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By Evans D. Prieston, manager, and
Ingrid K. Petersen, associate
American Mortgage Law Group P.C.
Broker the Best Agreement
Learn five things you should know about broker agreements
when was the last tiMe you looked
at any of your broker agreements? Although it may seem daunting, being
aware of key provisions contained in your
agreement could mean the difference between business success and failure.
Unfortunately, it’s not easy to get
lenders to change their agreements.
Unless you have enough business to
use as leverage or are part of a group
with collective-bargaining power, you
may find that many agreements are
presented to you on a take-it-or-leave-it basis. It’s always a good idea to attempt to get more-favorable terms
when possible, however, so you must
pick your battles carefully.
Although an agreement may look like
a dense thicket of impenetrable prose,
the good news is that most broker
agreements follow a fairly predictable
formula. First, there is an introduction
— also called a “preamble” or “recital”
— with some language establishing the
purpose of the agreement and the iden-tities and overall roles of each party.
Many agreements then have a “
definitions” section. A section on the respective responsibilities of the lender
and broker — also called “duties” and/
or “representations and warranties” —
usually follows. Most agreements conclude with general provisions regarding
interpretation, venue and other legal
concepts that are important to know
should a dispute arise.
All brokers should have any agreement reviewed by an attorney, although often this may not happen.
Before signing any broker agreement,
you should carefully examine the document and its provisions. The following
are five major issues to monitor in broker agreements.
1. absolute vs. qualified: It is impor-
tant to find out if you are making an
or if it is qualified. Generally, with an
your counterparty holds you liable
for loans that go bad even if you had
no idea that the borrower, appraiser
or some other party to the loan pro-
vided false information. So, if a bor-
rower fabricates convincing income
documentation, you will generally
be responsible for this although
you also were a victim of fraud in
the transaction. On the other hand,
your representations and warranties
may be qualified by language like
“to the best of broker’s knowledge”
or “unless broker knows, has rea-
son to believe, or, after performing
its normal due diligence and quality
control review, should have known
that any information provided by
the loan applicant/appraiser is not
true, correct or valid in any material
respect.” With qualified representa-
tions and warranties, brokers gen-
erally are not responsible for fraud
that their normal procedures did not
and could not have detected. A re-
purchase demand based on quali-
“It’s always a good
idea to attempt
to get more-
fied representations and warranties
would be far easier to defend than
one based on absolute representations and warranties.
2. indemnification: Any indemnifica-
tion provision should be carefully
considered and if possible, removed
from the agreement. Most indemni-
fication provisions are sweeping
and generally make the broker re-
sponsible for damages that arise
not only from actual breaches of the
representations and warranties but
also from alleged breaches. Thus,
the broker also may be responsible
for defending these claims, includ-
ing paying attorneys’ fees.
Illustration: Dennis Wunsch
Also be sure to check the “miscella-
neous” section, usually at the end of
the agreement, where important pro-
visions regarding venue and waiver
of jury trial are often placed.
DISCLAIMER: The above is for informational
purposes only and does not constitute legal
advice. Legal advice may only be obtained by
consulting an attorney.
Evans D. Prieston is manager at American
Mortgage Law Group P.C. Reach him at
firstname.lastname@example.org. Ingrid K.
Petersen is an associate at the firm. Reach
her at email@example.com.
American Mortgage Law Group specializes
in repurchase defense, litigation, third-party
fraud recovery and related subject areas.
The firm represents brokers, correspondent
lenders and financial institutions nationally.