• Smith v. Home Loan Funding
  • March 3, 2015
  • Law Firm: Law Office of Jeff A. Mann - Los Angeles Office
  • Case No. B219372 (CA Dist. 2 Ct. App., Feb. 24, 2011)
    The mortgage lender who also acts as a mortgage broker must keep in mind the differences between the two when speaking to a prospective client. A mortgage broker has a fiduciary duty to a borrower. A mortgage lender does not. This case teaches that a mortgage lender should take care not to convey to a prospective client that it is acting as a broker when in fact it is acting as a lender.

    A mortgage broker appeals a judgment awarding damages against it for breach of fiduciary duty and misrepresentation. The broker contends there is no substantial evidence it acted as a broker, the amount of damages awarded is excessive, and there is no basis for an award of attorney fees. We modify the damage award by eliminating damages awarded for a prepayment penalty. Such damages are inconsistent with an award of damages based on an interest differential over the 30-year term of the loan. In all other respects, we affirm.


    Home Loan Funding, Inc., (HLF) was a California corporation that provided lending services for residential mortgages. It funded most of its loans directly to borrowers, and brokered some of its loans to third party lenders, Washington Mutual and World Savings Bank.

    Anthony Baden worked for HLF as a loan officer. He had no real estate or mortgage broker license. In March 2006, Tonya Smith contacted Baden in response to an advertisement she received from HLF. She sought a $40,000 home equity line of credit (HELOC). Her home had existing first and second mortgages.