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After Manny’s wife passed away, he decided to move closer to his son, daughter-in-law and four grandchildren in Lower Hutt. Manny decided to put his family home on the market. Before Manny’s family home sold, Manny found an ideal property in Lower Hutt and decided to buy it.
To complete the purchase Manny needed bridging finance of $400,000. Manny contacted Floyd at Mayweather Mortgages. On 9 December 2014, Manny instructed Floyd and signed a broker agency agreement and a scope of services appointing Floyd as his broker.
Manny gave Floyd an unconditional contract to purchase the Lower Hutt property with settlement in 10 days’ time. Manny told Floyd his income was his national superannuation but he had savings consisting of three term deposits, totalling $125,000, all with different banks. On 10 December 2014 Floyd completed a loan application on Manny’s behalf for $400,000. The loan application included Manny’s total assets, liabilities, available security and income.
On 11 December 2014 Golden Glove Finance (Golden Glove) conditionally approved Manny a loan of $441,955.56 at 7.95% per annum secured by a first registered mortgage over the Lower Hutt property. Floyd presented Golden Glove’s offer to Manny who accepted the offer on 12 December 2014.
On 19 December 2014 Manny told Floyd that his circumstances had changed and that he no longer needed the loan from Golden Glove. He didn’t draw down the loan and disengaged with Floyd.
Almost a year later, Manny complained to FSCL.
Two stories emerge
Manny had completed the purchase of the Lower Hutt property and he had been able to secure finance with a registered bank on better terms than the finance Floyd had arranged with Golden Glove.
Manny complained Floyd displayed unprofessional conduct and/or incompetence because he had not been able to obtain finance from any of the banks with which Manny had funds, or from any other major lender, on similar terms to those Manny had arranged himself.
Manny felt Floyd had dealt with Golden Glove to secure the highest mortgage brokering fee and he must have some ongoing relationship with them. Manny also felt that any of the banks would have provided him finance if Floyd had submitted a proper application.
Manny complained Floyd did not discharge his duties to secure him the best possible finance and he wanted compensation of $5,273.21 in direct financial from Floyd.
We assessed the reasonableness of Floyd’s broking services against the contract for services between Floyd and Manny. The contract for services recorded that Manny agreed to give Floyd all information he needed to apply for finance and to pay Floyd a $4000 success fee if Floyd was able to secure finance acceptable to Manny.
From Floyd’s file we found that Manny had given specific instructions to Floyd to secure the best finance available while ensuring:
- the bridging finance was open-ended;
- the settlement date was not to be extended;
- Manny did not have to ask his family to provide short-term financial assistance; and
- Manny did not want to use any savings or break any term deposits.
Floyd gave us his file notes showing he had discussed with Manny cashing in the term deposits to be able to borrow from a bank but Manny was clear he did not want to break the term deposits or use any savings.
Floyd’s file notes also showed he had contacted the broking units of the major banks and had been advised that they would not do open-ended bridging. The banks all said they would only approve lending if there was an unconditional contract on Manny’s family home.
Floyd’s file notes were supported by his letter of advice to Manny which advised the banks would not lend money without an unconditional contract given Manny’s lack of income. Floyd recommended that Manny take out bridging finance with Golden Gloves, a second tier lender. Floyd said he recommended Golden Gloves because they were cheaper than the other second tier lenders he dealt with in both their fees and interest rates.
We asked Floyd why he did not submit a full application to any of the banks and he said that brokers had been clearly advised that the banks do not lend on security alone and to not waste their time with applications that fail servicing criteria. Floyd said he followed standard process by talking to them first where the application would not meet their criteria.
We asked Floyd what broking fees he earned with Golden Gloves. Floyd showed that he earned no more going with Golden Gloves that any other lender and all his fees had been disclosed to Manny upfront in the contract for services.
We also asked Manny what he had told the bank to secure his loan. Manny had told the bank he actually had term deposits totalling $200,000 and cash of approximately $10,000. We considered the extra $75,000 in term deposits and $10,000 in cash would have been material to the bank’s decision to offer finance and that, had this been disclosed to Floyd, he may have been able to secure finance on similar terms. Manny also refused to confirm whether his loan was open-ended or for a fixed term. We considered that Manny’s view on the competing finance may be unfair to Floyd because there were key differences between the finance and Manny was not comparing “apples with apples”.
Manny claimed his financial loss was $5,273.21 made up of $3,773.21 for Golden Glove’s legal fees in organising the offer of finance and $1,500 in his own legal fees to cancel the finance agreement with Golden Glove.
On the evidence, we considered that the arrangement of bridging finance with Golden Glove was not the primary cause of Manny’s financial loss. We considered Manny’s increased legal expenses were because Manny had decided to cancel the agreement with Golden Glove on the day of settlement to secure better finance with the bank. We considered this was Manny’s decision to change the terms and did not consider that Floyd or Mayweather Mortgages were responsible for this loss.
In our view, Manny’s ability to service the loan was a material consideration for the banks, especially in an open-ended finance arrangement, and the question about servicing ability prevented Floyd from being able to secure finance from a registered bank.
On the evidence, we found that Floyd had been able to arrange finance within 9 working days and had acted reasonably and competently in securing bridging finance for Manny that met with Manny’s instructions. We issued our preliminary view advising Manny to discontinue his complaint. Manny did not respond to and we closed our investigation.
A mortgage broker is your agent and will act on your instructions. You need to provide your broker with as much information on your financial position and your desired outcome as possible, as there can be many different ways to achieve your goal.