Short answer
A registered lien or judgment stops most conventional lenders outright, since they require clear title before they will advance funds. A private lender can often fund around that condition, using part of the advance to pay out the claim at closing. It costs more than a bank, and only works if enough equity remains once the claim is paid.
Why a bank walks away the moment a lien appears
A bank underwrites the property as if the title were clean. A registered construction lien, a certificate of judgment, or a writ of enforcement on title tells the lender someone else has already made a legal claim against the property, ahead of or alongside its own security.
Bank policy is built for volume, not for negotiating around a registered claim on a case-by-case basis. The file gets declined on policy, not on your income or your credit.
What actually triggers this situation
The claim can arrive in more than one way. A contractor who was not paid in full can register a construction lien under provincial legislation. A creditor who won a court judgment against you can register a certificate of judgment against any real property you own in that province, sometimes for a debt that has nothing to do with the house itself.
Either way, the effect on financing is the same. The property cannot transfer, and in most cases cannot be refinanced conventionally, with that claim still sitting on title.
How a private lender can proceed
A private lender is making an equity decision, not a policy decision. If the loan-to-value still works once the lien or judgment is paid out from the advance, the claim becomes a closing condition to satisfy rather than an automatic decline.
In practice this usually means the lender’s lawyer holds back the payout amount at closing, pays the claimant directly, and registers a discharge before or simultaneously with funding. Pekoe Mortgages is a brokerage, not a lender, and does not hold or disburse these funds itself. Your lawyer and the lender’s lawyer coordinate the payout and discharge as part of closing.
What it costs
More than a standard file, because the lender is pricing both the property risk and the extra legal coordination the payout requires. Expect an interest rate above conventional pricing, a lender fee and usually a broker fee each as a percentage of the loan, legal fees on both sides, and an appraisal.
Read the full guide for Private Mortgage Lending in Alberta or Private Mortgage Lending in Ontario, where typical ranges for rates, lender fees, broker fees, loan-to-value, and term are set out in full. Every figure varies by file and none of them is a quote.
What this does not fix
This is financing, not a legal defence. If the lien or judgment is disputed, or you believe it was registered in error, that is a matter for your lawyer to resolve on its own terms, before or alongside any refinancing.
Construction and builders’ lien legislation in both provinces runs on strict, time-limited deadlines for registering, perfecting, and dealing with a lien. Those deadlines vary by province and by the specifics of the claim, so confirm the current timeline for your file with a lawyer rather than assuming from a general guide.
Confirm the current specifics for your own situation. Enforcement rules, timelines, and procedure differ between provinces and change over time. Before acting on anything described here, speak to a licensed mortgage broker or a lawyer in the province where your property is located.
Frequently asked questions
Can a private mortgage remove a lien from title on its own?
No. Financing pays out or otherwise satisfies the claim, and a discharge is then registered on title through your lawyer. The lien does not disappear on its own just because financing closed.
Will a private lender fund if the lien is being disputed?
Some will, if the loan-to-value still supports it after setting aside enough to cover the disputed amount, but most prefer the claim resolved or clearly quantified first. Your broker and lawyer will tell you what a specific lender needs to proceed.
Does this work the same way for a judgment as for a construction lien?
The financing logic is similar, an equity-based payout at closing, but the legal mechanics of registering and discharging each differ. Your lawyer confirms the correct process for the specific type of claim on your title.
Is this different from a regular private second mortgage?
Not in structure. It is a private mortgage where part of the advance is earmarked to clear a specific registered claim, rather than to consolidate debt or fund a purchase. The underwriting and cost structure work the same way described in our provincial guides.