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The Fundamentals of Mortgage Brokerage

Mortgage Associates Program

Mortgage Associates Program Table of Contents


© 2011 Real Estate Council of Alberta i

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 ii

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 iii

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



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 iv

UNIT 2: INTRODUCTION TO MORTGAGES

Unit Overview ...................................................................................................................................... 2-1


Session 1: Mortgage Overview ........................................................................................................... 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



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



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 v

Session 4: Types of Mortgages ........................................................................................................ 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



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 vi

UNIT 3: CONTRACT LAW

Unit Overview ...................................................................................................................................... 3-1


Session 1: Common Law and Real Property ................................................................................... 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



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 vii

Session 3: Contracts in Mortgage Brokerage ................................................................................. 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


Session 1: Real Property Ownership ................................................................................................ 4-2

Session Overview ............................................................................................................................ 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



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 viii

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



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



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 ix

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



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



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 x

UNIT 5: MORTGAGE LAW AND RELATED LEGISLATION

Unit Overview ...................................................................................................................................... 5-1


Session 1: Introduction to Mortgage Law ........................................................................................ 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



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



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





© 2011 Real Estate Council of Alberta xi

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


Session 1: Introduction to the Real Estate Act .................................................................................. 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



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 xii

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



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 xiii

Session 4: Mortgage Brokerage Industry Responsibilities/Prohibitions ..................................... 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



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 xiv

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




© 2011 Real Estate Council of Alberta xv

Session 1: Agency and Agency Relationships .................................................................................. 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



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



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



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 xvi

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



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


Session 1: Mortgage Fraud – Definition, Extent, Impact ............................................................... 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 xvii

Session 2: The Many Faces of Mortgage Fraud .............................................................................. 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


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 xviii

Session 4: Other Fraud Related Activities ..................................................................................... 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



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




© 2011 Real Estate Council of Alberta xix

Session 1: Personal Ethics and Conduct ........................................................................................... 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


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 xx

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