Legal Fees in Private Lending

The cost of legal fees in private lending is higher than traditional lending.  This may come as a surprise to some borrowers.

This is because not all borrowers are aware that more than one lawyer is required in private lending.  Unfortunately, it may also come as a surprise to them that they will be responsible for paying for both lawyers.

For the most part, clients already know that they will need a lawyer at some point during their mortgage transaction.  However, they may not love to find out that it’s them, as the borrowers, who are responsible for paying for a lawyer that they aren’t technically using.

When a client finances a deal to purchase or finance through their bank or other ‘A’ lender, there is usually only one lawyer.  That lawyer who is acting for the client typically also prepares the mortgage documents for the lender as well.  However, in MIC and Private Lending, the lender is typically represented by their own lawyer.

There are two main reasons for this:

• The Law Societies want to see both parties retain their own lawyer in the case of private mortgage transactions. This is put in place to prevent lawyers from acting on the part of both the lender and borrower.
• If there is a conflict that results in a foreclosure where one lawyer represented both parties, they would not be able to act on behalf of either party in this instance.

So, in the case of the legal fees in private lending, the cost of the lender’s lawyer is paid by the client.  This is in addition to their own lawyer.

Despite the fact that this is standard practice in the industry, it may come as a surprise to borrowers.

In order to prevent any unwanted surprises to borrowers, it’s a good idea to warn them in advance.  As well as explain to them why two lawyers are required.  As we are all aware, a forewarned client is a much happier client.