Private Lending Transactions

Private mortgage lending has become an increasingly important part of Ontario’s real estate financing landscape. As conventional lenders apply tighter underwriting standards, more borrowers are turning to private lenders for bridge financing, second mortgages, construction financing, and other lending solutions that banks and credit unions are unable or unwilling to provide. For private lenders, these transactions offer attractive secured returns — but only when they are properly structured, documented, and registered. At Goldstone Law Professional Corporation, we act for private lenders and borrowers in all types of private mortgage transactions throughout Ontario. We have extensive experience in this specialized area and understand the specific legal requirements that distinguish private lending from conventional institutional mortgage financing.

Acting for Private Lenders

Title Due Diligence

Before advancing any private mortgage loan, a lender must have a clear understanding of the property being used as security. We conduct a thorough title search to confirm the current registered ownership, identify all existing encumbrances (including prior mortgages, liens, and other charges), and assess the lender’s proposed priority position. We advise lenders on the loan-to-value ratio implied by the current market value of the property relative to all registered encumbrances, including the proposed mortgage. We also review the property tax status, confirm that there are no outstanding work orders or building permit issues that could affect the value or marketability of the security, and verify that the property is properly insured. Private lenders who fail to conduct adequate due diligence before advancing funds risk finding that their security is worth significantly less than they believed — or, in extreme cases, that it is unenforceable.

Mortgage Document Preparation

The mortgage document itself — the charge/mortgage of land registered through Teraview on the Ontario Land Registry — is the foundational security instrument. We prepare customized mortgage documentation that accurately reflects the agreed terms of the lending arrangement, including the principal amount, interest rate (expressed as an effective annual rate, as required by law), term, repayment schedule, prepayment privileges, and default provisions. In addition to the standard charge/mortgage, most private lending arrangements require supplementary documentation, including a commitment letter or loan agreement setting out the detailed terms of the loan, a direction to pay (directing how the mortgage proceeds are to be disbursed), and insurance confirmation requirements. For loans secured by properties held through corporations or other legal entities, additional corporate documentation — including authority resolutions, personal guarantees, and PPSA registrations — may be required.

Priority Arrangements

Private mortgages are frequently registered as second or third mortgages, subordinate to an existing first mortgage. The priority of the private mortgage relative to other registered interests determines what the lender can recover if the borrower defaults and the property is sold. We advise private lenders on priority issues and, where appropriate, negotiate and register postponement or subordination agreements to ensure that the priority arrangement between the lenders is clearly documented.

Acting for Borrowers

Borrowers in private mortgage transactions have their own legal interests that require protection. Private mortgage terms can vary widely, and borrowers should fully understand the interest rate (including any compounding provisions), all fees and penalties, the consequences of default, and the lender’s enforcement rights before signing. Where a lender requires a borrower to obtain independent legal advice as a condition of the loan (which is common and advisable), we provide that advice, reviewing the mortgage documentation with the borrower, explaining the terms and implications in plain language, and providing a certificate of independent legal advice to the lender’s lawyers.

Mortgage Renewals and Extensions

Private mortgages are often arranged for short terms — commonly 6 to 12 months — with the expectation that the borrower will either repay the loan or transition to conventional financing at maturity. If refinancing is not available at maturity, the lender may agree to extend or renew the mortgage. We prepare and register mortgage extension or amendment agreements, ensuring that the renewed terms are properly documented and that the lender’s registered security position is maintained.

Frequently Asked Questions — Private Lending Transactions

What is a typical interest rate on a private mortgage in Ontario?

Private mortgage interest rates in Ontario vary depending on the risk profile of the loan, including the loan-to-value ratio, the quality of the property, and the creditworthiness of the borrower. First mortgage private rates typically range from approximately 6 to 12 percent per annum. Second mortgage private rates are generally higher, reflecting the increased risk associated with a subordinate security position. All interest rates must be expressed as an effective annual rate, and Canadian law prohibits rates in excess of 60 percent per annum.

What happens if a private mortgage borrower defaults in Ontario?

If a borrower defaults on a private mortgage in Ontario, the lender’s primary remedy is power of sale under the Mortgages Act (Ontario). The power of sale process requires the lender to issue a formal Notice of Sale providing the borrower with a 35-day redemption period before the property can be listed and sold. The lender must obtain the best price reasonably obtainable in the circumstances. We advise private lenders through every step of the power of sale process and represent borrowers who are exploring their options in response to enforcement proceedings.

Contact Goldstone Law for experienced private mortgage lending legal services. We protect lenders and borrowers in private mortgage transactions throughout Ontario.