A recent British Columbia decision illustrates a difficult truth about private mortgage financing: a homeowner may understand that their home secures a mortgage, receive independent legal advice, and authorize advances, yet still suffer serious loss where a family member obtains practical access to the loan proceeds.

The case involved an elderly homeowner whose home secured a private mortgage facility of up to $750,000. Her grandson was the intended user of the funds. The facility was presented as short-term working capital for his tile business. He was expected to use advances to buy inventory and repay them when customers paid for the product.

Instead, the Court found that the grandson did not intend to repay the principal as promised. Over two years, more than 30 advances were made until the entire facility was drawn. Much of the money was not used as the homeowner understood it would be used. When the lender later required repayment, the homeowner owed more than $766,000 and had to sell her home.

The case raises a recurring issue in private lending: what additional risks arise when the registered homeowner is the borrower and mortgagor, but a child, grandchild, spouse, or other family member receives, controls, or benefits from the advances?

The mortgage borrower and the person receiving the money are not always the same

In a conventional mortgage, the borrower, property owner, and recipient of the funds are often the same person. The lender can assess the borrower’s income, purpose, repayment capacity, and conduct as one integrated credit decision.

Family-backed private mortgages can look very different.

A homeowner may mortgage their principal residence to help a relative obtain working capital, refinance debt, fund a business, purchase a vehicle, or cover personal expenses. The homeowner is the person legally liable to the lender. Their property is the lender’s security. But the relative may be the person who:

• requests the financing;
• explains the intended use of proceeds;
• collects cheques or receives wire transfers;
• directs where funds are deposited;
• controls the business or bank account receiving the funds;
• makes interest payments; and
• controls the information the homeowner receives about the balance.

That structure creates a separation between legal liability and practical control of the funds. It does not make the transaction improper, but it materially changes the risks.

The homeowner may know that they are exposing their home to a mortgage, while still misunderstanding the actual amount drawn, whether principal is being repaid, how the money is being used, or whether the family member has the means and intention to protect them from liability.

What happened in this case

The homeowner was told that the proposed facility would work as a short-term, open line of credit. The grandson would draw funds for inventory purchases, sell the inventory, and repay the advances after receiving customer payment.

The mortgage broker spoke directly with the homeowner. The notary met with her alone and explained that the mortgage was secured against her home, that the facility was substantial, and that she could lose her home if the grandson did not pay. A representative of the private lender also met with the homeowner and confirmed that, from the lender’s perspective, the debt was hers and her home was the security.

The lender’s draw process included telephone confirmation from the homeowner before additional advances were made. This was important evidence that the homeowner understood the mortgage and authorized the advances.

But the grandson picked up the letters that accompanied the cheques. Those letters recorded the cumulative amount advanced and the remaining amount available under the facility. The Court found that the grandson deliberately withheld the letters from the homeowner.

As a result, the homeowner approved individual advances but did not fully appreciate that the principal balance was growing and was not being repaid. The grandson made interest payments, but did not reduce the principal. The Court found that he used funds for purposes beyond the short-term business purpose that had been represented.

The professional process was not the primary failure

The decision should not be read as criticism of the lender, broker, or notary for failing to arrange a separate family loan agreement.

The professionals did many of the things expected in a transaction involving a homeowner’s principal residence:

• the homeowner received direct explanations of the mortgage;
• the notary met with her privately;
• she was told that her home could be lost if the debt was not paid;
• the lender met her directly;
• the lender did not advance the full credit limit at closing; and
• the lender sought her confirmation before later advances.

Those steps supported the Court’s conclusion that the homeowner knowingly entered the mortgage and was legally bound to the lender.

The failure occurred in the separate, family-side arrangement. The grandson obtained practical control over a large and repeatedly drawable facility secured by his grandmother’s home. His promise to use it for short-term business needs and repay it promptly was not adequately documented, monitored, or enforced.

The lender’s valid mortgage rights did not make the grandson’s private conduct acceptable. The Court found that he had engaged in equitable fraud and breach of trust. However, the homeowner’s claim against him was ultimately dismissed because it was commenced after the limitation period had expired.

The risk is not simply that a family member will default

A lender cannot eliminate the risk that a borrower or a family member will make poor decisions, experience business failure, or fail to repay a debt. Nor should a lender be expected to supervise family finances.

The greater concern arises where the relative has access to proceeds but the homeowner does not have equivalent access to information or control.

Warning signs may include:

• the homeowner is the sole registered borrower, but the relative is the primary contact and negotiator;
• the relative answers questions intended for the homeowner;
• the relative receives advance cheques, wire transfers, statements, or renewal notices;
• the homeowner relies on the relative for translation, transportation, document explanations, or communications;
• the facility is interest-only and has no meaningful principal-reduction mechanism;
• the draw process does not provide the homeowner with an independent record of the cumulative debt;
• draws become larger, more frequent, or inconsistent with the stated purpose;
• the facility is described as business working capital, but the lender receives no evidence of inventory purchases, invoices, receivables, or other expected business activity; or
• the homeowner cannot explain, in their own words, the maximum debt, the current balance, the maturity date, or what will happen if refinancing is unavailable.

None of these facts necessarily requires a lender to refuse the loan. Together, however, they may indicate that the homeowner’s continuing consent is not genuinely informed or that the stated purpose of the facility is no longer reliable.

What lenders, brokers, and notaries should do

The appropriate response is proportionate. Mortgage professionals should not be expected to draft, administer, or enforce a private agreement between the homeowner and the family member benefiting from the proceeds.

Their role is to ensure that the homeowner understands the mortgage transaction, to preserve the independence of the homeowner’s instructions, and to avoid knowingly facilitating misuse, fraud, or coercion.

Confirm the homeowner’s informed and independent instructions

The homeowner should have an opportunity to speak privately with the lender representative, broker, lawyer, or notary. The professional should confirm that the homeowner understands:

• the maximum amount that may be secured against the home;
• that the homeowner remains liable even if the relative promised to make the payments;
• whether payments are interest-only or will reduce principal;
• the lender’s rights if payments are missed or the loan matures;
• that renewal is not guaranteed; and
• that the homeowner may need to sell, refinance, or otherwise pay the full balance at maturity.

Where English fluency, literacy, hearing, cognitive ability, grief, dependency, or family pressure is a concern, the process should be adjusted. A family member should not be treated as a substitute for independent interpretation or independent advice where they benefit from the transaction.

Make the distinction between the mortgage and the family arrangement explicit

If the homeowner says that the money is for a relative and the relative will repay it, the professional should say plainly that the mortgage does not itself create or enforce that repayment obligation.

A lender, broker, lawyer, or notary need not insist on an intra-family contract. But it is reasonable to state that the homeowner may wish to obtain independent advice about documenting the relative’s obligation through a loan agreement, promissory note, indemnity, guarantee, or security arrangement.

That is not an attempt to manage the family relationship. It is a clear explanation that the homeowner’s rights against the relative are separate from the lender’s rights against the homeowner and the property.

Give the homeowner direct access to information

Where a family member receives or controls advances, direct communication with the homeowner becomes especially important.

At a minimum, the lender should consider sending the homeowner, through a channel controlled by the homeowner:

• a notice of each advance;
• the cumulative principal balance after each advance;
• the interest rate, payment amount, and payment status;
• the remaining available credit;
• renewal, maturity, and default notices; and
• any notice that further advances have been suspended or conditions have changed.

The person receiving the funds should not be the sole recipient of documents that tell the homeowner how much of their home equity has been used.

In the case, the homeowner approved draws but did not receive the cumulative-balance letters because the grandson collected them. That gap was central to the practical harm, even though the lender’s mortgage remained enforceable.

Match draw controls to the facility’s stated purpose

A revolving facility described as short-term business working capital should not necessarily operate like unrestricted personal access to a homeowner’s equity.

Depending on the size of the facility, the purpose, and the lender’s underwriting model, draw conditions may include:

• a draw request signed or separately confirmed by the homeowner;
• confirmation of the recipient account;
• invoices, purchase orders, or other support for business-purpose draws;
• periodic reporting on outstanding receivables and inventory;
• limits on the size or frequency of advances;
• a requirement that specified receipts be used to reduce principal; and
• review or suspension rights where the draw pattern no longer matches the approved purpose.

These are credit-control measures, not an obligation to supervise a family member’s life or business.

Escalate genuine red flags

Professionals should not proceed mechanically when the facts indicate that consent may not be real, informed, or voluntary.

A pause, further inquiry, private meeting, independent interpreter, independent legal advice, or refusal to proceed may be appropriate where the homeowner cannot explain the transaction, appears coached, is prevented from speaking alone, is unaware of the amount secured against their home, or is being asked to authorize transactions that materially depart from the stated purpose.

The standard is not perfection. It is a reasonable response to information actually known to the professional.

The limitation lesson

The homeowner succeeded in proving that her grandson had misled her, but the Court dismissed her claim as out of time.

She knew by early 2021 that the mortgage existed, that substantial sums had been advanced, that principal had not been repaid, and that the grandson disputed any obligation to return the money. The Court held that these facts were enough to trigger the limitation period. She did not need to wait for the lender to demand payment or for the home to be sold before pursuing her claim.

For lawyers advising homeowners in family-financing disputes, the lesson is immediate: identify the potential claim and diarize the limitation date as soon as the essential facts are known. Negotiations, promises to refinance, and ongoing interest payments may justify settlement efforts, but they do not necessarily preserve the right to sue.

Conclusion

Private mortgage financing can be appropriate where a homeowner knowingly chooses to use their equity to support a family member. The fact that a relative receives the proceeds does not, by itself, require a lender, broker, or notary to reject the transaction or impose a formal intra-family contract.

But that structure creates a distinct risk. The homeowner bears the legal liability and risks the home, while someone else may control the money, information, and repayment decisions.

The professional response is not to spoon-feed every possible family consequence. It is to ensure genuine informed consent, identify the boundary between the mortgage and any private family promise, maintain direct communication with the homeowner, use draw controls consistent with the stated purpose, and respond where real warning signs emerge.

That approach respects the homeowner’s autonomy while recognizing the heightened risk that arises when access to home equity is placed in the hands of a trusted family member.