Private mortgages: borrowers beware
By AdvocateDaily.com Staff
Borrowers need to know what they’re getting into before signing up for a private mortgage because it could be more costly than they anticipate, warns Mississauga real estate and immigration lawyer Jia Junaid.
“The number one thing people need to know about private mortgages is that they come with a host of strings attached and a hefty price,” says Junaid, principal of Atlas Law. "This is the Wild West of the real estate industry as the players are often individuals or small holding corporations providing mortgages to borrowers who find themselves hanging by a thread financially."
She tells AdvocateDaily.com that private mortgages are often the last option for people who are refused by traditional lenders, and differ dramatically from the institutional mortgages you might get from A and B lenders.
In a private mortgage situation, a borrower must pay all the related fees, including disbursements, title insurance and legal fees, which is standard in any real estate transaction, Junaid says.
"What's different about private mortgages is that if the mortgage amount is more than $50,000, the borrower ends up paying for two sets of fees — their own as well as the lender's," she says.
Junaid says she recently dealt with a case stemming from a $30,000 private loan that escalated to $60,000 after all the fees were attached — many of those costs weren't disclosed beforehand. And although her client knew she had a good case, taking it to court could have incurred another $50,000 so they chose to settle.
“Cases like that stick with you because you realize what happened wasn’t right,” she says.