Legal, Ethical and Disclosure Obligations
Duties Owed to the Client
Candidates must understand the duties of good faith, disclosure of conflicts of interest, confidentiality, and the obligation to act in the client's best interest. Know the disclosure requirements for fees, commissions, and lender relationships, and the rules on dual agency and referral arrangements. Understand the role of the privacy framework in handling client information and the consequences of misrepresentation.
Traps to Watch
Questions often test whether a fee must be disclosed before or after the service, or whether a commission from a lender must be disclosed to the borrower. Watch for distractors that permit an undisclosed referral fee, or that treat a conflict of interest as acceptable if the client benefits. Another trap: confusing the duty of confidentiality with an absolute privilege to withhold information from the lender.
Rule of Thumb
Disclose early, in writing, and in plain language. Any fee, commission, or relationship that could influence the recommendation should be disclosed before the client commits.
Worked Example
A broker receives a $1,000 referral fee from a lender for placing a loan. The broker must disclose this to the borrower in writing before the borrower signs. If the broker instead recommends the lender without disclosure, the recommendation may be a breach of the duty of good faith even if the rate is competitive.
Client Relationship Management and Fraud Prevention
Building Trust and Spotting Fraud
Candidates must understand how to onboard clients, verify identity, and recognize fraud indicators such as altered documents, straw buyers, inflated appraisals, and undisclosed secondary financing. Know the red flags in income and employment verification, the importance of independent source checks, and the obligation to report suspected fraud. Understand how clear communication and expectation management reduce complaints and disputes.
Traps to Watch
Questions often test whether a broker should proceed when a document looks suspicious but the client is persuasive. Watch for distractors that suggest the broker may rely on the client's assurance, or that treat a borrower's request to inflate income as a service. Another trap: failing to verify identity because the client was referred by a trusted source.
Rule of Thumb
Verify independently and document the verification. If a fact is material to approval, confirm it through a source other than the client and record what was checked.
Worked Example
A client submits a pay stub with a font inconsistent with the employer's letterhead and a phone number that reaches a personal line. The broker should not submit the file. Instead, the broker contacts the employer through an independently sourced number, documents the result, and if the document proves altered, declines the file and reports the suspected fraud.