Reducing a working arrangement to writing is always wise for the obvious reasons. In many cases, the law simply requires it. In California, lenders licensed under the Residential Mortgage Lending Act may not engage in brokerage services without providing a loan brokerage agreement that must be offered to the borrower “as soon as practical” after a borrower requests a loan from another institutional lender.
A loan brokerage agreement must include the following provisions:
- The unique identifier of the mortgage loan originator who signs the loan brokerage agreement;
- An explicit statement that the licensee is acting as the agent of the borrower and that, therefore, the licensee owes a fiduciary duty to the borrower as his or her agent;
- A detailed description of the services to be provided by the licensee on behalf of the borrower;
- A good faith estimate of the fees for the services to be rendered; and
- A clear and conspicuous statement of the conditions under which the borrower is obligated to pay the licensee for the services to be rendered.
The agreement must also include a statement advising the borrower that, if the licensee makes a false or misleading statement or an omission in implementing the agreement, the borrower has the right to:
- Rescind the brokerage agreement;
- Recover fees paid by the borrower to the licensee; and
- Recover actual costs, including attorney’s fees, incurred by the borrower in enforcing his/her rights under the brokerage agreement.
If the loan brokerage agreement fails to set forth the above rights, they are nonetheless implied by operation of law.
A loan brokerage agreement must include both the signature of the borrower and licensed loan originator representing the licensed mortgage lender. The borrower must receive a copy of the fully-executed agreement within three business days after the agreement ‘is executed. There are also specific requirements regarding loan brokerage agreements that provide for the collection of an application fee. These agreements must be approved by the Commissioner of the Department of Real Estate.
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