Legal information
and support
designed for you.

Private Mortgages

Private Mortgage FAQs

Terms and Definitions
  1. What is a mortgage in trust?
  2. What is a "private" mortgage?
  3. What is a syndicated mortgage?
  4. What is the definition of arm's length?
  5. What is the definition of "charge" ?
Forms 9D and 9E
  1. Can Form 9E be replaced by a reporting letter?
  2. I just found out about the Forms. Should I now prepare Forms 9D and 9E for completed mortgage transactions?
  3. May I act for both lender and borrower in a mortgage transaction?
  4. What is the purpose of Forms 9D and 9E?
  5. When do I use Form 4, Schedule A?
When are Forms 9D and 9E required?
  1. Are Forms 9D and 9E required in the following situations?
  2. If the mortgage is less than $50,000 do I have to prepare Forms Forms 9D and 9E?
  3. When are Forms 9D and 9E required?
Mortgages Held in Trust
  1. If the mortgage is not registered in my name or in the name of a lawyer in my firm in trust for clients, is it necessary to keep mortgage asset and liability ledgers?
  2. Should a mortgage be recorded in the mortgage asset and liability ledgers where it is not registered in the name of the lawyer in trust but the lawyer receives and distributes the periodic mortgage payments?
  3. What are the record keeping requirements if I hold a mortgage in trust for a client?
Terms and Definitions
  1. What is a mortgage in trust?

    A: Section 3 of By-Law 9 defines a mortgage in trust as a mortgage registered in

    1. the lawyer's name in trust; or
    2. indirectly in a related (to the lawyer) person's name in trust; (eg: the lawyer's spouse/parent/child/or partner) or
    3. indirectly in a related (to the lawyer) corporation's name.


    If you hold a mortgage in trust you must prepare and maintain a mortgage asset ledger, a mortgage liability ledger and monthly comparisons of these ledgers. These records are described in Section 3 of By-Law 9.

    Back to top


  2. What is a "private" mortgage?

    A: A mortgage is a considered to be a "private" mortgage if the lender is not a bank, trust company, insurance company, credit union or finance company that lends money in the ordinary course of its business.

    Back to top


  3. What is a syndicated mortgage?

    A: A syndicated mortgage means a mortgage having more than one investor. (Rule 2.06(1) of the Rules of Professional Conduct ) These mortgages are often held in trust by a lawyer for convenience and collection purposes.

    Back to top


  4. What is the definition of arm's length?

    A: "Arm's length" and "related" are defined in section 1(1) of By-law 9 as having the same meanings as in the Income Tax Act (Canada). At "arm's length" is defined in section 251 of the Income Tax Act. The definition is very convoluted and reference should be made to the section itself. As an overly simplistic review, it can be considered as follows:

    "Related" persons are deemed not to be dealing at arm's length. Additionally, even if persons are not related, the transaction can still be considered not at arm's length depending on the facts of the situation.

    "Related" persons in turn, include individuals connected by blood relationship, marriage or adoption. Persons are considered to be connected by blood relationship if one is the child or other descendant or a sibling of the other. Relationship by marriage has an expanded definition to include a person married to the other or to a person who is connected by blood relationship to the other.

    You should refer to section 251 of the Income Tax Act for the definition of related corporations.

    Back to top


  5. What is the definition of "charge" ?

    A: For the purposes of By-Law 9 "charge" is defined in section 1(1) as having the same meaning as given it in the Land Registration Reform Act :"charge" means a charge on land given for the purpose of securing the payment of a debt or the performance of an obligation, and includes a charge under the Land Titles Act and a mortgage, but does not include a rent charge. (Land Registration Reform Act R.S.O. 1990, c. L-4 as amended)

    Back to top


Form 9D and 9E
  1. Can Form 9E be replaced by a reporting letter?

    A: Yes, provided that the reporting letter contains a response to every question in the prescribed Form. Where an item on Form 9E is not applicable, it should nonetheless be included in the reporting letter with an appropriate notation. Section 24(11) of By-Law 9.

    Back to top


  2. I just found out about the Forms. Should I now prepare Forms 9D and 9E for completed mortgage transactions?

    A: You will need to report the fact that the forms were not completed on your Annual Report. You should start using the Forms immediately. However, you need not prepare Forms for completed transactions as this would not meet the purpose of affording protection to the clients at this late time. In future, ensure Form 9D is completed and signed by the investor(s) before mortgage funds are advanced.

    Back to top


  3. May I act for both lender and borrower in a mortgage transaction?

    A: Subrule 2.04(11) of the Rules of Professional Conduct which came into effect November 1, 2000 prohibits a lawyer, or two or more lawyers practising in partnership or association, from acting for, or otherwise representing, both lender and borrower in a mortgage or loan transaction unless the transaction falls under one of the exceptions in subrule subrule 2.04(12). The exceptions are:

    1. the lawyer practises in a remote location where there are no other lawyers that either party could conveniently retain for the mortgage or loan transaction,
    2. the lender is selling real property to the borrower and the mortgage represents part of the purchase price,
    3. the lender is a bank, trust company, insurance company, credit union or finance company that lends money in the course of its business,
    4. the consideration for the mortgage or loan does not exceed $50,000, or,
    5. the lender and borrower are not at "arm's length" as defined in the Income Tax Act Canada .


    Back to top


  4. What is the purpose of Forms Form 9D and 9E?

    A: The Forms were developed to ensure documented communication between lawyers and their clients. Written instructions reduce allegations of miscommunication and failure to follow client instructions. The Law Society's goal is to ensure that the public is protected and to reduce claims and complaints by lender/clients to the Lawyers' Professional Indemnity Company and the Lawyers Fund for Client Compensation. "Form 9D contains the written instructions from the lender. It crystallizes the transaction and is available for confirmation purposes in the event of a claim to the Lawyers' Professional Indemnity Company. Form 9E is a report on the investment for the lender.

    Back to top


  5. When do I use Form 4, Schedule A?

    A: Schedule A to Form 4 no longer serves its original purpose and should not be used. If you are acting for both borrower and lender in a mortgage transaction, and are permitted to act by subrules subrules 2.04(11) and (12) of the Rules of Professional Conduct , you must comply with the requirements in subrules 2.04(6) to (10) under the joint retainer heading. You can also consult the PracticePro booklet "Managing Conflict of Interest Situations" available on the LawPro web site at: http://www.practicepro.ca/practice/conflicts.asp.

    Back to top


When are Forms 9D and 9E required?
  1. Are Forms 9D and 9E required in the following situations?

    (a) My lender clients arrange their own mortgage loans and pay the borrower directly; I only register the mortgage documents?

    A: Yes. The lender clients are looking to the lawyer, for protection and assurance that there is adequate security for their loan. Form 9D ensures that the clients' instructions are specified in writing so that no allegation of failing to follow instructions can arise.

    Section 24(1) of By-Law 9 states that the Forms are required of a lawyer who acts for a lender or receives money from a lender.

    If the lender comes to you after the transaction is completed, i.e. the lender has already given the money to the borrower, and instructs you to register a mortgage to secure the loan, you should still have the lender sign the completed Form 9D to confirm your instructions. Because of the requirement in section 24(1)(a) of By-Law 9 that Form 9D be signed by the lender prior to the advance of the mortgage funds, you should also have the lender acknowledge in writing that the mortgage funds had already been advanced prior to consulting you.


    ..........................................................


    (b): A vendor take back mortgage or renewal/extension of a vendor take back mortgage?

    A: No. Neither Form 9D nor 9E is required on a routine vendor take back mortgage as this type of transaction is exempted by section 24(2)(f): "the lender is selling real property to the borrower and the charge represents part of the purchase price". Because of the nature of the transaction, the lender/vendor can be expected to be aware of the security and is frequently intimately involved in the negotiation of the terms of the mortgage.

    On a renewal, the Forms are not required if the transaction is exempted pursuant to section 24(8) of By-law 9.

    Nonetheless, as with any transaction, a detailed reporting letter should be provided.


    ...........................................................


    (c): The mortgage is arranged through a mortgage broker?

    A: While Forms 9D and 9E would normally be applicable, the transaction may be exempt provided that the lender:

    1. has executed the Form 1 [Note: this form is now called "Investor/Lender Disclosure Statement for Brokered Transactions"] of Regulation 798 of the Revised Regulations of Ontario, 1990, made under the Mortgage Brokers Act, and
    2. has given the lawyer written instructions, relating to the particular transaction, to accept the executed form as proof of the loan agreement. Section 24(2)(d) of By-law 9 .


    ........................................................................


    (d): Renewal of a mortgage?

    A: No; unless the renewal involves one of the following: (See Sections 24(4) to (8) of By-law 9 )
    1. making a change in the priority of the charge that results in a reduction of the amount of security available to it;
    2. making a change to another charge of higher priority that results in a reduction of the amount of security available to the lender's charge;
    3. releasing collateral or other security held for the loan;
    4. releasing a person who is liable under a covenant with respect to an obligation in connection with the loan;


    Section 24(8) states that notwithstanding the occurrence of any of the four events listed above, new Forms are not required if the original transaction was exempted on any basis except on the basis that it was arranged by a mortgage broker.

    However, if the transaction is not exempted under section 24(2) of By-law 9 and the Forms in the original transaction had not been prepared for any reason, they must be prepared on the renewal.


    ...........................................................................


    (e): The mortgage loan is under $6,000?

    A: No; if the total amount to be advanced by the lender does not exceed $6,000 the Forms need not be completed. ( Section 24(2)(e) of By-law 9)


    ............................................................................


    (f): I lend my own money to clients?

    A: No; there is no independent solicitor/client relationship with the lender.

    You should, however, be aware that rule 2.04 of the Rules of Professional Conduct imposes a responsibility on a solicitor to ensure that the borrower does not assume he/she is being represented in a matter where the solicitor is likely to have a conflicting interest. Conflicting interest under the Commentary to subrule 2.04(1) is defined as including "the financial interest of the lawyer."

    Because of the fiduciary relationship which exists between solicitor and client, solicitors must disclose in writing whenever they have or might obtain any personal interest or benefit in a transaction in which they act for the client. There is a potential conflict of interest where solicitors in their personal capacity lend to their own clients. In such circumstances you must recommend that the client receive independent legal representation and require that the client receive independent legal advice pursuant to rule 2.06 of the Rules of Professional Conduct.


    .......................................................................


    (g): My spouse lends money to clients?

    A: Yes. You should be aware that subrule 2.04(11) of the Rules of Professional Conduct prohibits a lawyer, or two or more lawyers acting in partnership or association, from representing both borrower and lender in a mortgage or loan transaction unless the mortgage or loan transaction falls within one of the exceptions in subrule 2.04(12). (For more information see: May I act for both lender and borrower in a mortgage transaction?)


    ....................................................................


    (h): The mortgage loan is from a self-directed R.R.S.P.?

    A: Yes. It is not the financial institution's money nor is the financial institution directing the investment. In these transactions, the trust company is a bare trustee, which holds or moves the investment funds at the direction of the plan holder. It is the plan holder who is the directing mind of the investment. Thus, the plan holder must sign Form 9D before mortgage funds are advanced. The plan holder is the party who would suffer a loss, not the financial institution.


    .........................................................................


    (i): I am the sole estate trustee of an estate and investing funds on behalf of the estate?

    A: Yes. The estate trustee has a fiduciary duty to the estate and investments are made pursuant to the Trustee Act and/or the will. Form 9D details the lawyer's instructions on the loan in writing and is available in the file to support adherence to the instructions of the will/Legislation.


    ..........................................................................


    (j): The lender has independent legal representation?

    A: No. The lender's lawyer would be responsible for completing the Forms.


    ..........................................................................


    (k): I act for the lenders but funds flow from my spouse's brokerage company to the borrowers?

    A: Provided that you comply with the requirements of section 24(2)(d) of By-law 9, (namely, the lender has, executed Form 1 [now called "Investor/Lender Disclosure Statement for Brokered Transactions"] of Regulation 798 of the Revised Regulations of Ontario, 1990, made under the Mortgage Brokers Act, and given the lawyer written instructions, relating to the particular transaction, to accept the executed form as proof of the loan agreement), the transaction would not require completion of Forms 9A and 9D. However, the lender/client should be made fully aware of your relationship with the brokerage firm in order to address Conflict of Interest issues. You should consult rules 2.04 and 2.06 of the Rules of Professional Conduct to ensure you are in compliance.


    .......................................................................


    (l): What are my responsibilities if I act for the lender, and the borrower requests that I also act for him or her?
    A: If the borrower does not have independent legal representation, i.e. the borrower does not have his or her own lawyer throughout the transaction, you must decide:
    • whether you are permitted to represent the borrower ( subrules 2.04(11) and (12) of the Rules of Professional Conduct)
    • if you cannot, or decide not to, act for the borrower, you must comply with subrule 2.04(14) with respect to unrepresented persons
    • if permitted to do so and you decide to act for the borrower, you must comply with the requirements of Rule 2 of the Rules of Professional Conduct, particularly those with respect to joint retainers in subrules 2.04(6) and (10) and obtain written consents from both lender and borrower when you are retained to act for more than one party.


    Back to top


  2. If the mortgage is less than $50,000 do I have to prepare Forms 9D and 9E?

    A: The $50,000.00 limit applies to mortgage or loan transactions in which you have been asked to act for both lender and borrower. Paragraphs 11 and 12 of subrule 2.04 prohibit you from acting for both the lender and borrower except in certain circumstances, one of which is that the consideration for the mortgage or loan does not exceed $50,000 .00.

    If you do act for the lender, section 24(1) of By-law 9 requires you to prepare Forms 9D and 9E if the total amount advanced by the lender is more than $6,000.00.

    Back to top


  3. When are Forms 9D and 9E required?

    A: The Forms are required whenever a lawyer "acts for or receives money from a lender" ( section 24(1) of By-law 9 ). A lender is defined in section 1(1) of By-law 9 as "a person who is making a loan that is secured or to be secured by a charge, including a charge to be held in trust directly or indirectly through a related person or corporation."

    However, section 24(2) sets out the transactions in which the Forms are not required. The exceptions are, where:

    1. the lender,

      1. is a bank listed in Schedule I or II to the Bank Act (Canada), a licensed insurer, a registered loan or trust corporation, a subsidiary of any of them, a pension fund, or any other entity that lends money in the ordinary course of its business;
      2. has entered a loan agreement with the borrower and has signed a written commitment setting out the terms of the prospective charge, and,
      3. has given the lawyer a copy of the written commitment before the advance of money to or on behalf of the borrower;
      (Note: all three conditions must apply)

    2. the lender and borrower are not at arm's length; [Note: "arm's length" is defined in sec1(1) of By-Law 18 as having the same meaning as in the Income Tax Act (Canada)]
    3. the borrower is an employee of the lender or of a corporate entity related to the lender;
    4. the lender has executed Form 1 [Note: this form is now titled "Investor/Lender Disclosure Statement For Brokered Transactions"] under Regulation 798 of the Revised Regulations of Ontario, 1990, made under the Mortgage Brokers Act, and has given the lawyer written instructions, relating to the particular transaction, to accept the executed form as proof of the loan agreement;
    5. the total amount advanced by the lender does not exceed $6,000; or
    6. the lender is selling real property to the borrower and the charge represents part of the purchase price.

    Depending on the circumstances, you may consider it advisable to use Forms Forms 9D and 9E even if one of the exceptions applies in a particular mortgage transaction.

    Back to top


Mortgages Held in Trust
  1. If the mortgage is not registered in my name or in the name of a lawyer in my firm in trust for clients, is it necessary to keep mortgage asset and liability ledgers?

    A: No; if the mortgage is not registered in your name or in the name of a lawyer in your firm, it is not considered to be within the scope of section 20 of By-law 9 and thus, mortgage asset ledgers and mortgage liability ledgers are not required.

    Back to top


  2. Should a mortgage be recorded in the mortgage asset and liability ledgers where it is not registered in the name of the lawyer in trust but the lawyer receives and distributes the periodic mortgage payments?

    A: Since the mortgage is not registered in the lawyer's name in trust, it need not be recorded in a mortgage asset and liability ledgers.

    Back to top


  3. What are the record keeping requirements if I hold a mortgage in trust for a client?

    A: Sections 20 and 24 of By-law 9 require a lawyer holding mortgages in trust for a client to maintain:
    1. Mortgage asset ledger - section 20(1)
    2. Mortgage liability ledger - section 20(2)
    3. Monthly comparison of (i) & (ii) - section 20(3)
    4. Form 9D - section 24(1)(a)
    5. Form 9E or a reporting letter containing a response to every question on Form 9D - section 24(1)(a)
    6. Declaration of Trust - section 24(1)(c)
    7. Copy of the charge - section 24(1)(d)
    8. Supporting documentation supplied by the lender - section 24(1)(e)

    These records are in addition to the financial records required by section 18 of By-law 9.

    Back to top