Are lawyers able to earn mortgage commission in Ontario?

The short answer is yes.

Mortgage Brokerages, Lenders and Administrators Act

Section 6(6) of the Mortgage Brokerages, Lenders and Administrators Act, 2006 exempts lawyers from the requirement to be licensed to deal in, trade in or administer mortgages, in prescribed circumstances. The prescribed circumstances are set out in Section 3 of O. Reg. 407/07 which states that for the exemption to apply, the lawyer must engage in these activities while the lawyer is acting in his or her professional capacity as a lawyer on behalf of a client and the lawyer shall not hold himself or herself out as one who engages in these activities. In other words, the lawyer must be charging the commission as part of other legal work that the lawyer is completing on the transaction (e.g. registration of the mortgage) and the lawyer is not authorized to promote or advertise that they are dealing in or trading in mortgages.

Solicitors Act

Section 16(1) of the Solicitors Act permits a lawyer to make fee arrangements that are in form of commission or percentage so long as they are made in writing.

Rules of Professional Conduct

Rul 3.6-1 of the Rules of Professional Conduct of the Law Society of Ontario sets out that fees and disbursements charged by a lawyer must be fair and resonable. Commission charged by a lawyer on a private mortgage transaction is no exception.

Additionally Commentary [2] to Rule 3.6-1.1 of the Rules of Professional Conduct of the Law Society of Ontario sets out that no fee or commission may be charged by a lawyer without full disclosure to the client and in circumstances where someone other than the client is paying the fees (such as a borrower) the consent of the party making the payment must be obtained. In the context of private mortgages, the commission is often paid by the borrower in form of a fee expressed as a percentage of the principal loan amount and therefore this rule will require the borrower to consent to the payment of the fee. The borrower’s consent to the payment of the fee is often obtained in the commitment letter where the fee is disclosed to the borrower.

LawPRO

Lawyers engaging in brokering activities should be mindful of the impact such activities can have on their LawPRO coverage. Part (g) of Part III of the LawPRO policy sets out that coverage will not apply to any CLAIM in any way relating to or arising out of an INSURED acting as a MORTGAGE BROKER.

Part (z) of the LawPRO policy defines the term MORTGAGE BROKER as follows:

MORTGAGE BROKER means:

• (i) in respect of services performed before July 1, 2008, a person who lends
  money on the security of real estate, whether the money is the person’s
  money or that of another person, or holds oneself out as or who by an
  advertisement, notice or sign indicates that the person is a mortgage
  broker, or a person who carries on the business of dealing in mortgages,
  or who acts as an intermediary arranging any financial transaction
  usual to mortgage lending; and
• (ii) in respect of services performed on or after July 1, 2008, a person
  performing services for which a licence is required under the Mortgage
  Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c.29.

A publication by LawPRO titled To (mortgage) broker or not: That is the question provides some clarification on this exclusion and states that whether or not coverage is excluded will depend on the extent of the role played by the lawyer. By way of examples, the publication provides that if a lawyer merely makes an introduction that results in a mortgage transaction, coverage will not be denied, especially if two lawyers act for the lender and the borrower but if the lawyer plays an instrumental role in negotiating the terms of the agreement and arranging the mortgage as an intermediary coverage may be denied. For these reasons, it is extremely important that lawyers engaging in mortgage broker activities take extra care in completing these transactions and to the extent possible minimize their roles as intermediaries to reduce the possibility of a coverage denial.

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