Be careful what you sign: Ontarian fights for his home after private mortgage gone bad
A Markham, Ont., man is struggling to keep the home he’s lived in for 15 years after signing a high-interest mortgage with a private lending company that is now suing him for failing to make of payments.
Mississauga-based Morex Capital began legal proceedings earlier this year to take control of the house through power of sale, but has since changed course after CBC News began asking about the situation.
The company’s lawyer now says he is ready to negotiate with Christian Brooks, 44, to reduce the amount owed on the $195,000 mortgage which has soared to $248,000.
Brooks went to the alternative lender for a loan in 2019 because he felt it was his only option.
The freelance graphic designer had a low credit score, bills to pay, and a collection agency was after him. Tax returns show his annual income at the time was just over $7,000, excluding savings.
“It was my first time doing something like this,” Brooks said. “It was out of desperation.”
I had no choice but to take it because I was already in financial debt.– Christian Brooks on signing a mortgage with Morex Capital
This type of mortgage — funded by private investors who pooled money to provide loans in return for a return on investment — has become more common in Canada. Borrowers should be aware that it is often not subject to the same lending terms as a traditional mortgage offered by a chartered bank.
Mortgage raised to an interest rate of 10.49%
An acquaintance referred him to Morex Capital, a company that invests in “high yield, short-term first and second mortgages in Ontario,” according to its website.
Brooks wasn’t buying the detached bungalow on Cheeseman Drive, it already belonged to his grandmother. Brooks says he was primarily raised by her and has lived at home alone since moving to a nursing home several years ago.
He is a joint tenant on title, meaning he would inherit the property when his grandmother dies, and has a power of attorney for his property, which he used to sign for her.
In June 2019, Brooks took out a loan against the home for $800,000 in the form of a one-year $195,000 mortgage with an interest rate of 10.49%, according to the signed mortgage covenant reviewed by CBC News.
Although it borrowed $195,000, Morex Capital provided $148,000 after fees and payments.
According to the mortgage document, the fees included a payment of $29,000 to a person Brooks says he does not know, administration fees of $8,000, brokerage fees of $4,000 and annual renewal fees of up to $8,000, plus other potential fees for late payments and default attorneys.
Brooks voluntarily signed.
“I accepted because of the situation I was in,” he said. “I had no choice but to take it because I was already in debt.”
He says his goal was to rebuild his credit, then go to a bank and get a line of credit with a lower interest rate.
Brooks says he’s made interest-only payments of around $1,700 via pre-authorized debit each month for two years without incident and says Morex didn’t contact him until June 2021 – two years after the deal initial – to renew the mortgage.
He signed a mortgage renewal agreement that month, which included $16,000 in renewal fees for 2020 and 2021 to be paid upfront. When Brooks couldn’t pay that much at once, he says the company allegedly stopped accepting his monthly payments in July 2021 and refused to cash the checks he provided afterward.
Morex Capital began power of sale proceedings in January, seeking to take control of the home and evict Brooks, according to a statement filed in a Newmarket court.
Morex alleges in the claim that Brooks is in default and owes $248,950.44 – an amount that includes mortgage principal, interest, missed payments, late fees, legal fees and a host other fees. This is on top of the $40,800 Brooks has already paid in interest.
After CBC News contacted Morex Capital, the company’s attorney disputed Brook’s claims as inaccurate, but did not elaborate when asked for specifics. In a later statement, the attorney said Morex would no longer pursue power of sale.
“Regardless of the merits of the case in favor of Morex, Morex is committed to working with Mr. Brooks (and any of his borrowers) to avoid a power of attorney proceeding and will do everything it can to helping borrowers keep their homes,” wrote Diamond & Diamond’s Darryl Singer.
“Not a normal mortgage”
Toronto real estate attorneys Audrey Loeb and Jonathan Miller of Shibley Righton LLP took on Brooks’ case on a pro bono basis. They say some of the terms of the mortgage, how the deal was made, and Brooks’ interactions with Morex raise a number of questions.
“It’s not a normal mortgage,” Loeb said. “This is a mortgage used in very unusual circumstances where someone, I believe, is being exploited.”
First, Brooks claims that Morex referred him to an attorney to provide independent legal representation when signing the mortgage.
“When you get…independent legal advice, that’s what [Brooks] needed to have as a borrower, he should have consulted an attorney who had no connection to Morex,” Loeb said. “And if you get referrals from Morex, I think you have a connection.
Second, the Borrower Disclosure Form that Brooks signed in early June 2019 shows that the mortgage principal was originally $185,000. Brooks says it was increased to $195,000 when he went to sign the recognizance at the attorney’s office on June 27, without explanation.
Third, Brooks’ attorneys say Morex Capital failed to explain why the person who received $29,000 of the mortgage proceeds was entitled to that payment.
Finally, Brooks’ attorneys argue that many of the fees Morex says Brooks owes seem excessive, including the $8,000 annual renewal fee and legal fees.
“The statement refers to $7,000 in legal fees and then an additional $7,500 in fees, which basically amounts to a fee for being required to tell their attorney that their borrower is in default,” Miller said.
“All in all, there’s probably thirty or forty thousand dollars of accumulated amounts here that we believe are inappropriate.”
Brooks and his lawyers say they are not waiving principal or interest on the mortgage, but are looking to lower the amount of fees due to something more manageable, while avoiding a forced sale of the home.
“I want to pay Morex to get them off my back,” Brooks said. “When people give you money, you pay them back. But let’s do it in a civil way, without anyone getting hurt.”
On Friday, Morex offered to renew the mortgage for another three months and reduce many of the fees it previously said Brooks owed. However, the two sides continue to negotiate and no agreement was signed on Monday.
Alternative loans, a growing industry
More and more Canadians are avoiding banks and credit unions and seeking mortgages from other lenders in recent years. At the same time, investors have flocked to the industry, hoping to cash in on a real estate market where property values have skyrocketed.
According to Statistics Canada, the value of non-bank mortgages increased more than tenfold between 2007 and 2018, from $8.5 billion in 2007 to $86.7 billion in 2018.
Most of this growth comes from Mortgage Finance Companies (MFCs), which are financial institutions that typically underwrite and sell insured mortgages to the big six banks.
MFCs are subject to many of the same regulations as banks, which impose strict rules on who they can lend to based on income and credit rating.
But mortgage investment companies (MICs) like Morex Capital, which pool money from private investors to fund bespoke mortgages, don’t have the same lending constraints. They tend to offer shorter-term, interest-only loans at higher rates because they take on more risk by lending to riskier clients.
The PRIs have also experienced double-digit average annual growth over the past 10 years.
According to Statistics Canada, total MIC financial assets reached $32.3 billion in 2020, up from $11.4 billion in 2008.
On its website, Morex Capital boasts that investors have received a 9.35% annualized return on their investments since the company was founded in 2012.
Ron Butler, mortgage broker at Butler Mortgage and a 27-year industry veteran, says that in general, alternative lenders are forced to offer a product that suits customers looking for a mortgage.
“You have to know your customer, you have to understand their situation, you have to understand their relative situation going forward, and you have to plan a solution that’s right for that customer,” Butler said.
Borrowers also have a responsibility to know what type of mortgage they’re signing, Butler says.
“They should shop around, they should call several people, several mortgage brokers … and get their own lawyer ahead of time who can give them advice on what to do and what to watch out for,” he said. Butler said. “The real problem that exists today is that the public has virtually no knowledge of how private mortgages work.”