The Fundamentals of Mortgage Brokerage Mortgage Associates Program
TABLE OF CONTENTS INTRODUCTION: THE FUNDAMENTALS OF MORTGAGE BROKERAGE Course Overview... 1 Course Goals... 1 Course Features... 1 Course Manual... 1 Online Course... 2 Course Orientation... 2 Course Activities/Quizzes... 2 Course Tracking... 2 RECA Education Helpdesk... 2 Exam Preparation Quiz... 2 Exam Tour... 3 Glossary... 3 Course Structure... 3 Units... 3 Sessions... 4 Activities... 4 Unit Quizzes... 4 Education Services Support... 5 Benefits of E-Learning... 5 RECA Education Helpdesk... 5 Contact RECA Education Helpdesk by Email... 5 Contact RECA Education Helpdesk by Phone... 5 Learner Support Within the Course... 6 Course Questions and Answers... 8 Course System Requirements... 12 Course Examinations... 13 Exam Preparation Tips... 14 Exam Preparation Quiz... 15 Permission to Write Exam... 15 Permission to Write Form... 15 Permission to Rewrite Form... 16 Failing Exam Rewrite... 16 Sample Permission to Write Form... 17 Sample Permission to Rewrite Form... 18 Scheduling Exam at an Exam Centre... 19 Exam Guidelines for Learners... 19 Book Your Exam Centre Appointment... 19 Admission to the Exam Room... 19 During the Exam... 20 Learners Non-Compliant Conduct... 20 2011 Real Estate Council of Alberta i
Education Administration: Policies and Procedures... 21 Education Code of Conduct for Learners... 21 RECA Education Core Values... 22 RECA Education Privacy Policy... 23 RECA Education Course/Exam Policies and Procedures... 24 Course Delivery... 25 Enrollment Extensions... 26 Exams... 27 UNIT 1: INTRODUCTION TO MORTGAGE BROKERAGE Unit Overview... 1-1 Unit Learning Objectives... 1-1 Session 1: Understanding Mortgage Brokerage... 1-2 Session Overview... 1-2 Learning Objectives... 1-2 Course Terminology... 1-2 Basic Mortgage Concepts... 1-2 What is a Mortgage?... 1-3 What is Real Property?... 1-3 What is Dealing in Mortgages?... 1-4 Connection Between Mortgages and Real Estate... 1-4 Residential Mortgages... 1-5 Commercial and/or Industrial Mortgages... 1-5 Agri-Business Mortgages... 1-5 Summary... 1-5 Origin of the Term Mortgage... 1-6 Overview of the Mortgage Brokerage Industry... 1-6 Historical Developments Affecting Mortgages... 1-7 1930 s... 1-7 1940 s... 1-8 1950 s... 1-8 1960 s... 1-8 1970 s... 1-9 1980 s... 1-9 1990 s... 1-9 2000 s... 1-10 2010 s... 1-11 Financial Landscape of Mortgages... 1-12 Capital Market... 1-12 Mortgage Market... 1-13 Impact of Interest Rates on Mortgages... 1-14 Sources of Mortgage Financing... 1-15 Career as a Mortgage Associate... 1-15 2011 Real Estate Council of Alberta ii
Benefits of Working with a Mortgage Brokerage Industry Member... 1-16 Alberta Consumers Receptive to Work with Mortgage Brokerage Industry Members... 1-17 Functions of a Mortgage Associate... 1-17 Disclosure Requirements... 1-18 Gather Documentation and Information... 1-18 Prepare and Submit Loan File... 1-18 Close Deal and Follow-up... 1-19 Key Knowledge Areas... 1-19 Session 2: Structure and Scope of Alberta s Mortgage Brokerage Industry... 1-20 Session Overview... 1-20 Learning Objectives... 1-20 Evolution of Self-Regulation... 1-20 Real Estate Council of Alberta... 1-22 Mandate, Mission, Vision and Philosophy... 1-22 Composition of Council... 1-23 Responsibilities of Council... 1-23 Council and the Executive Director... 1-24 Responsibilities of the Executive Director... 1-24 Responsibilities of RECA... 1-25 Session 3: Mortgage Brokerage Industry Related Organizations and Professions... 1-29 Session Overview... 1-29 Learning Objectives... 1-29 Mortgage Brokerage Trade Associations... 1-29 Alberta Mortgage Brokers Association... 1-29 Canadian Association of Accredited Mortgage Professionals... 1-30 Mortgage Brokerage Related Organizations... 1-30 Provincial Government... 1-30 Alberta Real Estate Foundation... 1-31 Law Society of Alberta... 1-31 Federal Government... 1-32 Mortgage Brokerage Related Professions... 1-32 Real Estate Industry Members... 1-33 Real Estate Lawyers... 1-34 Real Estate Appraisers... 1-34 Real Property Assessors... 1-34 Real Property Inspectors... 1-35 Mortgage Insurers... 1-36 Land Surveyors... 1-37 Title Insurers... 1-37 Mortgage Lenders... 1-37 Condominium Document Reviewers... 1-37 Appendix 2011 Real Estate Council of Alberta iii
UNIT 2: INTRODUCTION TO MORTGAGES Unit Overview... 2-1 Unit Learning Objectives... 2-1 Session 1: Mortgage Overview... 2-2 Session Overview... 2-2 Learning Objectives... 2-2 Mortgage Terms and Definitions... 2-2 Sources of Mortgage Financing... 2-4 Institutional Lenders... 2-4 Non-Institutional Lenders... 2-7 Government Funding... 2-8 Private Lenders... 2-9 Session 2: Qualifications for Mortgage Financing... 2-12 Session Overview... 2-12 Learning Objectives... 2-12 Purposes for Mortgage Financing... 2-12 Finance Purchase... 2-12 Finance New Construction... 2-12 Refinance... 2-13 Equity Take-Out... 2-13 Borrower Qualifications... 2-14 Credit Analysis... 2-14 Affordability Guidelines... 2-17 Residential Mortgages... 2-17 Commercial/Industrial Mortgages... 2-18 Agri-Business Mortgages... 2-20 Impact of Credit Analysis on Mortgage Lending... 2-21 Prime Lending... 2-21 Near-Prime Lending... 2-21 Sub-Prime Lending... 2-21 Session 3: Mortgage Insurance and Mortgage Security... 2-23 Session Overview... 2-23 Learning Objectives... 2-23 Conventional Mortgage vs. High Ratio Mortgage... 2-23 Mortgage Insurance... 2-24 Origins of Mortgage Insurance in Canada... 2-25 Mortgage Insurance Providers... 2-26 Mortgage Security... 2-28 Mortgage Priority and Title Registration... 2-29 Mortgagee Priority Rights... 2-29 Primary and Collateral Security... 2-30 General Security Agreement... 2-31 Promissory Note... 2-31 2011 Real Estate Council of Alberta iv
Session 4: Types of Mortgages... 2-32 Session Overview... 2-32 Learning Objectives... 2-32 Assumable Mortgage... 2-32 Equity Mortgage... 2-33 Vendor Take-Back Mortgage... 2-33 Agreement for Sale... 2-34 Wraparound Mortgage... 2-34 Blanket Mortgage... 2-35 Builder s Loan or Draw Mortgage... 2-35 Interim or Bridge Financing... 2-35 Participating Mortgage... 2-36 Discount Mortgage... 2-36 Collateral Mortgage... 2-36 Reverse Mortgage... 2-37 Purchase Plus Improvements Mortgage... 2-37 Leasehold Mortgage... 2-37 Session 5: Mortgage Features and Privileges... 2-39 Session Overview... 2-39 Learning Objectives... 2-39 Open Mortgage and Closed Mortgage... 2-39 Open Mortgage... 2-39 Closed Mortgage... 2-39 Fixed, Variable and Adjustable Rate Mortgages... 2-40 Fixed Rate Mortgage... 2-40 Variable Rate Mortgage... 2-40 Adjustable Rate Mortgage... 2-41 Mortgage Privileges... 2-41 Early Renewal Privilege... 2-41 Prepayment Privilege... 2-42 Mortgage Portability... 2-42 Mortgage Expandability... 2-43 Cash Back... 2-43 Municipal Tax Installment Payment Plan... 2-43 Mortgage Payment Methods... 2-43 Blended Payment... 2-44 Periodic Payment... 2-44 Interest-Only Payment... 2-44 Mortgage Payout Penalties... 2-44 3-Month Interest Penalty... 2-44 Interest Rate Differential... 2-44 Appendix 2011 Real Estate Council of Alberta v
UNIT 3: CONTRACT LAW Unit Overview... 3-1 Unit Learning Objectives... 3-1 Session 1: Common Law and Real Property... 3-2 Session Overview... 3-2 Learning Objectives... 3-2 Canadian Legal System... 3-2 Statute Law... 3-2 Case Law... 3-2 Common Law... 3-3 Development of Canadian Law... 3-3 Development of Real Property Law... 3-4 Doctrine of Tenure... 3-4 Doctrine of Estates... 3-5 Dower Act in Alberta... 3-6 Statute of Frauds... 3-6 Session 2: Contract Law... 3-7 Session Overview... 3-7 Learning Objectives... 3-7 Definition of a Contract... 3-7 Essential Elements of a Contract... 3-8 Capacity of the Parties... 3-8 Legal Object... 3-8 Intent to Contract... 3-8 Consideration... 3-9 Mutual Agreement... 3-9 Genuine Consent... 3-9 Void, Voidable or Illegal Contracts... 3-10 Contract Conditions... 3-11 Conditions Precedent... 3-11 Conditions Subsequent... 3-12 Contract Terms... 3-12 Termination or Discharge of Contracts... 3-12 Performance... 3-12 Mutual Agreement... 3-12 Frustration... 3-13 Operation of Law... 3-13 Breach... 3-13 Remedies for Breach of Contract... 3-13 Monetary Damages... 3-13 Quantum Meruit... 3-14 Specific Performance... 3-14 Injunction... 3-14 2011 Real Estate Council of Alberta vi
Session 3: Contracts in Mortgage Brokerage... 3-15 Session Overview... 3-15 Learning Objectives... 3-15 Mortgage Brokerage Contracts... 3-15 Brokerage Employment Contracts... 3-15 Real Estate Purchase Contracts... 3-16 Mortgage Contracts between Borrowers and Lenders... 3-16 Brokerage Service Agreements with Lenders and/or Borrowers... 3-16 UNIT 4: REAL PROPERTY LAW AND RELATED LEGISLATION Unit Overview... 4-1 Unit Learning Objectives... 4-1 Session 1: Real Property Ownership... 4-2 Session Overview... 4-2 Learning Objectives... 4-2 Overview of Real Property... 4-2 Characteristics of Land... 4-2 Real Property and Personal Property... 4-3 Types of Estates in Land... 4-4 Fee Simple... 4-4 Leasehold Estate... 4-4 Life Estate... 4-5 Real Property Rights and Ownership... 4-5 Sole Ownership... 4-6 Dower Rights... 4-6 Joint Tenancy... 4-7 Tenancy in Common... 4-7 Legislated Limitations to Ownership Rights... 4-8 Powers of Government... 4-8 Surface Rights and Mineral Rights... 4-8 Session 2: Registered Interests in Land... 4-10 Session Overview... 4-10 Learning Objectives... 4-10 Registered Interests in Land... 4-10 Registered Encumbrances... 4-11 Easement... 4-11 Caveat... 4-12 Encroachments... 4-12 Restrictive Covenants... 4-13 Liens... 4-13 Builders Liens... 4-13 2011 Real Estate Council of Alberta vii
Certificates of Lis Pendens... 4-15 Leases... 4-15 Writs of Enforcement... 4-16 Party Wall Agreements... 4-16 Mortgages... 4-16 Mortgage Priority... 4-17 Interests with Priority Over a Mortgage... 4-19 Property Taxes... 4-19 Condominium Fees... 4-19 Session 3: Land Titles System and Title Registration... 4-21 Session Overview... 4-21 Learning Objectives... 4-21 Land Registration Systems... 4-21 Private Conveyancing (Transfer)... 4-21 Deeds Registration... 4-21 Torrens System... 4-22 Torrens System of Land Titles Registration... 4-22 Key Principles of the Torrens System... 4-23 Land Titles Act... 4-24 Land Titles Offices... 4-24 Land Titles Assurance Fund... 4-25 Land Title Conveyancing... 4-25 Title Registration... 4-26 Title Registration Process... 4-26 Certificate of Title... 4-27 Types of Registered Documents... 4-28 Discharge of Registration... 4-28 Transfer of Title... 4-29 Historical Title Search... 4-29 Conducting a Title Search... 4-30 How to Conduct Searches Using SPIN... 4-31 Session 4: Legal Land Descriptions... 4-33 Session Overview... 4-33 Learning Objectives... 4-33 Alberta Land Surveyors... 4-33 Legal Land Descriptions... 4-34 Undivided Land... 4-34 Subdivided Lands... 4-37 Survey Plans... 4-38 Fee Simple Plans... 4-38 Condominium Plans... 4-39 Strata Plans... 4-40 Real Property Reports... 4-40 Current Real Property Reports... 4-41 2011 Real Estate Council of Alberta viii
Information Provided by Real Property Reports... 4-41 Municipal Certificate of Compliance... 4-42 Benefits of a Real Property Report... 4-45 Title Insurance... 4-45 Lender Policy... 4-46 Owner Policy... 4-46 Summary of Benefits... 4-49 Session 5: Municipal Government Act... 4-50 Session Overview... 4-50 Learning Objectives... 4-50 Municipal Development Plan... 4-50 Municipal Land Use Bylaw... 4-51 Land Use Districts... 4-52 Residential Districts... 4-52 Commercial Districts... 4-52 Industrial Districts... 4-53 Special Districts... 4-53 Permitted vs. Discretionary Use... 4-53 Development Permits... 4-54 Building Permits... 4-54 Illegal and Non-Conforming Uses... 4-55 Land Use Verification... 4-56 Building Codes... 4-57 Municipal Property Assessment... 4-58 Municipal Property Taxation Process... 4-60 Summary of Municipal Taxation Process... 4-61 Local Improvement Taxes... 4-61 Property Tax Adjustments... 4-62 Property Tax Payments... 4-62 Session 6: Other Real Property Legislation... 4-64 Session Overview... 4-64 Learning Objectives... 4-64 Condominiums... 4-64 Types of Condominiums... 4-65 Condominium Title Searches... 4-66 Condominium Documents... 4-68 Cooperatives... 4-72 Environmental Legislation... 4-73 Agricultural and Recreational Land Ownership... 4-73 Further Resources... 4-74 Appendix 2011 Real Estate Council of Alberta ix
UNIT 5: MORTGAGE LAW AND RELATED LEGISLATION Unit Overview... 5-1 Unit Learning Objectives... 5-1 Session 1: Introduction to Mortgage Law... 5-2 Session Overview... 5-2 Learning Objectives... 5-2 Origins of Mortgage Law... 5-2 Covenants of a Mortgage... 5-3 Borrower Covenants... 5-3 Lender Covenants... 5-5 Title Registration of Mortgage... 5-6 Priority of Mortgage... 5-7 Postponement of Mortgage... 5-8 Transfer of Mortgage... 5-9 Assignment of Mortgage... 5-10 Assumption of Mortgage... 5-10 Discharge of Mortgage... 5-12 Session 2: Mortgage Default and Enforcement Remedies... 5-13 Session Overview... 5-13 Learning Objectives... 5-13 Mortgage Enforcement Remedies... 5-13 Action on Covenant for Payment... 5-14 Foreclosure... 5-15 Foreclosure Process... 5-15 Personal Property Security Act... 5-21 Session 3: Fair Trading Act... 5-24 Session Overview... 5-24 Learning Objectives... 5-24 Fair Trading Act and Mortgage Brokerage... 5-24 Cost of Credit Disclosure... 5-25 Restrictions on Advance Fees... 5-26 Disclosure Statement... 5-27 Notice... 5-28 Calculating the Cost of Credit... 5-29 Floating Interest Rates... 5-30 Renewals... 5-30 Advertising... 5-30 Credit Reports... 5-31 Session 4: Related Legislation... 5-32 Session Overview... 5-32 Learning Objectives... 5-32 2011 Real Estate Council of Alberta x
Personal Information Protection Act... 5-32 Accountability... 5-34 Obtaining Consent... 5-35 Types of Consent... 5-36 Identifying the Purpose for Collecting Personal Information... 5-37 Right of Access to Personal Information... 5-38 Protecting Personal Information... 5-38 Record Retention and Destruction Policies... 5-39 Penalties and Enforcement... 5-40 Personal Information Protection and Electronic Documents Act... 5-40 Canada Interest Act... 5-42 Criminal Code of Canada... 5-44 Criminal Interest Rate... 5-44 Theft and Fraudulent Activities... 5-45 Competition Act... 5-46 Proceeds of Crime (Money Laundering) and Terrorist Financing Act... 5-47 Appendix UNIT 6: THE REAL ESTATE ACT, RULES AND REGULATIONS Unit Overview... 6-1 Unit Learning Objectives... 6-2 Session 1: Introduction to the Real Estate Act... 6-3 Session Overview... 6-3 Learning Objectives... 6-3 Overview of the Real Estate Act... 6-3 The Act... 6-4 Amendments to the Act... 6-5 The Rules... 6-6 The Regulations... 6-7 The Bylaws... 6-8 Changes to the Legislation... 6-8 Purposes of RECA... 6-9 Information Bulletins... 6-10 RECA Guides... 6-10 Session 2: Mortgage Broker Authorizations... 6-11 Session Overview... 6-11 Learning Objectives... 6-11 Requirement to Be Authorized... 6-11 Authorization Exemptions... 6-13 Authorization and Jurisdiction... 6-13 The Authorization Process... 6-14 2011 Real Estate Council of Alberta xi
Key Concepts in Licensing... 6-15 Overview of the Authorization Process... 6-16 Meet Enrollment Requirements: Step 1... 6-17 Meet Education Requirements: Step 2... 6-18 Request Certified Criminal Record Check: Step 3... 6-19 Obtain Employment with Brokerage: Step 4... 6-21 Executive Director Determines Suitability: Step 5... 6-21 RECA Issues Authorization: Step 6... 6-25 Complete Re-Licensing Education: Step 7... 6-27 Renew Registration: Step 8... 6-28 Authorization Reinstatement... 6-29 Classes of Licences... 6-31 The Mortgage Associate... 6-32 The Mortgage Broker... 6-33 The Mortgage Brokerage... 6-33 Authorization Outcomes... 6-35 Authorization Refusal... 6-35 Authorization Suspension or Cancellation... 6-36 Review of the Executive Director s Decision... 6-41 Authorization Termination... 6-41 Industry Withdrawal and Lifetime Ban... 6-42 Session 3: Industry Member Responsibilities and Prohibitions... 6-44 Session Overview... 6-44 Learning Objectives... 6-44 Notification to RECA by Industry Members... 6-44 Industry Standards of Practice... 6-46 Industry Member Responsibilities... 6-46 Act Honestly... 6-47 Provide Competent Service... 6-47 Disclosure of Compensation... 6-48 Disclose Conflicts of Interest... 6-49 Industry Member Prohibitions... 6-50 Misrepresentation... 6-50 Fraudulent and Unlawful Activities... 6-51 Written Service Agreements... 6-52 Protection of Client Information... 6-53 Brokerage Duty to Maintain Confidentiality... 6-54 Potential Problem Areas for Brokerages... 6-55 Requirements of Privacy Legislation... 6-55 Referrals... 6-56 Referrals and Client Information... 6-57 Brokerage Support Personnel... 6-58 Mortgage Brokerage Assistants... 6-59 2011 Real Estate Council of Alberta xii
Session 4: Mortgage Brokerage Industry Responsibilities/Prohibitions... 6-62 Session Overview... 6-62 Learning Objectives... 6-62 Mortgage Brokerage Responsibilities... 6-62 Mortgage Brokerage Prohibitions... 6-63 Mortgage Broker Responsibilities... 6-64 Delegation by the Broker... 6-67 Mortgage Associate Responsibilities... 6-68 Mortgage Broker and Mortgage Associate Prohibitions... 6-70 Incentives... 6-70 Brokerage Incentive Policies and Procedures... 6-71 Inducements... 6-72 Collection of Fees... 6-72 Information Verification Disclosure... 6-73 Obligations to a Lender Client... 6-74 Best Practices When Representing a Lender... 6-75 Best Practices When Administering a Loan... 6-76 Delivery of Documents... 6-78 Personal Mortgage Deals... 6-78 Brokerage Trust Accounts... 6-80 Brokerage Records... 6-80 Purpose of Record Retention... 6-81 Record Retention Period... 6-82 Record Retention Options... 6-82 Requirement to Maintain Records in Alberta... 6-83 Session 5: Audits, Investigations and Disciplinary Proceedings... 6-84 Session Overview... 6-84 Learning Objectives... 6-84 RECA Audits... 6-84 Audit Process... 6-85 Audit Outcomes... 6-86 RECA Investigations... 6-87 Jurisdiction and the Act... 6-87 RECA Investigations and Administrative Law... 6-89 Refuse to Investigate, Discontinue an Investigation or Direct no Further Action... 6-90 Requirement to Cooperate... 6-90 Investigation Processes... 6-93 Conduct Deserving of Sanction... 6-93 Complaint Evaluation... 6-94 Disposition of the Complaint by the Executive Director... 6-96 Other Options... 6-96 Disciplinary Actions... 6-96 Review by Case Presenter... 6-97 Consent Agreement... 6-97 Hearing Panel... 6-98 2011 Real Estate Council of Alberta xiii
Appeal of a Hearing Panel Decision... 6-99 Appeal to the Court... 6-99 Publication of Information... 6-99 Session 6: Advertising Guidelines... 6-101 Session Overview... 6-101 Learning Objectives... 6-101 Advertising Defined... 6-101 Applicable Legislation... 6-102 Advertising Requirements... 6-102 Not False or Misleading... 6-102 Done on Behalf of the Brokerage... 6-103 Include Full Brokerage Name... 6-103 Name of Industry Member... 6-104 Advertising Essentials... 6-104 Brokerage Policies and Procedures... 6-104 Performance Guarantees... 6-105 Special Expertise... 6-105 Material Representations and Verifiable Statements... 6-105 Achievement Awards... 6-106 Professional Designations... 6-106 Years of Experience... 6-106 Clearly Indicated... 6-107 Special Advertising Considerations... 6-108 Teams... 6-108 Unlicensed Assistants... 6-108 Recruitment Advertising... 6-108 Competition Bureau... 6-109 Comparative Advertising... 6-109 Electronic Advertising and Social Media... 6-109 Online Solicitation... 6-109 Full Disclosure... 6-110 Brokerage and Associate Websites... 6-110 Social Media... 6-111 Online Advertising... 6-111 Broker Remains Responsible... 6-112 Appendix UNIT 7: MORTGAGE BROKERAGE RELATIONSHIPS Unit Overview... 7-1 Unit Learning Objectives... 7-2 2011 Real Estate Council of Alberta xiv
Session 1: Agency and Agency Relationships... 7-3 Session Overview... 7-3 Learning Objectives... 7-3 Defining Agency... 7-3 Defining an Agency Relationship... 7-3 Creating an Agency Relationship... 7-4 Relationship Obligations... 7-5 Session Summary... 7-6 Session 2: Mortgage Brokerage Relationship with Industry Member... 7-7 Session Overview... 7-7 Learning Objectives... 7-7 Agency Relationship with Industry Member... 7-7 Employment Relationship with Industry Member... 7-8 Industry Member Obligations to Their Brokerage... 7-9 General Obligations... 7-10 Regulatory Obligations... 7-10 Fiduciary Obligations... 7-11 Session Summary... 7-11 Session 3: Mortgage Brokerage Relationships with the Public... 7-12 Session Overview... 7-12 Learning Objectives... 7-12 Mortgage Brokerage Relationship Responsibilities... 7-12 Mortgage Brokerage Relationship Options... 7-13 Mortgage Brokerage Acts as an Agent... 7-13 Mortgage Brokerage Works with a Customer... 7-14 Mortgage Brokerage Acts as an Intermediary... 7-14 Mortgage Brokerage Legal Obligations... 7-14 Mortgage Brokerage Acts as an Agent... 7-14 Mortgage Brokerage Obligations as Agent for Borrower or Lender... 7-15 Mortgage Brokerage Works with a Customer... 7-17 Mortgage Brokerage Obligations to Customer... 7-17 Mortgage Brokerage Acts as an Intermediary... 7-18 Mortgage Brokerage Obligations as an Intermediary... 7-19 Mortgage Brokerage Establishes Relationship Model... 7-21 Mortgage Brokerage and Industry Member Advertising... 7-21 Session Summary... 7-22 Session 4: Mortgage Brokerage Duties (Services)... 7-23 Session Overview... 7-23 Learning Objectives... 7-23 Aligning Brokerage Duties (Services) with the Brokerage Relationship... 7-23 Brokerage Duties (Services) as an Agent... 7-24 Brokerage Duties as Agent for the Borrower... 7-24 Brokerage Duties as Agent for the Lender... 7-25 2011 Real Estate Council of Alberta xv
Brokerage Working with a Customer... 7-25 Brokerage Working with Borrower as Customer... 7-26 Brokerage Working with Lender as Customer... 7-26 Comparing Brokerage Duties in an Agency - Customer Transaction... 7-26 Brokerage Duties Acting as Intermediary... 7-27 Additional Information... 7-28 Session Summary... 7-29 Session 5: Mortgage Brokerage Disclosure Documents... 7-30 Session Overview... 7-30 Learning Objectives... 7-30 Mortgage Brokerage Disclosure Requirements... 7-30 Mortgage Brokerage Disclosure Forms... 7-31 Mortgage Brokerage Relationship Disclosure... 7-31 Mortgage Brokerage Compensation Disclosure... 7-32 Summary... 7-33 More on Mortgage Brokerage Disclosure... 7-34 Timing of Disclosures... 7-34 Obtaining Borrower s Informed Consent... 7-34 Retaining Disclosure Documents... 7-35 The 4 D s of Disclosure in Mortgage Brokerage... 7-35 Step 1: Decide... 7-35 Step 2: Disclose... 7-35 Step 3: Document... 7-36 Step 4: Do... 7-36 Appendix UNIT 8: MORTGAGE FRAUD AWARENESS Unit Overview... 8-1 Unit Learning Objectives... 8-1 Session 1: Mortgage Fraud Definition, Extent, Impact... 8-2 Session Overview... 8-2 Defining Mortgage Fraud... 8-2 Extent of Mortgage Fraud... 8-2 Impact of Mortgage Fraud... 8-3 Public Services... 8-4 Communities... 8-4 Individuals... 8-4 Businesses... 8-5 Professions... 8-5 2011 Real Estate Council of Alberta xvi
Session 2: The Many Faces of Mortgage Fraud... 8-6 Session Overview... 8-6 Learning Objectives... 8-6 Session Introduction... 8-6 Types of Mortgage Fraud... 8-6 Fraud for Housing... 8-7 Fraud for Profit... 8-8 Common Mortgage Fraud Schemes... 8-8 False Documentation... 8-9 Non-Occupancy Scheme... 8-9 Name Manipulation... 8-9 Identity Theft... 8-9 Mortgage Assumption Schemes... 8-10 Seller Financing Schemes... 8-11 Private Financing Scheme... 8-11 Bankruptcy Fraud... 8-11 Debt Consolidation / Foreclosure Schemes... 8-12 Title Fraud... 8-12 False Deposit... 8-12 Equity Access Scheme... 8-13 Re-Development Scheme... 8-13 Secret Second... 8-13 Air Loan... 8-14 Inflated Appraisal... 8-14 Vendor Cash-Back Scheme... 8-14 Contract Kiting... 8-15 Straw Buyers... 8-15 Property Flips... 8-16 Session 3: Detecting Mortgage Fraud... 8-17 Session Overview... 8-17 Mortgage Fraud Detection... 8-17 Red Flags of Mortgage Fraud... 8-17 Red Flags Regarding Identity of Buyers/Borrowers... 8-18 Red Flags Regarding Property Value... 8-18 Red Flags Indicating Unusual Transactions... 8-18 Red Flags Regarding Industry Member Conduct... 8-19 Red Flags Regarding Brokerage Operations... 8-20 Red Flags Regarding Appraisal Agreement Issues... 8-20 Red Flags Regarding Other Appraisal-Related Issues... 8-21 Case Study in Mortgage Fraud... 8-21 Case Study Introduction... 8-21 Case Study: The Big Scheme... 8-21 Impact of the Mortgage Fraud... 8-24 Consequences of the Mortgage Fraud... 8-24 2011 Real Estate Council of Alberta xvii
Session 4: Other Fraud Related Activities... 8-25 Session Overview... 8-25 Learning Objectives... 8-25 Money Laundering... 8-25 Drug Operations... 8-27 Related Resources... 8-27 Grow Operations... 8-28 Drug Laboratories... 8-29 Session 5: Preventing Mortgage Fraud... 8-30 Session Overview... 8-30 Learning Objectives... 8-30 RECA s Role in Mortgage Fraud Prevention... 8-30 Obligation to Cooperate with RECA... 8-30 RECA s Role in Reducing Mortgage Fraud... 8-32 Industry Member s Role in Reducing Mortgage Fraud... 8-34 Guidelines for Mortgage Broker/Associate Originated Applications... 8-34 Protecting Your Identity... 8-37 Protecting Your Clients... 8-38 Trends in Mortgage Fraud... 8-39 Fraudsters Seek Accomplices... 8-40 Fraudsters Use Technology... 8-40 Fraudsters Find Opportunities in Any Real Estate Market Condition... 8-41 Fraudsters Find Opportunities with Any Property Type... 8-42 Fraudsters Constantly Adapt... 8-43 Fighting Mortgage Fraud... 8-43 Be Serious About Mortgage Fraud... 8-44 Know Who You Are Dealing With... 8-44 Ask Questions... 8-45 Report Mortgage Fraud If You Detect It... 8-45 Legal Implications of Mortgage Fraud... 8-45 Summary... 8-46 Resources... 8-47 Alberta Resources... 8-47 Canada Resources... 8-47 Appendix UNIT 9: ETHICS, PROFESSIONAL CONDUCT AND RISK REDUCTION Unit Overview... 9-1 Unit Learning Objectives... 9-1 2011 Real Estate Council of Alberta xviii
Session 1: Personal Ethics and Conduct... 9-2 Session Overview... 9-2 Learning Objectives... 9-2 Definition of Ethics... 9-2 Ethics and Moral Development... 9-2 Level I Egocentric Interest... 9-3 Level II Social Convention... 9-4 Level III Abstract Reasoning... 9-4 Approaches to Ethical Dilemmas... 9-5 Utilitarian Ethics... 9-5 Duty-Based Ethics... 9-5 Influences on Ethics and Professional Conduct... 9-6 Canadian Law... 9-6 Real Estate Act... 9-7 Industry Ethics... 9-7 Brokerage Ethics... 9-7 Personal Ethics... 9-8 Session 2: An Ethical Decision-Making Model... 9-9 Session Overview... 9-9 Learning Objectives... 9-9 Introduction to an Ethical Decision-Making Model... 9-9 Evaluating Ethical Dilemmas... 9-10 1. Recognize Ethical Dilemma... 9-10 2. Analyze Ethical Dilemma... 9-11 3. Test Ethical Options... 9-12 3A. Seek Assistance with Ethical Dilemma... 9-13 4. Implement Ethical Decision... 9-14 Practicing Professional Ethics... 9-14 Session 3: Ethics and Professional Conduct... 9-16 Session Overview... 9-16 Learning Objectives... 9-16 Role of Ethics in Professional Conduct... 9-16 Professional Standards Defined... 9-17 Professional Standards of Practice... 9-17 Benefits of Professional Standards... 9-18 The Act and Expectations of Professional Conduct... 9-19 Industry Member Responsibilities... 9-19 Industry Member Prohibitions... 9-20 Complaints Regarding Professional Conduct... 9-20 Conduct Deserving Sanction... 9-21 Session 4: Risk Reduction... 9-23 Session Overview... 9-23 Learning Objectives... 9-23 2011 Real Estate Council of Alberta xix
Definition of Tort Law... 9-23 Misrepresentation... 9-24 Types of Misrepresentation... 9-24 Principle of Vicarious Liability... 9-24 Real Estate Assurance Fund... 9-25 Errors and Omissions Insurance... 9-25 Professional Conduct and Self-Regulation... 9-26 Broker s Role in Professional Conduct... 9-27 Associate s Role in Professional Conduct... 9-27 Professional Conduct... 9-28 Professional Courtesy... 9-28 The Professional Industry Member... 9-30 Legislation... 9-30 Brokerage... 9-30 Professional Practice... 9-30 Appendix GLOSSARY: THE FUNDAMENTALS OF MORTGAGE BROKERAGE 2011 Real Estate Council of Alberta xx