Pay Dirt Series – Why 2 Law Firms for Private Deals?

There are definitely more costs for the borrower in a private deal.  There may be lender and broker fees, the title insurance is more expensive, and the lender is typically represented by a separate lawyer from the borrower.  Why is this?

The first reason has more to do with the lawyers than the lenders.  The various law societies that govern lawyers set down guidelines that stipulate when a lawyer can act for both a borrower and lender, such as with an “A” deal, and where they can’t.  Typically private lenders don’t fall into any of the law societies’ exceptions so the lawyers can’t act for both, resulting in 2 law firms for 1 transaction.

The second reason is also related to lawyers.  Often private lenders will use the same lawyers to prepare mortgage documents and to act for them in a foreclosure.  If the lawyer has acted for both a borrower and lender to prepare and register a mortgage, they may be in a conflict if they acted for either against the other in a foreclosure of the same transaction.  So to keep it simple, lenders just require their own lawyer.

While brokers can’t do much to control the costs, its helpful to know why the costs exist so that you can explain them to your borrower.