By Andy MacDonald | July 22, 2026
This morning I had the pleasure of waking up just steps from the ocean at my spot in Cape Breton. Picture a travel trailer parked on a rocky beach surrounded by forty acres of forest and about 1200 feet of sheltered and secluded oceanfront.
I started the day on my paddle board followed by a cool dip in the ocean and a coffee on the beach. My mind tends to wander at times like this, and a recurring thought I’ve had is how the mortgage industry in Canada has screwed over so many people in the last few years.
I’m thinking of all the transactions where multiple co-applicants who had virtually no interest in a property (usually less than 1%) were used to get a deal approved. At the market’s peak, it was not unusual to see three or four co-applicants on a single transaction.
Now that the market has turned, co-applicants are discovering how much risk they took up. They are responsible for 100% of the debt. Not a portion of the debt; 100% of the debt!
When a primary borrower defaults, lenders are demanding that co-applicants keep the mortgage current. If the co-applicants can’t bring the mortgage into good standing, the property will usually be sold under Power of Sale. If there is a shortfall, which is happening often these days, and a co-applicant has seizable assets, lenders are likely to sue to recoup the shortfall. When homes were purchased at the market’s peak, we are frequently seeing significant shortfalls.
If you’re a co-applicant facing this sort of situation, your first phone call should be to a litigator familiar with mortgage enforcement.
I’m not a lawyer, so definitely consult one. If you did not receive Independent Legal Advice (ILA) before signing off on the mortgage documents and are a close relative of or friend to the primary borrower, you may have a defence. A presumption of undue influence requiring lenders to protect you from yourself may exist. The Supreme Court of Canada made this clear in Gold v. Rosenberg, where the court ruled that if the transaction was clearly detrimental to a co-applicant who did not receive, or was not advised to, get ILA, and was exceptionally close to the primary borrower, the lender might lose its ability to enforce the mortgage against that person.
To be clear, a lack of ILA does not automatically protect co-applicants, but it’s worth having a conversation with a litigator to discuss the facts of the case. If you’re a sophisticated borrower, there will be no get out of jail free cards to play, but if you truly did not understand the liability you were signing up for, or you felt pressured to go along by close friends or family, you may have a viable defence.
If you used a mortgage broker or agent in Ontario, you may also have a case against them if they failed to ensure the mortgage was suitable for you, or if they failed to fully and plainly disclose the material risks of signing on as a co-applicant. It would be hard for a broker or agent to argue that signing up for 100% liability on a mortgage with no direct benefit is suitable for most people. Keep in mind that many of these mortgages were close to $1 million or more. How many Canadians can absorb that sort of liability?
If you know anyone that had the misfortune of signing on to a mortgage as a co-applicant who is now facing the ramifications of a mortgage in default, you may want to send them this article. If you’re a litigator, you may want to consider making your services available to these co-applicants. They could very well benefit from your services!
Andy MacDonald is a Mortgage Broker with over 35 years of experience in the mortgage industry. He acts as an Expert Witness for litigation dealing with mortgages, Mortgage Brokers and Mortgage Agents in Ontario.