The Risk of Vicarious Liability for Broker Misconduct

One offshoot of the mortgage crisis that began in 2008 has been the rise in lawsuits by borrowers challenging both mortgage brokers and mortgage lenders for alleged misconduct in the origination or refinancing of home loans. In many cases, these lawsuits are based on distinct theories of liability, depending on whether the defendant is a mortgage broker or a mortgage lender, but some plaintiffs seek to hold lenders liabile for alleged broker wrongdoing.

This article analyzes the precedent established in private litigation where lenders have escaped liability for brokers' misconduct and, alternatively, where lenders have not been as fortunate, highlighting how lenders can avoid vicarious liability for the missteps of brokers.

From Mortgage Banking Magazine, August 2012. Reprinted with permission.