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w w w . C A N A D I A N L a w y e r m a g . c o m O C T O B E R 2 0 1 7 23 also requests a tax certificate, a status certificate to ensure that common ele- ment expenses are paid to date, a proper appraised value of the property and a request for an assignment of the rent registered on title to ensure rent can be collectable by the lenders in the event of default on rental property. Deals have been declined as well in instances where outstanding judgments have been uncovered during execution searches. "There are requirements; it's just that they're not as stringent as an institutional lender's requirement," she says. "As long as you have done your due diligence searches to ensure that in fact everything is in good standing and there will not be an interest ahead of your pri- vate lenders interest, then, typically, it's safe to act for private lenders." Ontario's law society does require additional paperwork to confirm that the lawyer doesn't provide any advice on any losses they may incur. But seek- ing permission from the primary lender isn't a requirement. If future controls of non-banking lenders are considered, she adds, stipulation might serve the purpose. Some borrowers will pay the higher interest rate and fees to hedge against the market to leverage property for equity, adds Ali Sodagar, a Vancouver lawyer with Sodagar & Company Law Corporation who works with private and syndicated lenders. He believes that market is grow- ing, with plenty of borrowers looking else- where as federally regulated institutions use more stringent approval criteria. And although the loans are backed by an appraisal report, there are inherent risks, so both sides need to be informed in private financing deals and ensure all the players have independent legal advice. He expects that more players, including pen- sion funds, may also get in on the game. "At some point, they [regulators] need to recognize as well that if we tighten this up too much, it may just create another problem," he says. "The landscape may change or shift, there may be more private lenders; but by the same token, you're going to find more of the pension funds perhaps participating." A syndicated mortgage, which involves a borrower going to more than one place to access money, is likely to become more common as purchasers search for alterna- tive forms of funding, says Anar Dewshi, principal of Dewshi Law where she prac- tises real estate law. "If the main banks don't take you, then what options do you have?" she says. "With any mortgage transaction, you have to tell them what the risks are. With this there's increased risk, because it is a private mortgage with a higher interest rate." And while the OSFI stresses that it does not regulate non-bank lenders, Jack- son believes there is some potential for its new guidelines to have an impact upon some of its residential real estate lending business. Many of the non-bank financial institutions also finance their businesses with the banks, by way of securitization. "What this guideline says is that any banks that acquire mortgages originated by a third party, including from a non-bank originator, have to make sure that the underwriting standards of that third party are consistent with the bank standard and the guideline. "So what that means is the non-bank originators will also have to ultimately comply with the new rules, even though they're not directly regulated by OSFI, if they want to sell mortgages to the banks," says Jackson. Although that still leaves organizations that raise money outside of the banking structure free of those restrictions. "That doesn't mean that they have to comply if they don't sell mortgages to the bank, so arguably there's an opportunity here for non-bank originators because if you aren't a bank and you have other sources of liquidity to finance your business that don't require a sale of mortgages to the bank, you could, for example, lend without stress-testing to a borrower that's not insured without applying a more rigorous stress test." Medico - Legal EXPERT WITNESS ALTERNATIVE DISPUTE RESOLUTION EXPERT AUTHORITY KNOWLEDGE TRUSTED OBJECTIVE ACCURATE YOUR CASE IS IMPORTANT. YOU DESERVE THE BEST HEALTHCARE EXPERTISE. Unparallelled experience for your most catastrophic injury cases. Hundreds of specialists from all areas of healthcare expertise. Cost of Future Care reports for your most serious cases. 2,000+ cases for 300+ lawyers across Canada. CONNECTMLX.COM EXPERTS@CONNECTMLX.COM TOLL FREE: 855-278-9273 ntitled-2 1 2017-06-13 8:16 AM Bank regulator tightens rules Last year, the Office of the Superintendent of Financial Institutions, which regulates Canada's banks and mortgage insurance companies, responded to record levels of household indebtedness and growing risks and vulnerabilities in some housing mar- kets, circulating a letter to the industry not- ing that it would increase its scrutiny in the areas of income verification, non-conforming loans, debt service ratios, appraisals and loan-to-value ratio calculations and institu- tional risk appetite. The OSFI placed an even greater emphasis on confirming that financial institutions conduct prudent mortgage underwriting, and that their internal controls and risk management practices are sound and take into account market developments, says spokeswoman Annik Faucher. Implementa- tion of the new guidelines was set to be announced this fall. A stress test previously required for insured mortgages is now to be extended to uninsured mortgages. That includes a stress interest rate for all variable and fixed-rate mortgages. Also, the qualifying rate for all uninsured mortgages should be the contractual mortgage rate plus two per cent. There is also a focus on loan-to-value measurements and in valuing property for mortgage underwriting. The OSFI also indicated it wants to prohibit co-lending arrangements designed to circumvent regulatory requirements. The move follows the Bank of Canada's long-awaited boost in interest rates this summer, resulting in higher mortgage rates. R E A L E S TAT E

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