Lawyers are being warned by The Law Society of Upper Canada to be aware of risks associated with programs involving residential mortgages. Under these programs, institutional lenders such as banks or trust companies have been using third party service providers to process mortgages. Consumers may be unaware that these third party service providers are even involved when they enter into these transactions. The concern of the Law Society is that the affect of the programs may lead lawyers to breach their obligations to their clients and limit consumers’ protection and choice - costing them more money in the end.

Consumers may face restrictions in their choice of title insurer and possibly lawyer, under some of these programs. In others, consumers must purchase title insurance for the lender from a specific title insurer at a specific cost. Consumers may also face higher fees than if they were to choose a title insurance company on their own.

Consumers may also risk losing their mortgage advances. Mortgage advances are handled by third party service providers under some of these programs and therefore may not be afforded the same protections that exist with financial institutions. These funds may be lost in the event of insolvency of the third party mortgage service provider. In some cases, consumers may have agreed to conditions that allow the lender to provide the advance to a third party provider without legal advice.

The Law Society, whose mandate is to govern the legal profession in the public interest, has raised concerns about these programs with the Fair Business Practices Branch of the federal Competition Bureau.

As the regulator of the legal profession in Ontario, the Law Society is also cautioning lawyers about the risks associated with such programs. Lawyers may be placed in a position where they cannot act in the best interests of their clients. For example, a lawyer may have to take instructions from a third party, not the client.

Lawyers may be placed in a conflict of interest because they may be prevented from properly disclosing to their client certain fees or hidden charges being paid to the third party service provider. Lawyers may also be forced to disclose confidential information about their client to the third party.

The Law Society has issued a notice to the legal profession in Ontario to remind lawyers that they should be concerned whether their involvement in such programs could contravene the Law Society’s Rules of Professional Conduct.

Lawyers must ensure that they are in a position to exercise independent professional judgment on behalf of clients, avoid conflicts of interest, and otherwise comply with their ethical obligations under the Rules and in law, prior to accepting retainers to act in such transactions.

Ontario lawyers who may be involved in such transactions and have concerns should contact the Law Society at 416 947-3369, 1 800 668-7380, ext. 3369. They can also refer to the Rules of Professional Conduct available on the Law Society’s web site.

Please also see the Notice to the Profession