Why Independent Legal Advice?
Requiring independent legal advice in private mortgage transactions is incredibly common.
In conventional mortgages, the lender and the borrower can retain the same lawyer. While in private mortgages, it’s required that each party retain their own independent legal advice. But many are not aware that there are in fact instances where the borrowers themselves, require their own separate lawyers.
As a broker, you may have noticed on the mortgage commitment from your MICs, a requirement for independent legal advice.
There are actually two instances where you’ll see this:
The first being, like in any MIC mortgage, where the borrower is represented by a separate lawyer from the lender. This ensures there is no conflict should a foreclosure arise, as a lawyer may not act on both the lender and borrower’s behalf in a private mortgage.
The other, while less common, is still possible. This occurs when the borrowers need legal advice that is separate from each other.
But when would this happen?
A couple of examples when this would be required would be:
- Where a spouse is a guarantor for a property that the other spouse uses in their business.
- Where the matrimonial home is being mortgaged and the funds will be used to benefit only one of the spouses.
Lenders want to know that the validity of the mortgages they lend on can’t be challenged. They want to know there are safeguards in place and neither borrower can raise any concerns on the grounds that they didn’t know (or understand the implications of) the terms of the mortgage.
If you see this requirement in a mortgage commitment, it’s a good idea to let the borrower know what it is, and why it’s in there. And as always, if you have any questions about requirements in private lending, give the experts at Kokanee Mortgage a call.
