The private mortgage broker, upon receiving a loan application, either from a broker acting for the borrower or other referral source, will perform the broker due diligence.

This involves performing some of the searches, and making some of the enquiries, that will later be performed by the lender as part of lender due diligence and the mortgage lawyer as part of legal due diligence.

The purpose of the broker due diligence is to weed out loans which are unsuitable prior to wasting the time of the private mortgage lender and their mortgage lawyer. An experienced broker knows that a diligent lender and their lawyer will eventually find out anything adverse in any event, including, but not limited to, an overly optimistic estimate of the value of the security.

The broker knows that if they waste the lender’s time on a deal that fails to proceed, due to an issue the broker could easily have detected, their reputation will be tarnished with that lender and the mortgage lawyer. Accordingly experienced brokers ferret out anything that could possible kill the deal and either kill it themselves or make full disclosure of it from the outset.

Brokers do not have the time, money, or automated systems needed to perform all the searches that will later be done. Instead experience guides them as to what searches and enquiries they need to make. Their focus is on:

  1. The scenario, with particular emphasis on its veracity and the viability of the proposed exit strategy, and

  2. the value of the security offered.

In reviewing the scenario the private mortgage broker’s experience will prompt them to make bankruptcy searches, company searches, land title searches and Google searches. The purpose is to find any fraud or red flags. For example the