Can Mortgage Broker Clawbacks Be Legally Enforceable if You Refinance in First 2 Years

Hello, good people of ozbargain plus any trolls lurking in the shadows

So I recieved an invoice for approx. 2k by email for refinancing within my first year of engaging my old broker to a much better lender which I found myself.

I went through all the documents and contracts I signed to my broker but did not find a specific clause that said I must pay this, at worse the wording was:

"You may be liable to pay fees and charges to the lender or other parties. Some of these fees and charges may be
payable by you even if you choose not to proceed with an application for the loan, or your application is not successful, or
we recommend that you remain in your existing loan (if applicable)."

Happy to take any legal ozbargain advice, but being ozbargain, Ill take anything with my gratitude and thanks but also with a small pinch or salt.

I'm especially interested in similar case studies personal experiences to mine and what your outcome was.

Cheers,
AbsX

Comments

  • Unless it's in a specific clause you're in the clear.

  • Ask the broker what entitles them to charge you.

    • +4 votes

      Good advice, I was thinking of using their super polite 'demand for payment' tone to ask for evidence where I'm liable for this payment.

      The invoice isn't due for a week so id like to get as much advice as possible before i formulate any response.

      Upvoted you and thanks =)

      Also I know many OPs go silent when they get their information but I'll do my best to let you know the outcome of my situation. Depending how easy or ugly it gets could be a few weeks or more.

  • simply dont pay it , and you will be fine

  • AbsX, they will need to give you a "Credit Quote" which you would have signed. You would have been given a copy also.

    Ask to see the Credit Quote, and if its the first time you've seen it, complain and don't pay.

    If you signed a Credit Quote, you should be paying the fee required as per the Quote.

    • Thanks mortgagebroker for your help, very good advice

    • +2 votes

      Small update.

      I went through literally every single email correspondence I had with this broker and could not find a clause that i was required to pay it beyond what i posted on my opening thread.

      Maybe it's in the 100 page loan contract I signed with the bank directly but I'm pretty sure the broker is not a party of that formal loan contract with the bank.

      Nonetheless I just sent a short, polite but firm email asking for evidence that im required to pay the clawback the broker incurred from the bank. Figured this cant really hurt me.

      • That's pretty dodgy. I used to be a broker and before any documents that get sent to the bank, I had to make sure the credit quote is signed by all parties first.

  • +1 vote

    Interested to follow this case.

  • Can you give us a hint of the broker name?

    • I think bad form to out the broker at this point: it's not uncommon and not unfair for clawbacks in certain situations, as brokers receive trail commission for the life of the loan, and based on this, regularly give clients upfront discounts from their initial commission.

      Customer refinances before end of fixed term, broker loses trail commission, makes sense to want to recoup upfront discount.

      • but it is bad if they ask you to pay if it's not in contract or agreement anywhere.
        something like that should be discouraged.

        • Oh yeah of course it needs to be in a contract or other legally binding document somewhere, just that if it is, I wouldn't necessarily see any issues with it.

      • The broker did lose 85% of his original commission because I refinanced within the first year.

        If its relevant here, ill be happy to list my reasons for doing so later on.

        The question is if the clawback the broker incurred from the bank can legally passed on me as a past client.

        • Not really relevant - it'll depend on what the document that allows the clawback (if it exists) says. And to a lesser extent, whether there's any law invalidating that document or discuss clawback provision but at that stage if you want to dispute it you'd ideally have a lawyer.

          • @HighAndDry: If the amount is 2k, surely it can be resolved without lawyers in small claims with minimal court fees??

            • @AbsX: The point is that if you're coming to OzBargain to ask and that document with the clawback clause exists, it'll be a short loss for you in court if you don't consult someone who knows more about the law than you do and have them review that document and the applicable legislation. In most cases that'd be a lawyer.

              • @HighAndDry: Thanks for you thoughts, makes sense

                I did have a lawyerin mind but hoping it won't get to court. Will consult if i get served.

          • @HighAndDry: Also, i have no intention paying the invoice unless required by law so i would be the defendant

        • I'd like to know the reasons for the refinance

          • @sweefu: Main reason is much better interest rate, almost 0.5% better off, rate match for new customers and to not pay that stupid $395 a year package fee anymore.

    • Sorry have no intention of revealing individual names

  • Broker here.

    If you have signed a credit quote, you will be liable to pay whatever was agreed to.

    However, this was highlighted in the royal commission, and I believe the ability for a broker to invoice their clients for clawbacks is not going to exist in the future.

    I'm happy to have a look over your docs and give my opinion on whether a credit quote exists as sometimes it can be bundled with other compliance documents.

    • +4 votes

      what if its your client .

      • Haha i doubt it =P

      • I don't charge clawbacks, as I believe it unfairly locks the customer into a loan which might not be suitable for them.

        • If my broker had your attitude, i would have gladly offered him a few hundred just because I felt bad that his time was unpaid.

    • Thank you sweefu

      Ill try find the credit quote if it exists, would be really dodgy if my old broker never sent a copy of a document I signed back to me.

      Thanks for your kind offer, I'll keep you in mind. Although it would be time consuming to go through everything

    • However, this was highlighted in the royal commission, and I believe the ability for a broker to invoice their clients for clawbacks is not going to exist in the future

      When is it going to be enforced / happen? Any set date?

      • I read this too, sometime this year, no idea if the law will apply retrospectively though

  • I would not have signed a contract if it had said I would have to pay fees to the Broker if I refinanced.

    • The issue is this was never mentioned to me

      If this clause exists, it's either really obfuscated or hidden really well

  • +3 votes

    Ok update number 2

    Previous I sent an email asking for evidence and i got a response

    "
    Within the first year if a loan is refinanced then we are required to pay the entire commission back to the lender.

    If your question is around whether I provided a service for which you feel I do not deserve to be paid, that should based on the outcome I achieved for you at a time where you required a quick turnaround.
    "

    Now my commentary.

    Ok his email started with a lie, I know his kept 15% at least of the original commission, sure i may not have been profitable but he still got something

    Next parapragh his playing to my emotions rather than providing evidence. Now, im not totally against compensating some amount to my old broker for his time out of goodwill. What he said was true even if it was not the most competitive loan. But certainly demanding the full 2k invoice within 7 days is not the right attitude to have in my eyes.

    Finally he present no evidence, does that mean his witholding it or got nothing that's enforceable?

    • I would suggest the latter. Much easier for him to just send you a copy of a signed contract that you have to pay

    • If he had something which you signed as part of the contract, he would have said it. What would be his motivation to withhold that; he just wants to claw back some money, not go around in circles with you.

      • Thanks, I honestly dont know, never been in this situation before. Maybe he does have a leg to stand on but simply does not know it yet?

        • All the more reason to cut him off unless he sends you something. Just politely say that you will not entertain this anymore unless he can produce a contract in which you agreed to pay him if you refinanced. No harm in putting down an ultimatum at this point

        • It's been stated several times already. Nobody here can answer that. We don't have access to your contracts.

          Just reply "I'm not paying unless you cite the specific clause in any contract you possess that states I'm required to pay the amount invoiced"

    • thanks for the update. keep us in the loop.

  • Contact MFAA (if your broker is a member) and see what they say?

  • Advise your former broker that if they insist that you have to make the clawback payment then you first require a copy of the relevant document that they are relying on to pass the charges on to you within 7 days, or you want confirmation that the invoice is no longer due and payable.

    Then let them know if they do not provide the documents or confirm that you no longer need to pay that you will be making a complaint to AFCA.

    Their details are below and are free to use for consumers (the business pays the membership and complaint fees) and are an alternative to going to court.

    If in any doubt you can also call them and speak to them for some general advice on how to handle your dispute.

    Australian Financial Complaints Authority
    www.afca.org.au
    Email: [email protected]
    Phone: 1800 931 678

  • Thanks everyone for your individual comments, appreciate you're taking time out of your day to help me.

    For now, my course of action is to do nothing, i really do not feel like engaging with this broker guy anymore unless it's responding to legal disputes.

    Thanks,
    absX

    • That is the wrong move. Don't ignore.

      Push for a copy of the contract and/or clause that supposedly requires you pay the clawback. Whip off a single line email tomorrow demanding again. Do it again in a weeks time. Will take you all of 20 seconds each.

      If they fail to provide the contract/respond to you then you will have a nice email trail you can use to seek to recover costs from THEM should they issue anything legal against you.

      • Thanks zeggie, ill ask again for the contract copy tomorrow. I just had some personal issues to deal with today.

        Really appreciate the help

  • There is too much going on in these comments.

    This is simple.

    Email broker "Please provide me with a copy of the credit quote outlining the fee payable signed by myself"

    If they send it to you. Pay the invoice.

    If not. Tell them you are not required to pay the invoice.

    • I guess also if they go back to the emotional argument, just repeat the "please provide me…" line. Don't get involved in an emotional argument.

    • Thanks, i just sent it using your words, ill let everyone here know what the response is

      Thanks for your help

  • +3 votes

    Ok, possibly final update.

    So my old broker finally admitted he didnt have a contract or credit quote with stipulations to pay the invoice because apparantly I was a "trusted" referral from a family member. He said it was my decision now if I want to pay or not.

    Spoke to family member and even he said to not pay the guy lmao.

    Thanks to @mortgagebroker for the most helpful advice. And also to everyone else that helped. You're a great community.

    • Thanks for updating. I would say he doesn't give out the credit note because it turns people off but most dont bother with moving so quickly. Thats his risk.

      • Final update.

        I know I didn't have to but I sent him $250 just as a goodwill gesture but I made sure to mention that I wasnt doing this to meet any obligations or legal requirements (just in the small chance the broker still wants to peruse it legally which I highly doubt).

        Even if my loan was suboptimal I felt bad that he did it mostly for free.

  • I have refinanced many times using both the bank and different mortgage brokers and have never heard of a clawback fee. I am now in the same boat as AbsX.

    Through a new mortgage broker, I changed my investment property about 18months ago and 6 months ago my primary residence as it was a construction loan to ANZ. I was happy with the bank until my construction loan commenced and with all the trouble I had, I told the bank and mortgage broker multiply times that I am leaving the bank once I have all the loan drawn down.

    My loan has been drawn down now for 4 months now (though arranged 11 months ago) and I phoned a different provider/mortgage broker who could save me $95 a fortnight on both of the loans. I gave my mortgage broker the courtesy of trying to get me the same deal. He said he probably couldn't but to leave it with him. 2 full days later I phoned and left a message asking where he was up to. He never replied. Another 5 days after that, I signed with the new broker. That same afternoon my old broker rings to tell me that he can't get the same discount but is close. I don't know how close as I told him that I signed with someone else that morning. He told me that there will be a fee for the work that he has done on the loan and that he will send me an invoice to cover his expenses.

    I have no clawback provision in my credit quote that I would have to pay him back his commission if I left within a certain period of time.

    I gather it won't charge me the full upfront commission but part of it. Therefore, my question is, what is a fair amount that I should pay him? I do agree that he should get some money?

    I had a problem with the bank in that they wouldn't pay the builder the last two progress payments because there was $7000 worth of work outstanding. Those progress payments were for $54,000 and $110,000. I probably spent two hours myself on and off the phone, an hour lodging a written complaint and I'm the one that got the issue resolved because of the written complaint. He knew I was peeved and never phoned me afterwards to ask if I wanted him to find another provider.

    • If its not in the credit quote, then its not legally enforceable to pay him, at least thats what i learned from the helpful people in this thread.

      In my case, i gave my broker a small payment of $250 out of goodwill but this is completly optional

  • If you look at your loan agreement it would/should disclose commissions payable to your broker. Within in many would have a clawback provision from the Lender. Often the bank claws this back from broker. Broker has been screwed over and is now looking at recuperating his costs. Broker is now asking you to pay invoice.

    Some thoughts
    1) pay invoice. a lesson learnt to read loan agreements.
    2) do nothing and ignore it. karma may return and bite you if debt collectors are engaged by your broker
    3) refinance another loan with broker to give them replacement commission to offset lost amounts
    4) pay them an upfront advice fee instead of the broker relying on commissions

    Personal risk cover (Life/TPD/IP/Trauma insurance) works the same way. Generally its best to do the write thing switch/adjust after the clawback period

    • Thank you. I never know of a clawback period before this so a new lesson there. No broker has ever charged it before to me nor mentioned it. His upfront commission was $1375 from the bank and trailer fees. My signed home loan document does not state there would be a clawback fee and I don't recall him ever verbally saying it either. I have read the signed loan document from the broker multiply times. Nothing there so I am not concerned about getting a bill for the full amount. He knew I was going to leave the bank and never mentioned any fees for leaving. Not until I mentioned that I was leaving him. Happy to pay him some money, just wanted to know what was reasonable amount is.

      • Dont pay him anything. Thats the cost of doing business if you dont fully disclose your practices. This is the reason there was a royal commission, non disclosure of fees and changes adversely affecting the consumer.