Borrower Costs In Private Deals

There are definitely more costs for the borrower in a private deal.

First, you need to take into account both the lender and broker fees for a private deal.  Also, the title insurance is generally more expensive.  But the biggest reason for the difference in costs is due to the increase in legal expenses.  And this is due to the fact that the lender is typically represented by a separate lawyer from the borrower.

But why does the lender have to be represented by a separate lawyer than the borrower?

The first reason has more to do with the lawyers than the lenders.  The various law societies that govern lawyers set down guidelines.  Those guidelines stipulate when a lawyer can act for both a borrower and a lender. In general, only one lawyer is required in ‘A’ deals but two are required in a private mortgage deal.  This is because typically, private lenders don’t fall into any of the law societies’ exceptions so the lawyers can’t act for both.  This results in having 2 law firms for 1 mortgage transaction.

The second reason is also related to lawyers.  In a foreclosure situation, often private lenders will use the same lawyers to prepare mortgage documents and act on their behalf.  A lawyer that has acted for both a borrower and a lender to prepare and register a mortgage, may be in a conflict if they also acted for them in a foreclosure.  So, just to keep things as simple as possible, lenders just require their own lawyer.

Unfortunately, brokers can’t do much to control the costs.  But they can know why the costs exist and can then explain them to the borrower from the start.  While your borrower may not be thrilled by the added costs, they’ll likely be appreciative that their broker was well informed and ensured they were aware of what to expect.