Opinion ID: 2161930
Heading Depth: 2
Heading Rank: 2

Heading: The Real Estate Broker's Function

Text: A preliminary obstacle to our review of these proceedings is that neither the record before the Commission, its declaratory ruling, nor the Appellate Division opinion distinguishes sufficiently among the various methods by which real estate brokers might participate in and receive compensation from a mortgage transaction. In particular, neither the Commission's sanction nor the Appellate Division's broad proscription emphasizes the distinction between the role of a real estate broker engaged in placing mortgage loans, and that of a real estate broker engaged in issuing mortgage loans. [9] As noted, the initial requests for rulings from the Commission, both by First Boston and MBA, focused on the assumption that the real estate broker would earn compensation in the mortgage transaction by acting as the issuer of the mortgage loan, either itself or through an affiliated company, and that the entity issuing the mortgage would be licensed under the Mortgage Bankers and Brokers Act. Neither First Boston nor MBA requested a ruling as to whether the real estate broker could be paid as a mortgage broker, either by the buyer or by an unaffiliated mortgage lender, for services rendered in placing the buyer's mortgage loan. Although the litigation instituted by MBA against ERA alleged that payments for placing mortgages were being made by ERA's mortgage affiliate to ERA sales personnel, that litigation was dismissed when the Commission issued its initial ruling. As a result, no proof of MBA's allegations against ERA was introduced before the Commission. Therefore, the Commission's jurisdiction was apparently invoked to consider only whether a real estate broker who has earned a commission from a seller can function and be compensated in the same transaction as the issuer of the buyer's mortgage, either directly or through an affiliated company. [10] However, in the proceedings before the Commission, the three witnesses produced by MBA virtually ignored the issue posed by First Boston and focused instead on the undesirability of permitting a real estate broker to act as a mortgage broker, earning a fee from the buyer or the lender for placing the mortgage, in a transaction in which the real estate broker was also paid by the seller for effecting the sale. The Commission broadly approved the right of real estate brokers to receive compensation from both the sales and mortgage components of the same transaction, subject only to the Commission's supervisory responsibility to punish specific misconduct individually. The Commission's decision endorsed both the mortgage-origination proposal described in First Boston's request for a ruling as well as the mortgage-brokerage practices challenged by MBA's witnesses before the Commission, with only limited discussion of the distinction between the real estate broker's role as mortgage banker and mortgage broker. The Commission observed that N.J.S.A. 45:15-17(i) did not apply when the real estate broker originates the mortgage, since he or she becomes a party, not a representative of a buyer. As to the real estate broker functioning for a fee as a mortgage broker or solicitor, the Commission noted: When a broker receives compensation for assisting in the placement of a mortgage, the compensation is paid by the mortgage originator, not the buyer. Thus, by receiving compensation for such services, the broker is not being paid for representing the buyer. In reversing the Commission, the Appellate Division majority observed that whether the real estate broker was functioning as the mortgage issuer or the agent placing the mortgage loan, such functions were incompatible with the real estate broker's role as the seller's agent. The Appellate Division concluded that in either role, irrespective of disclosure or the source of compensation, the real estate broker would be representing the buyer for compensation while simultaneously earning a commission as the seller's broker, thereby violating the Act. Responding to the Commission's observation that a real estate broker placing a mortgage loan is paid by the lender and not the buyer, the court noted that such a charge was one that under the Mortgage Bankers and Brokers Act, the mortgage banker can pass to the borrower. 200 N.J. Super. at 604. As is apparent, both the Commission and the Appellate Division decisions focused on the statutory phrase representing either party in reaching their divergent conclusions. The Commission determined that a real estate broker acting as a lender does not represent the buyer, and that a real estate broker placing a mortgage loan with an unaffiliated lender represented the lender and not the buyer. The Appellate Division disagreed, concluding that the totality of the circumstances of [the buyer's] relationship with the broker justifies a buyer's assumption that any service performed by the real estate broker in connection with the mortgage loan is rendered on behalf of the buyer. Id. at 602-03. On this critical issue, however, the record before the Commission is silent, particularly with respect to whether the real estate broker's relationship to the buyer in the mortgage transaction can be clarified by disclosure. Although the Appellate Division concludes that disclosure is immaterial if the broker is paid both for representing the seller in the sales transaction and for representing the buyer in the mortgage transaction, id. at 600-01, the significance of the broker's disclosure with respect to the issue of representation was not addressed below and should be developed in the record on remand. Both the Commission's conclusion that a real estate broker placing a mortgage loan will be paid its fee by the lender, and the Appellate Division's conclusion that any such fee can be passed by the lender to the borrower, are sharply disputed by the Department of Banking. As intervenor before us, the Department asserts that its interpretation of the Mortgage Bankers and Brokers Act prohibits the payment of fees by mortgage bankers to mortgage brokers for placing mortgages. N.J.S.A. 17:11B-13(b). The Department's position is that a mortgage broker may collect its fee from the borrower only in the form of application fees and discount points. The Department indicates that the statutory reference to the payment of fees to licensed or exempt persons for arranging    a mortgage loan for a borrower, N.J.S.A. 17:11B-14(e), must be read in conjunction with the limitations on fees that mortgage brokers are authorized to charge. N.J.S.A. 17:11B-13(b). In construing these statutory provisions, a court would ordinarily accord appropriate deference to the administrative interpretation of the Department of Banking. See Metromedia, Inc. v. Director, Div. of Taxation, 97 N.J. 313, 327 (1984); In re Application of Saddle River, 71 N.J. 14, 24 (1976); Infocomp Corp. v. Somerset Trust Co., 165 N.J. Super. 382, 391 (App.Div. 1979). Although we need not decide this issue now, we assume that on remand the Commission and the Department of Banking will attempt to reconcile their apparently divergent views as to the proper source of a licensed mortgage broker's compensation for placing a mortgage loan. In this connection there are related issues involving the propriety of payments by licensed mortgage bankers to real estate brokers not required to be licensed as mortgage brokers, and payments to sales personnel employed by such real estate brokers.