It may go against the grain of many brokers, but one seasoned mortgage professional makes it clear to borrowers that he represents the lender in private deals and not, in fact, them.
“When working with private lenders, it is our office policy to indicate in our disclosure that we are only representing the lender,” said Ron Butler, broker in charge of private lending at VERICO Butler Mortgage Inc., in Toronto. “We want to make sure the borrower understands that in this case our primary duty is to look after the lender’s interest.”
As more and more borrowers are shut out by banks institutional alternative lenders, private investors are becoming more popular in the channel. While other brokers claim to represent both parties in the transaction, Butler told MortgageBrokerNews.ca he believes he is “morally bound” to choose one master, as it were. It then falls to the borrower's lawyer to act as advocate.
"The borrower's own independent lawyer must carefully explain and warn the borrower about possible future outcomes," he said.
As for Individual investors acting as private lenders, they may overlook issues such as poor credit, bankruptcy and zoning issues and are therefore putting their money under considerable risk when they fund deals probably turned down by the banks, he said.
“Private lenders are the ones seeking my assistance in finding a suitable mortgage to invest their money on,” he said. “If they are giving me this responsibility, I am morally bound to represent their best interest.”
He said it is his duty to make sure that the mortgage’s he presents to such lenders suit their risk tolerance.
Butler pointed out that this is not a Verico-wide policy but rather one that he has chosen personally to implement in his own company alone. It also only applies to individual private lenders.
“Most of the lenders I come across are individuals who are not very sophisticated investors they often need guidance and protection throughout the deal,” he said. “MICs (mortgage investor corporations) are more seasoned investors and in those cases we revert to representing the lender and borrower equally”