A borrower contacted a lender seeking a refinance of his mortgage on the condition the refinance did not contain a prepayment penalty. The lender, who was not a licensed mortgage broker, orally promised to “shop the loan” with other lenders. The lender offered the borrower a loan on terms the lender itself would fund, informing the borrower it was the best loan available. The loan documents signed by the borrower contained a prepayment penalty and heavily marked-up profit margin, both of which the borrower was unaware of on signing. After closing, the borrower discovered these provisions and sought compensation from the lender for his losses, claiming the lender breached a fiduciary duty owed to the borrower since it acted as the borrower’s mortgage broker by assuring him it would shop around for the best loan. The lender claimed it owed no fiduciary duty to the borrower since it was the originator of the loan and was not a mortgage broker. A California appeals court held the lender was liable for money losses incurred by the borrower since it violated its fiduciary duty owed the borrower which was undertaken when it entered into an oral brokerage agreement to locate the best loan available. [Smith v. Home Loan Funding (February 24, 2011) _ CA 4th _]
