Why Do Lenders Need Their Own Lawyer?

As the lawyer woke up after surgery, he said” “Why are all the blinds drawn?” The doctor answered: “There’s a big fire across the street, and we didn’t want you to think the operation was a failure.”

Did you hear the one about why lenders need their own lawyer?

There are lots of lawyer jokes out there (but not many about why lenders need their own lawyer).  But jokes aside, borrowers may not have much of a sense of humour when they learn who’s responsible for paying the lender’s legal fees at closing.

Spoiler alert: It’s the borrower.

In a conventional mortgage, the same lawyer typically acts for both the lender and the borrower.  While in a private mortgage, both the borrowers and the lenders need their own lawyer.

So why are there two sets of lawyers in non-bank mortgage transactions?

There are actually two reasons why for this:

• The Law Societies want to see borrowers independently represented in private mortgage transactions.  There are restrictions that are put on lawyers to prevent them from acting on the part of both the lender and borrower.
• Secondly, let’s say a conflict presents itself and the mortgage goes to foreclosure.  The lawyer may not be allowed to act for either party if they represented both parties.

Since lenders choose their lawyers very carefully, they don’t want to have to retain someone else due to a conflict.

Borrowers may not like the extra cost.  However, despite this, they will be getting legal advice at closing that is truly independent and free from conflict.  And when we think about what is at stake, lenders needing their own lawyer probably isn’t a bad idea after all.

As always, if you have any questions, contact the lending experts at Kokanee Mortgage.  With over 40 years of experience in the industry, we have the answers to all your lending questions.