“𝐘𝐨𝐮’𝐫𝐞 𝐠𝐨𝐢𝐧𝐠 𝐭𝐨 𝐠𝐞𝐭 𝐬𝐮𝐞𝐝 𝐚𝐧𝐝 𝐲𝐨𝐮’𝐫𝐞 𝐠𝐨𝐢𝐧𝐠 𝐭𝐨 𝐥𝐨𝐬𝐞.”

Everyone knows a lawyer’s favourite phrase: “it depends…”

But when we recently reviewed a Mortgage Commitment for a friend who decided to dabble in private lending, there was no “depends” about it.

It was bad. 𝐒𝐭𝐫𝐮𝐜𝐭𝐮𝐫𝐚𝐥𝐥𝐲 𝐚𝐧𝐝 𝐥𝐞𝐠𝐚𝐥𝐥𝐲 𝐛𝐚𝐝.

Among other issues, the Commitment included:

📈 An interest rate increase triggered by default

📋 Fees and charges that were 4 or 5 times any reasonable, genuine pre-estimate of costs

💰 An interest penalty automatically triggered by enforcement

🔒 Onerous prohibitions on redemption

🙅🏻 Unilateral, “sole discretion” clauses going well beyond reasonable lender protection

These terms are not creative.

This is not an example of firm, but acceptable, lender protection.

This is the kind of drafting that courts routinely strike down at the lender’s expense.

Unfortunately, too many lenders rely on the maxim “if it ain’t broke, don’t fix it” without realizing just how broken things already are.

The real, practical problem isn’t that these clauses are unenforceable, but that 𝐥𝐞𝐧𝐝𝐞𝐫𝐬 𝐫𝐞𝐥𝐲 𝐨𝐧 𝐭𝐡𝐞𝐦 𝐮𝐧𝐭𝐢𝐥 𝐢𝐭’𝐬 𝐭𝐨𝐨 𝐥𝐚𝐭𝐞.

And this wasn’t an outlier. 

It’s something we see far more often than most private lenders realize.