Private lending involves an individual or business providing a loan rather than traditional financial institutions like banks or credit unions.
- Home / Services / Private Lending
Private Lending
Cunningham & Co. assists private lenders with preparing and registering private mortgages on properties located in British Columbia. Whether you’re an individual investor lending to family or friends, or a business engaged in private lending, we can help ensure your loan is properly secured and enforceable.
What is Private Lending?
Private lending involves an individual or business providing a loan outside of traditional financial institutions like banks or credit unions. These loans often involve real estate as collateral and are typically secured through a registered mortgage against the borrower’s property.
Private lenders commonly work with borrowers who may not qualify for traditional financing due to credit challenges, tight timelines, or unique property situations. Because of the increased risk, private loans generally come with higher interest rates and stricter repayment terms.
Common Reasons Why People Use Private Mortgages
Private lending is often used in the following scenarios:
Borrowers declined by banks
When traditional lenders refuse financing due to income verification issues, poor credit, or unusual property types.
Second or third mortgages
Loans secured by real estate that already has an existing mortgage, often for debt consolidation or investment purposes.
Quick close purchases
Lending to borrowers needing immediate funds for a real estate purchase before conventional financing can be arranged.
Bridge financing
Short-term loans to cover a gap between the purchase of a new property and the sale of an existing one.
Construction financing
Loans provided to fund residential or commercial construction projects.
Elements of a Private Mortgage
To properly secure a private loan with real estate in British Columbia, the following elements are typically required:
- Loan agreement or promissory note: A written agreement outlining the loan amount, interest rate, repayment terms, and consequences of default.
- Mortgage or land charge: A security document registered against the borrower’s property at the Land Title Office in BC, securing repayment of the debt.
- Insurance requirements: Lenders often require the borrower to maintain adequate property insurance, with the lender listed as a loss payee.
- Independent legal advice (ILA): It’s recommended (and often required by the lender’s lawyer) that the borrower obtain independent legal advice to confirm they understand the transaction and are signing voluntarily.
Why It’s Important to Register Your Private Mortgage
Registering a private mortgage against real property is crucial for protecting your investment. A registered mortgage gives you the legal right to enforce your loan through the foreclosure process if the borrower defaults. Without registration, your ability to collect on the debt could be seriously compromised, especially if other creditors or lenders register claims ahead of you.
In BC, mortgage registration is completed through the Land Title and Survey Authority of British Columbia (LTSA), and a lawyer is typically involved in preparing and registering the necessary documents.
Best Practices for Private Lenders
When acting as a private lender, it’s important to:
- Conduct a thorough title search to check for existing mortgages, liens, or legal notations on the property.
- Obtain an appraisal or property valuation to assess the security’s market value.
- Ensure all loan terms are clearly documented in writing.
- Require personal guarantees or additional collateral if appropriate.
- Work with a real estate lawyer experienced in private lending to prepare and register the mortgage, draft the loan documents, and advise on legal risks.
- Require the borrower to obtain independent legal advice to prevent future claims of duress or misunderstanding.
- Consider requiring proof of adequate insurance, property tax payments, and strata fee accounts (if applicable).
In BC, mortgage registration is completed through the Land Title and Survey Authority of British Columbia (LTSA), and a lawyer is typically involved in preparing and registering the necessary documents.
Common Misconceptions About Private Lending
A few common misunderstandings about private lending include:
- “A handshake deal is enough”: Without a written loan agreement and registered mortgage, your loan may be unenforceable or unsecured.
- “I’ll automatically get my money back if the borrower defaults”: You must follow formal foreclosure proceedings in court to recover your funds through the sale of the property.
- “Registration guarantees repayment”: While registering a mortgage secures your interest in the property, you may still face competing claims from other creditors or challenges in recovering your funds if the borrower declares bankruptcy.
Enforcing a Private Mortgage
If a borrower defaults on a private loan secured by a mortgage, the lender can commence a foreclosure proceeding in the Supreme Court of British Columbia. This legal process typically involves applying for an Order Nisi (a court order confirming the amount owed) and may eventually result in the property being sold through a court-ordered sale or the lender obtaining title to the property through an Order Absolute of Foreclosure.
It’s essential to work with an experienced lawyer to navigate this process and protect your rights as a lender.
Hiring a Real Estate Lawyer for your Private Mortgage
Private mortgages are often hundreds of thousands of dollars. As such, the risks involved make legal assistance strongly advisable. An experienced real estate lawyer can:
- Draft and register the mortgage at the Land Title Office.
- Prepare supporting documents such as loan agreements
- Conduct a title search and advise on any title issues or existing financial charges
- Ensure compliance with applicable laws
At Cunningham & Co., we regularly assist private lenders with preparing and registering private mortgages in British Columbia. We offer comprehensive services to ensure your investment is legally secured and fully enforceable.
