Beware of Mortgage Lenders Legislation

In the current economic climate, potential buyers of commercial properties have sometimes had to be more creative when trying to obtain financing for the transaction. A common approach is for the vendor

Straightforward as that may seem, there are some potential pitfalls: the Ontario Mortgage Brokerages, Lenders, and Administrators Act, which has been in force since July 1, 2008, strictly governs those individuals and organizations involved in the mortgages industry. (And breach of the Act’s requirements can attract fines, the revocation of licenses, and other sanctions meted out by the Financial Services Commission of Ontario.)

In particular, the Act states that anyone who “carries on business” in Ontario as a mortgage lender, or who deals, trades or administers mortgages, is subject to licensing requirements established by regulation. In this context, “mortgage lender” specifically includes a person engaged in lending money in Ontario on the security of real property, which would extend to vendors giving take-back mortgages on a regular basis. On the other hand, “carries on business” is not defined in the Act, but there must generally be a pattern of conduct rather than a single instance.

This means that a vendor who lists or advertises property together with an offer to provide the purchaser with a vendor take-back mortgage could run afoul of the licensing requirements if this pattern of conduct amounts to the business of mortgage lending.

Naturally, this will be more of a concern for vendors with a large portfolio of properties, rather than those with one or two listings and no established history of giving vendor take-back mortgages at all.

Still, all vendors should take care not to inadvertently hold themselves out as being in the business of mortgage lending, whether by way of advertisement, listing, or written or oral representations to prospective buyers. Also, the mere fact that a vendor has hired a lawyer to negotiate, draft and/or register a vendor take-back mortgage will not insulate that vendor from needing to be licensed under the Act.