new duties for legal professionals who work in this area. Stay tuned to see how Ontario chooses to implement these recommendations.

The post Ontario’s Proposed Overhaul of the Mortgage Lending and Broker Regime appeared first on FCL LLP.