In the dynamic world of real estate and finance, professionals often navigate a complex web of regulations and ethical considerations. One question that frequently arises is whether lawyers in Ontario can earn mortgage commissions. The answer is yes, but it comes with specific conditions and regulations.
Section 6(6) of the Mortgage Brokerages, Lenders, and Administrators Act, 2006, offers an exemption for lawyers from the licensing requirement when dealing in, trading in, or administering mortgages, but only in prescribed circumstances. These circumstances are outlined in Section 3 of O. Reg. 407/07. The key condition for the exemption is that lawyers must engage in these activities while acting in their professional capacity as lawyers on behalf of a client. Importantly, lawyers cannot hold themselves out as individuals engaging in mortgage-related activities as a primary service. In other words, any commission earned by a lawyer should be part of their legal work, such as mortgage registration, and not promoted or advertised as standalone mortgage brokerage services.
Under Section 16(1) of the Solicitors Act, lawyers can make fee arrangements in the form of commissions or percentages, as long as these arrangements are documented in writing.
Rule 3.6-1 of the Rules of Professional Conduct of the Law Society of Ontario mandates that lawyers' fees and disbursements must be fair and reasonable. This rule also applies to commissions charged by lawyers in private mortgage transactions. Furthermore, Commentary [2] to Rule 3.6-1.1 stipulates that no fee or commission can be charged without full disclosure to the client. If a third party, like a borrower, is responsible for paying these fees, their consent must be obtained. In the context of private mortgages, the borrower's consent to the payment of the commission is usually secured in the commitment letter where all fees are disclosed.
Lawyers involved in brokering activities should be cautious of the impact on their LawPRO coverage. Part (g) of Part III of the LawPRO policy specifies that coverage does not apply to any claim related to or arising from an insured lawyer acting as a mortgage broker.
Part (z) of the LawPRO policy defines a mortgage broker as someone who performs services for which a license is required under the Mortgage Brokerages, Lenders, and Administrators Act, 2006. A publication by LawPRO titled "To (Mortgage) Broker or Not: That Is the Question" offers further clarification. It suggests that coverage exclusion depends on the extent of the lawyer's role. For instance, if a lawyer merely introduces parties resulting in a mortgage transaction, coverage is typically not denied. However, if the lawyer plays a substantial role in negotiating terms and arranging the mortgage as an intermediary, coverage may be denied. Therefore, lawyers engaged in mortgage broker activities must exercise caution and minimize their roles as intermediaries to reduce the risk of coverage denial.
While lawyers in Ontario can indeed earn mortgage commissions under specific conditions and regulations, it is crucial for them to navigate these guidelines carefully and transparently, ensuring both compliance and ethical practice in the complex world of mortgage-related activities.