Attention: Referral fee payments from financial institutions

The Real Estate Council of Alberta (RECA) has been made aware that some financial institutions are offering referral inducements that specifically target real estate associates. The purpose of these referral inducements is to encourage industry members to direct their clients to the financial institution for the client’s mortgage needs.

RECA considers points programs and other similar types of incentives to be forms of consideration or compensation. Referring a borrower to obtain a mortgage from a financial institution for compensation or consideration is dealing in mortgages as a mortgage broker and a mortgage broker authorization is required.

In Toronto Dominion Bank v. Real Estate Council of Alberta (2002), 316 A.R. 280 (Alta Q.B.), the court upheld that if a real estate broker wishes to refer clients to a specific lending institution, and obtains a fee from the institution for doing so, the real estate broker must obtain the necessary authorization as a mortgage broker because the activity is “soliciting” people to borrow money.

Real estate industry members must not act as a mortgage broker unless they are also authorized as a mortgage brokers. Additionally, any remuneration received must be received by the industry member through his/her mortgage brokerage and not directly from the financial institution.

Real estate industry members are still, however, able to receive referral fees from mortgage brokers that deal with many financial institutions, again, provided that the referral fees are paid through the brokerage.

Dealing in mortgages as a mortgage broker without authorization from RECA is conduct deserving of sanction and can be subject to penalties of up to $25,000. 

For further information, industry members might want to review Toronto Dominion Bank v. Real Estate Council of Alberta (2002), 316 A.R. 280 (Alta Q.B.) posted here.

For further information on payment of referral fees to unlicensed individuals, click here.

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