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Mortgage Adviser Ordered to Pay $87,000 for Misleading Clients in Loan Scheme
In a recent ruling that has drawn attention in the New Zealand and Australian financial sectors, a mortgage adviser has been ordered to pay $87,000 in compensation after orchestrating a misleading loan strategy that led to significant financial losses for his clients. The Financial Services Complaints Ltd (FSCL) found the adviser guilty of devising a “deception plan” that allowed a couple to secure a $100,000 loan under false pretenses.
The Loan Application and Deceptive Plan
In early 2022, the couple sought to purchase an investment property and approached their mortgage adviser for assistance. The adviser engaged with a non-bank lender, who agreed to provide financing if the couple could demonstrate they had $100,000 in savings. However, the couple did not possess these funds.
According to the FSCL, the adviser suggested obtaining a personal loan from another lender and having a family member sign a gift certificate falsely stating that the funds were a gift. This fraudulent arrangement enabled the couple to secure the required $100,000, and they proceeded to purchase the property for $796,000 in March 2022.
Financial Troubles and Losses
By late 2022, the couple began experiencing difficulties in meeting their loan repayments. When their two-year fixed-rate period ended in early 2023, their mortgage interest rate jumped from 5.4% to 9%, exacerbating their financial strain. The couple ultimately decided to sell the investment property at a loss, fetching only $728,000—significantly less than their purchase price.
The FSCL’s investigation revealed that the mortgage adviser was fully aware of the deceptive plan, despite his claims of ignorance. Court documents indicated that he had been involved in email correspondence about the loan, contradicting his defense that his staff had handled communications during his absence overseas.
Shared Responsibility and Compensation
FSCL determined that while the adviser was primarily responsible, the couple also bore some accountability for participating in the fraudulent scheme. The losses incurred totaled $164,000, including depreciation, interest payments, and transaction costs. After deducting 15% for market-driven factors beyond the adviser’s control, FSCL ordered the adviser to pay $82,000 plus $5,000 for non-financial damages, effectively splitting the responsibility.
Industry Reactions
Glen McLeod, a prominent financial adviser at Edge Mortgages, expressed concern over the case, emphasizing the importance of integrity in the mortgage advisory industry. “Advisers have a duty to protect their clients’ best interests. This case highlights the need for transparency and adherence to legal standards. Misleading practices harm clients and undermine trust in our profession.”
He added, “Clients sometimes suggest unconventional solutions to secure loans. It’s our role as advisers to uphold ethical standards and educate them about legal boundaries. Non-disclosure and providing false documents are not only illegal but detrimental to clients’ financial well-being.”
Lessons for Mortgage Seekers
This case underscores the importance of working with ethical advisers who prioritize clients’ interests and comply with legal regulations. Borrowers should seek transparent guidance and avoid deceptive practices, which can lead to severe financial consequences and legal repercussions.
For those navigating the complex mortgage landscape, this serves as a crucial reminder: short-term gains from unethical advice can result in long-term financial losses and legal entanglements.
This article highlights the importance of ethical mortgage advice and is optimized for search terms like New Zealand mortgage fraud, financial adviser misconduct, and property investment risks in Australia and New Zealand.
SOURCE: RNZ