Dual Representation in Private Mortgage Closings: Law Society Guidelines

Lenders and borrowers in private mortgage transactions in Ontario, Canada require legal representation. It's essential to understand the rules and regulations set by the Law Society of Ontario regarding dual representation in these scenarios. This blog post delves into the key rules and exceptions that lawyers must adhere to when representing both lender and borrower.

Understanding Dual Representation:

Dual representation involves a lawyer representing multiple parties in a single transaction. In the context of private mortgage closings, this means representing both the lender and borrower simultaneously.

                                                                                                                                                                                  Key Rules and Exceptions According to the Law Society of Ontario:

Rule 3.4-12 of the Rules of Professional Conduct addresses the representation of both lender and borrower in mortgage or loan transactions. The rule states that a lawyer, or two or more lawyers in partnership, cannot represent both parties unless certain exceptions outlined in rule 3.4-14 apply. The exceptions are as follows:

(a) The lender is a lending client as defined in rule 3.4-13.

(b) The lender is selling real property to the borrower, and the mortgage is part of the purchase price.

(c) The lawyer practices in a remote location with no convenient alternatives for legal representation.

(c.1) The mortgage or loan amount does not exceed $75,000.

(d) The lender and borrower are not at "arm's length" as defined in the Income Tax Act (Canada).

Defining "Lending Client" (Rule 3.4-13):

The term "lending client" is defined by rule 3.4-13. It includes entities such as banks, trust companies, insurance companies, credit unions, and approved lenders under the National Housing Act (Canada). Additionally, certain finance companies meeting specific criteria, corporations, partnerships, and affiliated entities are also considered lending clients.

Compliance and Documentation:

The Law Society of Ontario has established clear guidelines to regulate dual representation of both lender and borrower in private mortgage closing transactions. Lawyers must carefully navigate these rules to ensure compliance with the Rules of Professional Conduct. By adhering to the Law Society's regulations, legal professionals can ensure fairness, integrity, and ethical conduct in private mortgage closings.