Common Sources of Disputes and How to Prevent Them
Private mortgage lending has become a vital part of the Canadian credit system, helping borrowers who fall outside traditional lending guidelines access capital in time-sensitive or complex situations. While most private lenders operate professionally and in compliance with applicable laws, complaints can and do arise—often not because the loan itself is unfair, but because of how it was presented, documented, or managed.
This article outlines the most common sources of complaints in private lending, with a focus on how professionals—brokers, lawyers, lenders, and advisors—can minimize the risk of disputes and protect all parties through transparency, documentation, and clear communication.
1. Failure to Clearly Disclose Terms
The most common source of borrower complaints in private lending is inadequate disclosure.
Borrowers may not fully understand:
• The true interest rate (monthly vs. annualized)
• The amount and timing of fees (lender, broker, legal, etc.)
• Whether fees are deducted from proceeds or paid upfront
• The nature of an open vs. closed mortgage
• Prepayment conditions and penalties
• Renewal costs and conditions
• Consequences of late payment or default
When these terms are not explained in clear, written language—or worse, when they are materially different from what was discussed verbally—borrowers may feel misled. Even if the loan is lawful, perception of unfairness can trigger complaints to regulators or legal action.
How to prevent this:
• Provide a written term sheet or commitment letter that outlines all key terms before the borrower signs
• Ensure the borrower receives and signs the applicable provincial mortgage disclosure forms
• Use plain language wherever possible
• Encourage borrowers to obtain independent legal advice
2. Excessive or Hidden Fees
Another common complaint involves perceived excessive fees, particularly if the borrower is not clearly informed ahead of time. These may include:
• Broker fees beyond what is disclosed
• Renewal or extension fees not anticipated by the borrower
• Discharge or administration fees at maturity
• Legal fees passed on to the borrower that were not itemized
While many of these fees are legitimate and lawful, they must be disclosed in writing. In most provinces, it is a regulatory obligation for brokers and lenders to outline all anticipated fees and commissions to the borrower before closing.
How to prevent this:
• List all lender, broker, and legal fees on the term sheet
• Break down fees by category and clarify whether they are included in the loan amount or deducted from proceeds
• Document any renewal or extension fees upfront, or include language that such fees may apply at lender discretion
• Avoid “junk fees” or arbitrary charges at closing or discharge
3. Surprise on Maturity or Renewal
Many private mortgages are short-term and require either repayment, refinancing, or renewal at maturity. Complaints often arise when borrowers:
• Were unaware the loan was short-term
• Were surprised by renewal costs or new terms
• Did not understand that maturity could trigger legal action if payment is not made
Private lenders are under no obligation to renew a loan. If the loan is due in full and the borrower cannot repay or refinance, the lender may initiate enforcement. Even if the lender is open to renewal, the borrower may object to additional fees or new pricing.
How to prevent this:
• Emphasize the term length and maturity date repeatedly, both verbally and in writing
• Discuss the exit strategy at origination and confirm it in the broker’s notes
• Provide renewal expectations in writing, including any costs or requirements
• Send reminders well in advance of maturity to prepare the borrower
4. Perceived Aggressive Enforcement
In cases of default, some borrowers complain about the speed or tone of legal enforcement. While lenders have the legal right to protect their security, borrowers may feel blindsided by:
• Immediate legal notices upon default
• Legal fees incurred during collection
• Notices of sale or foreclosure filed without perceived warning
• A lack of opportunity to negotiate payment plans
While private lenders are often more responsive than institutions, that speed can be misinterpreted as harshness if not managed carefully.
How to prevent this:
• Include default and enforcement provisions in the mortgage documents and term sheet
• Encourage brokers to prepare borrowers for the seriousness of default
• Communicate directly, clearly, and early if a payment is missed
• Offer payment resolution options in writing when appropriate
5. Unauthorized Contact or Solicitation
In situations where a mortgage broker arranges the loan, complaints can also arise when private lenders bypass the broker and contact the borrower directly during the transaction. This undermines the professional relationship and can trigger regulatory scrutiny or client mistrust.
How to prevent this:
• Private lenders should adopt a strict no-direct-contact policy unless necessary for legal or administrative purposes
• All communication about term sheets, fees, and structuring should go through the broker or intermediary
• Brokers should inform borrowers that the lender is operating in the background, but not acting as their advisor
6. Inappropriate Suitability
Occasionally, borrowers file complaints because they were placed in a private loan that was not suitable for their financial situation. This typically occurs when:
• The borrower had no realistic ability to repay or refinance
• The loan was arranged despite a poor exit strategy
• The loan structure created undue hardship (e.g., high monthly payments with no income)
This may lead to borrower complaints to mortgage regulators or lawsuits alleging negligence or misrepresentation.
How to prevent this:
• Brokers and lenders must assess and document the suitability of the loan
• Ensure that there is a viable, time-bound exit plan and that the borrower understands it
• Avoid placing borrowers into private loans solely for short-term cash flow if it creates long-term insolvency risk
• When in doubt, recommend the borrower seek independent legal or financial advice
7. Ambiguity Around Title, Guarantors, or Security
Disputes sometimes arise from unclear ownership structures, such as:
• The borrower did not understand they were pledging their home as collateral
• A spouse or family member signed as guarantor without understanding liability
• The lender believed it had first position when in fact another encumbrance existed
These issues can lead to legal challenges and reputational risk for all parties.
How to prevent this:
• Conduct proper title searches and disclose all findings
• Involve legal counsel on both sides to review and explain documents
• Ensure all registered parties are aware of the transaction, particularly in spousal or joint-tenancy situations
• Have guarantors execute clear and legally reviewed agreements
Conclusion: Transparency is the Best Safeguard
Complaints in private lending are almost always tied to communication failures, not necessarily to the loan product itself. By ensuring that terms are clearly explained, documented, and aligned with borrower understanding and ability, professionals can minimize the risk of misunderstanding and legal exposure.
For brokers and advisors, working with reputable lenders who respect the client relationship and uphold proper disclosure standards is essential. For lenders, maintaining clear documentation, consistent processes, and open communication with intermediaries helps prevent disputes before they arise.
At Assadi Private Capital, we are committed to transparent, ethical lending practices that support both professionals and clients. We encourage all parties involved in private lending to maintain high standards of disclosure, conduct, and professionalism—because in this business, trust is everything.