Smith v. Home Loan Funding, Inc.

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 *1333 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. We remand to the trial court for a recalculation of prejudgment interest based on the reduced damage award. In all other respects, we affirm.

FACTS

Home Loan Funding, Inc. (HLF), was a California corporation that provided lending services for residential mortgages. It funded most…