Financially Distressed or Credit-Challenged Borrowers
These borrowers often have substantial equity in their property but are unable to qualify for conventional financing due to a poor credit history, active insolvency proceedings or other urgent debt issues.
Common Scenarios:
- Foreclosure or Power of Sale Rescue: Homeowners behind on mortgage payments may use private funds to:
- Pay off arrears and reinstate a defaulted mortgage.
- Delay or stop foreclosure (in provinces like BC, Alberta, and Quebec) or power of sale proceedings (in Ontario, New Brunswick, and other common law provinces) while arranging a long-term refinance.
- Bankruptcy or Consumer Proposal: Individuals in an active consumer proposal or who have been recently discharged from bankruptcy often lack access to institutional credit, making private lending a viable short-term solution.
- Judgments, CRA Liens or Legal Encumbrances: Borrowers may have judgments or tax liens registered on the title of their property. Private funds can be used to clear these debts or negotiate settlements, often as a critical first step in a broader refinance strategy.
Case Example: A homeowner in Mississauga with $300,000 in CRA arrears and an active lien on title was declined by multiple banks. A private lender provided a $500,000 first mortgage based on a $900,000 appraised value, allowing the borrower to pay off the CRA and consolidate other pressing debts.
Borrowers with Non-Standard Income or Documentation
This segment includes otherwise creditworthy individuals whose income profile does not meet the rigid documentation requirements of banks or CMHC-insured lenders.
Common Scenarios:
- Self-Employed or Business Owners: May write off significant expenses for tax efficiency, lowering their declared net income. Despite strong cash flow and equity, they are often turned away by institutional lenders.
- New Canadians or Foreign Nationals: These individuals may lack a sufficient Canadian credit history or employment record. While they may have substantial assets, business interests or income abroad, these are often not recognized by local banks.
- Incomplete or Rushed Applications: In time-sensitive situations (e.g., an imminent closing or payout), clients may not have the time to gather all the required paperwork. Private lenders may accept limited documentation if the equity position is strong, focusing on the asset and exit strategy.
Case Example: A recently incorporated contractor in Calgary applied for a $350,000 mortgage but had only 10 months of business income reported. A private lender funded a 1-year, interest-only loan secured against 60% LTV, providing the borrower time to establish a qualifying income history for a bank refinance.