In the intricate world of private mortgage transactions a vital aspect that demands close scrutiny is legal representation.
In Ontario, where the mortgage amount exceeds $75,000, both lenders and borrowers are legally required to have legal representation in these transactions to safeguard their interests. Now, you might be asking why is this necessary? Does it not inflate closing costs? Does this not make things more complicated? The short answer is that yes, it does. However, not all private mortgage transactions and the parties involved are created equally. These rules have been designed and put into place to better protect consumers in what is largely a non-regulated lending market. Let’s dive in.
What is a private mortgage?
A private mortgage, in simple terms, is a home loan arrangement that doesn't involve a traditional bank or lending institution. Instead, it's a loan provided by an individual or a private company, often for unique situations or when traditional financing options aren't available. Private mortgages can be a lifeline for those who may not meet the strict criteria of conventional lenders, offering flexibility and tailored solutions to help people achieve their homeownership dreams.
How does closing a private mortgage differ from closing a conventional or institution mortgage?
The closing of a conventional mortgage typically involves retaining a real estate lawyer or using a title company to close the mortgage. This is usually the final step in the process after being approved by the bank. In the closing process, the lawyer conducts due diligence on the property, such as a title search, creates the legal documents required, and registers the new mortgage on the property. In most institutional cases, despite the borrower paying the lawyer’s fees, the lawyer acts on behalf of the borrower AND the lender.
In the world of private mortgages, for most loans of $75,000, different regulations apply. The greatest difference is that a lawyer cannot represent both the borrower and the lender. This means that the lender will have their own legal counsel, while the borrower will be required to retain what is commonly known as Independent Legal Advice (ILA) or Independent Legal Representation (ILR).
Why are there two lawyers required in closing a private mortgage?
So, why are there regulations that restrict dual representation in private mortgage closings? The answer lies in the need to protect the interests of all parties involved. When a lawyer represents both the lender and borrower, there's potential for conflicts of interest. For example, the lender may want terms that are favorable to them, while the borrower seeks terms that are favorable to them. These competing interests can create ethical dilemmas for the lawyer.
Further, conventional or institutional mortgages usually follow standard terms and conditions. Since financial institutions in Canada are highly regulated, most mortgage contracts, while formatted differently, in principal, carry similar terms.
This isn’t necessarily the case with private mortgages. To a certain degree, every lender can determine their terms and conditions, fees and penalties. Private mortgages also follow different structures, renewal terms, and may incorporate origination fees up-front that an institutional mortgage may not have.
For a borrower, signing on the dotted line, means that you’ve accepted the terms and are bound by the mortgage contract. Regulations aside, having an experienced lawyer review the mortgage terms and advise on any issues or areas of concern is just a wise decision and a great investment.
Choosing an Independent Legal Advice Lawyer for closing a private mortgage
Selecting an Independent Legal Advice (ILA) lawyer for your private mortgage closing is a pivotal step in the real estate process. ILA lawyers play a crucial role in safeguarding your interests and ensuring that you fully comprehend the legal implications of your mortgage agreement.
When choosing an ILA lawyer, it's essential to look for someone with expertise in private mortgage law, as their guidance will be instrumental in navigating the complexities of your transaction. Moreover, a trustworthy ILA lawyer will not only review your mortgage documents but also provide you with personalized advice, ensuring that you make informed decisions that align with your needs.
How do I find an ILA Lawyer for a private mortgage closing?
Consider seeking recommendations or referrals from trusted sources in your network, such as mortgage professionals or friends who have undergone similar transactions. At Deeded, we can connect you with one of the friendly and experienced ILA lawyers in our network.
A Deeded ILA lawyer will diligently review your mortgage agreement, explain the terms and conditions in plain language, and address any concerns or questions you may have. In most cases, they will be conducting your ILA meeting over secure video, saving you the time and expense of having to meet in-person.
To start your ILA process, click here or contact us at (855) 456-4335