B.C. mortgage broker suspended 2 years, fined $30K for misleading lenders

A view of the bridge over Okanagan Lake between West Kelowna and Kelowna, B.C., is shown. (Shutterstock.com)

A B.C. Financial Services Authority investigation that began when the province made a civil forfeiture application regarding a Kelowna property has ended with a two-year suspension and a $30,000 fine for the mortgage broker who facilitated the purchase's financing.

In a decision issued Dec. 15 and posted online last week, BCFSA chief hearing officer Andrew Pendray determined the appropriate sanction for Jessica Paula Ashley Labonte, who admitted misconduct related to six property deals involving three borrowers. 

While Labonte admitted to the misconduct, the parties disagreed significantly on what penalties she should face.

The BCFSA sought a five-year suspension to go with the $30,000 administrative penalty, while Labonte argued that she should be allowed to remain a registered mortgage broker, with special restrictions requiring supervision of her work for two years.

Pendray ultimately settled on a two-year suspension of Labonte's registration, concluding that her lack of any ongoing misconduct since 2020 and the strong character reference she received from her employer were mitigating factors in the case.

What happened

Labonte's misconduct occurred from 2017 to 2019, while she was working for a previous employer, according to the sanctions decision.

She became registered as a submortgage broker for the first time in December 2015, and she argued that her inexperience was a mitigating factor in the misconduct, though Pendray found this argument unconvincing given the number and duration of misconduct incidents to which she admitted.

Labonte admitted to failing to use "reasonable due diligence" when verifying the accuracy of income statements provided to her by mortgage applicants, as well as submitting inaccurate information to lenders and providing them with "misleading or false" information.

The sanctions decision gives details of her misconduct related to four borrowers and six applications. All of the names of borrowers and lenders, as well as property addresses, are redacted.

According to the decision, Labonte acted on behalf of "Borrower 1" on two occasions, including the purchase of "Property 1," the Kelowna property that was later subject to civil forfeiture proceedings.

In that case, Labonte submitted applications to lenders showing that Borrower 1's income was nearly $144,000. She based that information on CRA notices of assessment and T1 forms provided by Borrower 1, which "were altered and did not represent Borrower 1’s true income."

"In response to a summons from BCFSA, Borrower 1 provided her 2017 CRA reassessment, which showed that her CRA net income for 2017 was only $13,547," the decision reads.

Labonte admitted that she "ought to have known" at the time she submitted the application that the CRA documents had been altered.

According to the decision, Labonte also overstated Borrower 1's income on a different mortgage application for a different Kelowna property, referred to as "Property 2."

In that case, Borrower 1 told Labonte that her tax documents showed low income for the preceding two years, but that she was now making more money. Borrower 1 provided bank statements showing regular incoming e-transfers, which always came in as round numbers, usually between $100 and $3,000.

Labonte calculated Borrower 1's income based on these incoming transfers "without any corresponding invoices or other documents to verify the reasons for those deposits."

In other cases, according to the decision, Labonte submitted applications for other borrowers that contained contradictory information about whether properties would be owner-occupied or rented out, as well as how much rent was being charged.

She also failed to keep her records in a secure and safe location, and was unable to provide investigators with all of her text-message-based correspondence with clients.

'Severe' misconduct

The BCFSA described Labonte's misconduct as "arguably one of the more serious forms of misconduct that a professional can commit," according to Pendray's decision.

"Ms. Labonte, on the other hand, takes the position that she was simply an individual who was new to the industry and who lacked the knowledge to know what she ought to be looking for in terms of potentially fraudulent documents," the decision reads.

While he accepted this was a possibility with the earliest application, Pendray concluded that Labonte's arguments about her lack of knowledge "fall away" when considering the others.

"On those applications, not only does Ms. Labonte admit to having provided false and/or misleading information to lenders by providing contradicting statements to differing lenders regarding which property in the Borrower 2 applications would be owner-occupied, Ms. Labonte has gone further and admitted that she was specifically aware, at that time, of the fact that lenders were more likely to finance owner-occupied properties and to provide better financing rates to such properties, and that she was specifically aware of the fact that it was more difficult to qualify for a mortgage on rental properties," the decision reads.

Pendray described Labonte's misconduct as "severe" and worthy of sanctions both as specific deterrence aimed at preventing it from happening again, and general deterrence aimed at ensuring brokers know they cannot break the rules when advocating for their clients.

For this reason, he rejected Labonte's suggestion that a period of supervision – with no suspension of her registration – could be a sufficient punishment for her misconduct.

Pendray did, however, acknowledge a variety of mitigating factors that led him to settle on the two-year ban, rather than a longer one.

"Although Ms. Labonte did engage in serious misconduct in six transactions over an approximately two-year period, it appears that she has been able to continue to work in the industry without further issue since that time," the decision reads.

"In fact, according to the CEO of her employer, she is well regarded by lenders and colleagues alike. I note, as well, that BCFSA accepts that Ms. Labonte co-operated with the investigation into this matter."

Pendray suspended Labonte's registration for 24 months and imposed a $30,000 administrative penalty. He also ordered her to pay the BCFSA $13,736.49 for reimbursement of the authority's "investigative costs."