By Hashmi Law Group | Mortgage Litigation Counsel
In the dynamic Greater Toronto Area (GTA) real estate market, private mortgages have become a vital alternative for borrowers who may not qualify for traditional “A-lender” bank financing. While private lending provides necessary liquidity, it often comes with significantly higher interest rates, steep administrative fees, and aggressive enforcement clauses.
When a borrower faces financial difficulty, a private lender’s reaction is rarely forgiving. Disputes can escalate rapidly, putting the borrower’s home and financial future at immediate risk. At Hashmi Law Group, we leverage over 17 years of legal experience to defend homeowners and investors across Toronto, Mississauga, North York, Richmond Hill and the Greater Toronto Area from predatory lending practices and aggressive mortgage enforcement.
Here is what you need to know about the risks of private mortgages, the consequences of default, and how to defend yourself if you are facing litigation.
The Perils of the Rush: Why You Must Review Your Mortgage Commitment
In the heat of closing a real estate transaction, borrowers are often pressured to sign mortgage commitments quickly to secure funding. Accepting a mortgage deal in a rush – without having an experienced real estate litigation lawyer review the terms – is one of the most dangerous financial mistakes a buyer can make.
Private lender commitments are notoriously complex and heavily weighted in the lender’s favour. Without proper Independent Legal Advice (ILA), you may unwittingly agree to:
- Exorbitant lender and brokerage fees deducted directly from your principal advance.
- Strict renewal clauses that trap you in high-interest cycles.
- Punitive default clauses that attempt to drastically increase your interest rate the moment a payment is missed.
The Legal Reality: Courts hold adults to the contracts they sign. Raising a defence of non est factum (claiming you did not understand what you signed) is exceptionally difficult unless you can prove severe unconscionability or fraud. Proactive legal review is your primary shield.
Consequences of Default: The Power of Sale Timeline
If you default on your mortgage payments in Ontario, the lender does not need to go to court immediately to take your property. Under the Ontario Mortgages Act, private lenders have access to a swift, statutory remedy known as a Power of Sale.
- 15 Days in Arrears: Once you are just 15 days late on a payment, the lender can issue a formal Notice of Sale Under Mortgage.
- The 35-Day Redemption Period: After the Notice is served, you typically have at least 35 days to pay the arrears – including the lender’s legal fees and permitted costs – to bring the mortgage back into good standing.
- Loss of Control: If the redemption period passes without resolution, the lender gains the legal right to list the property for sale and use the proceeds to pay off your debt.
Defending Against Punitive Penalties: Krayzel Corp. v. Equitable Trust Co.
Private lenders often try to penalize defaulting borrowers by triggering a higher interest rate the moment a payment is missed. However, the law provides protections against this.
Under Section 8 of the federal Interest Act, a lender is prohibited from charging a higher rate of interest on arrears than the rate charged on the principal money not in arrears. In the Supreme Court of Canada decision Krayzel Corp. v. Equitable Trust Co., 2016 SCC 18, the Court confirmed this rule applies whether the increase is framed as a penalty for default or as the loss of an “incentive” rate for staying current – the substance of the arrangement, not its label, is what matters.
If your private lender is attempting to impose sudden, inflated interest rates after a missed payment, experienced litigation counsel can use s. 8 of the Interest Act to have those charges struck down in court.
You Have Been Served with a Statement of Claim: What Now?
Sometimes, a lender will bypass or supplement a Power of Sale by initiating formal court action, serving you with a Statement of Claim for debt and possession.
Do not ignore this document. Under the Ontario Rules of Civil Procedure, you typically have only 20 days to file and serve a Statement of Defence if you are served within Ontario. If you fail to respond within this window, the lender can note you in default and obtain a default judgment, which can lead directly to a Writ of Possession and a Sheriff’s eviction.
The moment you are served, you should retain a mortgage litigation lawyer to file a defence, address the eviction process, and require the lender to prove its accounting and the legality of its fees.
How Hashmi Law Group Can Help
Disputes with private lenders require prompt, focused legal attention. With over 17 years of experience, Hashmi Law Group is an A+ BBB-rated law firm recognized for protecting borrowers’ rights across the GTA.
Our mortgage and property litigation team can help you by:
- Responding to Enforcement Action: Filing Statements of Defence and, where appropriate, injunction motions in response to Writs of Possession and Power of Sale proceedings.
- Challenging Questionable Fees: Reviewing the lender’s payout statements to identify improper penalties, hidden fees, and potential Interest Act violations.
- Negotiating Workouts: Working to negotiate forbearance arrangements that give you time to refinance or sell the property on your own terms.
Do not let a private lender put your equity at risk without a fight. We offer in-person and virtual consultations during regular working hours and weekends to address your urgent legal needs.
Contact Hashmi Law Group today at (905) 503-1486 or (647) 772-8187, or visit nhashmilaw.com.
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute legal advice. Real estate and mortgage litigation matters are highly complex and subject to strict statutory deadlines. Readers should not act, or refrain from acting, based on this content without first consulting and retaining a qualified lawyer for advice on their specific situation.
