Private Mortgages Explained | Diamond & Diamond Real Estate
  • Monday, 19 April 2021

Private Mortgages Explained By A Real Estate Lawyer

The demand for Private lender financing is increasing and is becoming a more favorable method for consumers who are looking for an alternative to traditional lending. A private mortgage is a loan whereby funds can be obtained by a private entity rather than borrowing from a bank or other finance provider.

In many cases, private mortgages are a mutually beneficial solution for both the investor and the borrower. Frequently, the mortgage rate is high, and the payback period is shorter than a traditional mortgage but qualifying for a private mortgage is far easier then qualifying for a traditional loan, instead of focusing on narrow standards related to credit history, private lenders primarily consider property value as the main factor in loan approval as well as taking into account a borrower’s assets, income, and overall ability to carry a mortgage. Furthermore, the process to obtain a private mortgage is much shorter in contrast to a traditional mortgage.

Despite the benefits, private mortgages there are potential inherent risks for both the lender and the borrower. To avoid risk, both parties should not enter into a private mortgage without first retaining real estate lawyer to review all documents, and lenders must carefully consider the condition of the property. Matters ordinarily handled by legal counsel include the negotiation and preparation of security documents and registration of the resulting mortgage.

Although private mortgages are typically secured by registered security in real property, it is wise for the lender to seek clarification from a lawyer and have the terms outlined in writing in a mortgage commitment before entering into an agreement. Furthermore, it important for a lawyer to conduct a title search of the property, as this search can determine if the borrower is over-leveraged or pre-existing security may already be registered. The title search can also establish if there are any other mortgages, interests or liens registered on the title to the property which can potentially cause the transaction to be terminated.

It is important for Borrowers to also consult with a lawyer to assist to review the mortgage documents and/or the mortgage commitment. Private mortgage documents may contain fine prints, hidden fees, unclear mortgage rates, or other ambiguous terms. The experienced real estate lawyers at Diamond and Diamond lawyers LLP can assist both lenders and borrowers to avoid potential risks associated with private mortgage transactions.

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