Press releases
October 3, 2006 SYDNEY
Mortgage brokers beware
Brokers Beware: Offering Short Term Lending and Bridging Finance Could Land Themselves in Hot Water.
The market is now flooded with upstart companies offering short term finance commonly referred to as bridging finance or caveat loans. Every broker who has a spare $50k is jumping on the wagon and calling themselves a lender. Small investors and brokers alike have been lured by returns of as much as 10% per month. Seems too good to be true right? In most circumstances it is.
With the injection of new capital into the short term market and a lack of suitable loans, a new trend among these types of lenders has arisen. Inexperienced short term lenders desperate to get their money out on loan are offering their finance without the need for a formal valuation. A substantial amount of mortgage brokers have been taking up this offer as a way to get loans to settle faster and save on upfront costs for the borrower.
Not ordering a valuation is an extremely dangerous practice for both a broker and his client.
Why? A property valuation lies at the heart of a bridging loan’s affordability. This valuation determines whether or not a borrower will have the ability to refinance into a more conventional loan, or where the exit strategy is to sell the property, do so without resulting in negative equity for the borrower.
As a broker you are the agent of your borrower and owe a fiduciary duty to him, a duty of utmost good faith.
If you are putting your clients into expensive short term loans without a viable exit strategy, a court may construe this as professional negligence. So not only will your clients end up being bankrupted by the lender, a breach of your fiduciary responsibilities means you could be sued by the borrower and waste the next 5 years in court.
Now that Legal Aid seems to have stepped up its financing of legal costs for borrowers who are in financial difficulties due to improvident loans, more loans are now being contested in court. The result, more brokers sued.
Daniel Dunsford has a Bachelor of Law and Bachelor of Engineering from the University of New South Wales. He is a director or Accom Finance a direct bridging financier. He can be reached at 1300 652 158 or by email accom@accomfinance.com.au.
Back to the Newsroom...
Enquire about our creative funding solutions now...
