Procuring Cause in Mortgage: What It Is and Why It Matters

In real estate, determining a sale’s “procuring cause” is essential in establishing who is owed a commission or compensation for a successful transaction. The concept of procuring cause is frequently discussed in real estate, often regarding property sales. However, it also plays a crucial role in the mortgage industry, where mortgage brokers, loan officers, and other professionals may be entitled to compensation based on their contributions to a closed loan. Understanding procuring cause in mortgage lending provides insight into the responsibilities and rights of professionals and the importance of clear agreements and ethical practices in the lending industry.

What is Procuring Cause?

Procuring cause refers to the person or entity primarily responsible for a transaction’s successful completion. This term is most commonly associated with real estate agents, who may claim commission for initiating and leading a buyer or borrower to finalize a sale or a loan. In mortgage transactions, procuring cause involves the actions or influences that lead a client (borrower) to complete a loan. This concept serves as a basis for claiming the transaction’s commissions, bonuses, or fees. The procuring cause is the direct, uninterrupted effort leading to the completed loan transaction. Without that effort, the closing might have occurred.

For instance, if a mortgage broker introduces a borrower to a particular lender and guides them through the process, only to have the borrower complete the loan with another broker, the original broker may claim they are the procuring cause of the loan. However, determining the procuring cause can become complex, requiring a transparent chain of events and sometimes legal intervention.

How Procuring Cause Impacts Mortgage Professionals

The concept of procuring cause is particularly important for mortgage brokers, loan officers, and other intermediaries in the mortgage process. These professionals invest time, effort, and resources in guiding clients through pre-qualification, pre-approval, and final approval. If they play a significant role in bringing the borrower to a lender, they may expect compensation upon closing. When another party intervenes, or the borrower switches brokers or lenders mid-process, disputes can arise over who deserves the compensation.

This can lead to issues of trust and loyalty within the industry, as borrowers sometimes seek better rates or terms after beginning the application process with one broker, only to complete it with another. In such situations, the original broker may claim to procure cause if they believe their initial work directly contributed to the loan’s closing, even if another professional closed it.

Determining Procuring Cause in Mortgage

The process of determining procuring cause in mortgage transactions can be complicated. Unlike traditional real estate deals, where contracts and buyer representation agreements are more commonly used, the mortgage industry often operates on more informal relationships and verbal contracts. However, when a dispute arises, various factors are considered to assess the procuring cause:

Chain of Events: The actions leading to the loan approval are scrutinized. Did the broker provide the borrower with necessary information, pre-qualification, or financial counseling? Suppose these actions directly impacted the borrower’s decision to proceed with the loan. In that case, the broker might be seen as the procuring cause.
Interruption of Efforts: If another broker or loan officer interrupts the original professional’s efforts, the procuring cause argument may weaken. For instance, if a borrower decides to switch brokers due to dissatisfaction, the new broker’s actions may be considered an “intervening cause” that breaks the original chain of events.
Direct and Substantial Role: Courts and arbitrators often examine whether the broker’s role was instrumental to the transaction’s success. More than superficial involvement or simply introducing the borrower to a lender might be needed to establish a procuring cause.
Contracts and Agreements: Written agreements specifying compensation or finder’s fees upon closing can solidify a broker’s claim. Although less common in mortgage transactions than real estate deals, these agreements are decisive evidence in disputes.

Common Scenarios Leading to Procuring Cause Disputes in Mortgage

In mortgage transactions, disputes over procuring causes can arise from several situations. Here are some common examples:

Multiple Brokers Involved: A borrower might start with one broker and switch to another that offers better terms or services. Suppose the loan closes with the second broker. In that case, the first may claim procuring cause, arguing that they were responsible for the initial work.
Borrower Loyalty Shifts: Sometimes borrowers develop relationships with multiple brokers, creating ambiguity over who contributed most to the loan. In such cases, identifying a clear procuring cause becomes challenging and often requires arbitration.
Lack of Formal Agreements: With clear written agreements or contracts, mortgage professionals may find asserting their rights over commissions easier, as they need solid proof of their contribution to the transaction.

Legal and Ethical Considerations in Procuring Cause Disputes

When disputes over procuring causes arise, mortgage professionals can pursue legal action to resolve the matter. However, litigation can be costly and time-consuming. Courts may look at the series of events and the contributions and interruptions by various brokers before rendering a decision. Arbitration or mediation can also offer alternative resolution methods.

Ethically, mortgage professionals are encouraged to be transparent with their clients about compensation structures and their expectations regarding procuring cause. Misleading a borrower or “poaching” clients from another professional can damage reputations and invite potential litigation. Furthermore, clear communication among brokers, borrowers, and lenders about expectations and commissions can prevent misunderstandings and disputes.

The Role of Technology and Documentation

With the rise of digital tools and online mortgage platforms, tracking a borrower’s journey from initial inquiry to loan closing has become easier. Platforms that allow brokers and loan officers to document their efforts and contributions to each borrower’s case can provide evidence in procuring cause disputes. This level of documentation can be invaluable if a broker’s claim to procuring cause needs to be validated.

Using customer relationship management (CRM) software and maintaining records of all interactions, disclosures, and communications can strengthen a broker’s claim in potential disputes. Documentation serves as proof of involvement and helps establish a timeline, which can be critical in determining procuring cause.

Best Practices for Mortgage Professionals

To minimize disputes over procuring cause, mortgage professionals should consider the following best practices:

Establish Clear Agreements: Whenever possible, outline compensation and procuring cause terms in writing. This may include finder’s fees or specific conditions for compensation upon closing.
Document All Interactions: Use CRM systems to record conversations, emails, and important milestones in the borrower’s journey. Detailed records can support a procuring cause claim if a dispute arises.
Practice Transparency: Be upfront with clients about the expectations for fees or commissions if they choose to work with multiple brokers. Educating clients about the value and role of mortgage professionals helps build trust and reduces client switching.
Respect Professional Boundaries: Avoid approaching clients actively engaging with other brokers or lenders. Maintaining professional boundaries reinforces ethical practices and builds a reputation for integrity in the industry.

Conclusion

Procuring cause in mortgage transactions is a nuanced concept that can significantly impact compensation for mortgage professionals. As with real estate transactions, a transparent, uninterrupted chain of events leading to a closed loan is essential for establishing a procuring cause. Mortgage professionals can protect their interests by maintaining transparent agreements, ethical practices, and diligent documentation while offering borrowers quality service. In a competitive industry, understanding procuring cause helps professionals assert their rights reasonably, ensures compliance with industry standards, and ultimately contributes to a smoother, more efficient mortgage process for all involved.

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