Receiving Independent Legal Advice on a Mortgage Transaction

Written by Owen Thompson on June 20, 2017

Often during a refinance transaction, the homeowners and borrowers of the funds, or a guarantor of funds, will be asked by the lender (a bank, trust company, or private lender) to seek independent legal advice or “ILA” from a lawyer.

It may seem like an unnecessary extra expense to borrowers (or guarantors) who may already be paying brokers’ fees, lenders’ fees, and even the legal fees of the lender. Borrowers often want to know why they need to see their own lawyer at all. The lender of the mortgage funds has a lawyer who prepares all of the mortgage documents and registers the mortgage against the borrower’s property, and it is common practice that the borrower pay these costs, as they are the ones that require the funding from the mortgage.

But lawyers acting for the lenders are not going to take the borrower’s interests into account. They act for the lenders and protect their interests. A lawyer providing independent legal advice provides perspective for the borrowers on the documents they are signing and the commitment they are entering into.

Meeting with a lawyer for independent legal advice gives the borrowers a chance to review all of the mortgage and legal documents and ask questions about the mortgage transaction and the consequences of it without interference or compulsion from the lender. It ensures that the borrowers have a chance to be educated about what a mortgage is and how a default of the mortgage terms can effect them. Even if the borrowers have entered into mortgages before and feel they are experienced with borrowing funds in that manner, an ILA appointment still allows for questions about the specific situation the borrowers find themselves in.

Once a mortgage is entered into, its terms must be abided by for the length of the loan. It is important, therefore, that the borrowers fully understand the mortgage before they sign the legal documents. While most ILA appointments are routine, there are times when a lawyer giving independent legal advice may advise a client not to sign the documents or complete the transaction, because it is so adverse to their interests. While it is of course ultimately the borrower’s decision to complete the transaction or not, it is important for borrowers to have the opportunity to receive that advice from a lawyer who has no other interest in the transaction. A lawyer providing independent legal advice is not concerned if a mortgage deal is completed or not; they are focused solely on ensuring the client understands and agrees to the terms of the mortgage specifically and more generally, what a mortgage entails and requires.

Independent legal advice may be especially important for a guarantor, that is, someone who has agreed to guarantee the mortgage in the event that the borrowers are unable to make the payments. Guarantors are often family members of the borrowers, and are legally responsible for payment of the mortgage in the event of a default. It is extremely important that someone signing as a guarantor get the opportunity to speak to a lawyer without the lender or the borrower present, so that they can fully understand the ramifications of being a guarantor.

If you need independent legal advice on a mortgage or other type of transaction, contact us.

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