Private Mortgage Lending Can Be Risky If Not Managed Well!
Lending money on a private mortgage can be a great investment. Investors can control their risk and have certainty on their interest rate. It is important to remember, though, that you have to ensure that you do your homework and understand the risks. It is a good idea to engage a lawyer and also understand the nature of any future actions you take once the mortgage is set up.
An Example of a Badly Managed Private Mortgage Investment
In this particular case Zabanah purchased a second mortgage from Capital Direct in the amount of $83,000 as an investment. This was a second mortgage. This means that there was another lender that had a priority registered on title. At some point Zabanah found out that more money was owed on the first mortgage than was first represented. The mortgage was renewed three different times over a three year period even though it was known to Zabanah at the time of the first renewal that the mortgagor has misrepresented their first mortgage balance and owed approximately $120,000 more than originally disclosed. After the mortgagor made an assignment into bankruptcy, the home was sold and even the first mortgage holder was not repaid in full. Zabanah received no funds whatsoever.
Attempts to Recover the Private Mortgage Investment
Zabanah sued Capital Direct and Chicago Title (the title insurance company in this transaction). The trial court rules that the misinformation that the second mortgage was not adequately secured was discoverable. Zabanah was unsuccessful in recovering funds from Capital Direct due to a two-year limitation period in the Limitations Act applying in this situation. This means that the ability to discover the problem occurred more than two years from when the action was started. She was also unsuccessful in recovering funds from Chicago Title as their policy specifically excluded recovery of losses arising from the first mortgage.
How the Appeal Court Rule on this Investment Gone Bad
The Court of Appeal agreed with the trial judge and dismissed the appeal. Zabanah was not able to recover any portion of her investment from Capital Direct or Chicago Title.
What You Should Learn From This Case!
There are three good lessons here. First, understand your investments. Two, in investments or any area of your life, if you discover a problem, deal with it right away. Third, understand that there are limitation periods that stop you being able to sue if you miss them. Learn more about limitation periods with this video.
Getting the Help You Need
If you are a lender who requires help foreclosing on a mortgage, or a borrower who has been served with mortgage foreclosure documents, the lawyers at Kahane Law Office can help. If you need help call today. Call 403-225-8810 or email today to contact us.