Mortgage Broker

CMB MAGAZINE cmba-achc.ca fall 2017 | 39 legalease item (such as machinery in a plant or built-in furniture in a house) is partially attached to the land and the lender claims it in foreclosure proceedings. (Fall 2014, page 32) Unitranche Mortgages A private lender might participate in a unitranche mortgage where the lender's interest in the mortgage is divided into tranches (in effect, tiers). For example, the first tranche might be the first million dollars of a $1,750,000 mortgage, the second the next $500,000 and the third the remaining $250,000. Each tranche could have different return rates, voting rights, redemption rights and so forth. An investor could invest in the tranche of her choice. As with syndicated mortgages, the quality of investment varies across mortgages; with unitranche mortgages, the quality varies as well across tranches. (Winter 2016, page 37) Emails Can Equal Contracts A contract or mortgage commitment need not be a formalized document. An exchange of emails with agreement on the essential components can create a binding commitment. (Winter 2016, page 14) Limitations on Loan Terms e private lender is generally in a stronger position than is the lender in structuring the mortgage relationship; hence, the law contains restrictions as to the terms lenders can include in the transaction. Lenders who abuse their position to an extreme are sometimes said to be engaged in predatory lending and can be subject to regulatory action (Winter 2016, page 45), as well as a civil judgment. Further, a court can grant relief where a mortgage provides harsh penalties for default by the borrower. (Fall 2015, page 44) e Canada Interest Act prohibits a higher rate of interest on arrears than on principal not in arrears. Application of this seemingly simple principle can be somewhat tricky. (Summer 2016, page 16) Entering into an agreement or arrangement that includes a criminal rate of interest (presently set at 60 per cent and including things many would not ordinarily categorize as interest) can trigger criminal charges and a civil judgment. (Fall 2015, page 34) e Canada Interest Act also requires that the total cost of credit (including as well all non-interest financing charges) be disclosed in the standard formula of the rate of interest chargeable on that money, calculated yearly or half-yearly, not in advance. A lender's pattern of failing to properly disclose this information can lead to a class action lawsuit against the lender. (Winter 2015, page 41) e Canada Interest Act furthermore limits prepayment penalties a lender can require; for mortgages with a term greater than five years, at any time aer expiration of five years, a borrower may tender payment of principal and interest together with three months further interest in lieu of notice. (Summer 2016, page 20; Summer 2014, page 37) e Canada Interest Act and the common law (that is, court precedents) allow courts to hold lenders accountable by fines for damages or deceptive acts. Independent Legal Advice e borrower obtaining independent legal advice can level the playing field. It will not necessarily offset the inequality of bargaining power, but it can better ensure the borrower understands the transaction he is accepting and increase the likelihood of its enforceability. (Fall 2016, page 16) Mortgage Assumption Risks While allowing a new person to assume the borrower's obligation under a mortgage might be convenient or efficient for the private lender in some circumstances (for example, it keeps the lender's funds invested without interruption), the assumption can trigger unintended consequences. For example, in several provinces, when a mortgage has been assumed, the original lender is in some circumstances legally released from the obligations under the mortgage. A private lender should consider these possibilities in responding to a request for approval that a mortgage be assumed by a new borrower. (Winter 2015, page 26) Mortgage Fraud and Due Diligence From origination to payout of the mortgage, the mortgage process provides many opportunities for fraud. A private lender who participates in a fraud may be held responsible under regulatory, civil and criminal law. A private lender who is the victim of a fraud may have legal remedies against the perpetrators. A private lender needs to be diligent to best ensure fraud does not occur in the subject transaction. (Winter 2014, page 21; Winter 2015, page 42; Spring 2015, pages 29 and 39; Summer 2015, page 49; Spring 2016, page 45; Summer 2016, page 35) Absconding Conveyancer If one of the notaries or lawyers closing the mortgage transaction absconds with the mortgage funds, whose funds are lost? It appears that decision is very case specific and private lenders should instruct their conveyancers accordingly. (Winter 2016, page 48; Winter 2015, page 30) Title Insurance and Structural Defects Title insurance can, in some circumstances, provide coverage not only for title but structural defects. (Winter 2017, page 60) mortgage be assumed by a new borrower. ( Mortgage Fraud and Due Diligence From origination to payout of the mortgage, the mortgage process provides many opportunities for fraud. A private lender who participates in a fraud may be held responsible under regulatory, civil and criminal Each tranche could have different return rates, voting rights, redemption rights and so forth. An investor could invest in the tranche of her choice. As with syndicated mortgages, the quality of investment varies across mortgages; with unitranche mortgages, the quality varies as well across foreclosure proceedings. arrangement that includes a criminal rate of interest (presently set at 60 per cent and including things many would not ordinarily categorize as interest) can trigger criminal charges and a civil judgment. ( page 34 Independent Legal Advice

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