I was recently hired to offer my expert opinion on a litigation case where a handful of investors agreed to participate in a syndicated private second mortgage on a commercial building.
There were many red flags with this transaction but the thing that stuck out the most to me was the lack of experience amongst the multiple mortgage brokers and agents that were involved in the transaction. Most of them had only been in the business for a few years. There was some phuckery involved in the transaction but most of those involved didn’t know what they didn’t know.
Whose fault is this?
It could be argued that the bar is too low for new entrants to the mortgage broker field, especially when it comes to dealing in private mortgages. FSRA, the regulator, has upped the bar in this regard in the last couple of years but they could do far better. The educational requirements are still a joke and there is little to nothing taught on how to analyze a potential private mortgage transaction to mitigate risks for potential investors.
The Principal Brokers for the brokerages involved in the transaction were essentially missing in action. They are ultimately responsible for the brokers and agents working for them but in the typical mortgage brokerage there is little supervision of the average broker or agent until it is too late.
Then you have the investors who only saw visions of wealth with little regard for risk. Now they are looking for someone to blame for their losses. Should they be able to rely on the advice of a professional in a regulated industry? They should, but there should also be a degree of self-preservation and insight before agreeing to any type of investment. As Warren Buffett would say, “risk comes from not knowing what you are investing in”.
My best advice for anyone considering investing in private mortgages is to vet your mortgage broker well. Deal with a seasoned professional that acts as an advisor, not a cheerleader. If you feel like you’re dealing with a salesman run in the opposite direction!
At the end of the day, you’re investing your money, and you should educate yourself on the risks. Rely on the advice of your advisors but verify the veracity of their recommendations!