Setting up a non-arm’s length mortgage (NALM)

Key Learnings:

• When purchasing a home using a NALM, ensure the funds are in place first 
• Understand that transfer of in-kind investments can take longer than expected 

In late 2014, Mr. and Ms. J inquired about a non-arm’s length mortgage (NALM) at their bank. A NALM is where you lend money from your registered savings plans or locked-in savings plans to yourself as an individual or as a co-borrower with someone who is related by blood or marriage. 

At that time, they opened an RRSP account at the same firm and began the process to transfer investments in-kind to the account. In the spring of 2015, the couple purchased a home. They had a closing date at the end of May. They needed their investments transferred to fund their NALM before the May closing date. 

The transfers of all the registered accounts were not completed until six months after the closing date. As a result, the NALM was not set up until then. In the interim, the couple delayed the closing, then relied on short-term and open mortgages to finance their home. 

The couple believed the firm was responsible for the delays in transferring the necessary funds. They claimed the delay resulted in extending the closing date for the new home purchase. They had to borrow additional money, and get a mortgage at a higher interest rate. They also claimed their funds declined in value during the transfer process. The couple calculated their losses at $12,000, requesting compensation for the interest paid on the mortgages, along with legal and other financial costs. 

The firm offered to refund a range of fees as a goodwill gesture. It later increased its offer to cover the NALM setup fees and administrative fees on registered accounts. Unsatisfied, Mr. and Ms. J brought their complaint to OBSI. 

OBSI may recommend compensation for financial losses caused by an error or omission by the firm. In the case of Mr. and Ms. J, we considered who caused the delays, what happened because of the delays, and what would have happened were it not for the delays. 

After investigating, OBSI found the firm was largely not at fault for the fact that the NALM was not funded by the original closing date as it was only partly responsible for transfer delays. Rather, normal circumstances, or the couple’s decisions led to the delayed funding. Specifically, the couple elected to transfer particular positions from portfolios at a number of different financial institutions, which took additional time due to the complexity of the products, the coordination involved, and errors in communicating information. They also chose to transfer investments in kind as opposed to in cash. A number of the transfers were non-ATON (a manual versus electronic process). The firm had advised Mr. and Mrs. J that non-ATON transfers could take longer. Finally, OBSI found that the firm did not provide a specific date by which time the NALM could be set up and funded yet the couple purchased a home knowing the NALM wasn’t funded. 

OBSI determined that the couple’s legal costs related to the mortgage were much less than they had said. The couple did not have any other costs related to the mortgages as the firm waived these. Further, the couple would have incurred the costs to establish the NALM regardless of the timing. OBSI did not, therefore, include those costs in our calculations. OBSI also determined the couple’s investments did not lose money during the transfer period. 

The couple asked to be compensated for the interest they paid to the bank due to having to obtain conventional mortgages. 

OBSI considered these facts and determined the overall losses attributable to the firm were $2,000. The firm agreed to compensate the couple for these losses. 

Complaint upheld

(2016)