A lender's fee schedule keeps running into a law it can't override.
A court has, for the second time, penalized a mortgage fund's manager over default charges that broke federal lending law.
The Ontario Superior Court of Justice ruled on July 30, 2026 that CMI High-Yield Opportunity Fund Corp., acting as mortgage administrator for TSX Trust Company, is entitled to summary judgment against a group of defaulting borrowers - but only after the fund's counsel withdrew a string of disputed charges that Justice Callaghan found ran afoul of the Interest Act.
The case traces back to a $102,000 mortgage loan advanced under a commitment letter dated June 1, 2023, and registered against a Toronto property that September. The mortgage carried interest at 9.99 per cent per year, with $849.15 due monthly, and the full balance coming due on September 1, 2024. The borrowers defaulted, and at the summary judgment hearing on July 3, 2026, their counsel conceded the default and their inability to refinance. Their only pushback was over the size of the charges being claimed, not the default itself.
That pushback mattered. The fund's claimed payout, as of October 31, 2024, tacked a default fee of $1,500, a three-month penalty of $2,547.45, a demand-letter charge of $1,500 and several smaller statement, discharge, processing and insurance-related fees onto the outstanding balance and interest owed. Justice Callaghan found many of those charges contrary to section 8 of the Interest Act, which bars mortgagees from levying fines, penalties or higher interest rates on arrears secured against real property, regardless of how the charge is labelled. When questioned on the charges, counsel for the fund agreed to withdraw them, a concession the court called proper - but not a first for this lender. The ruling notes the same fund made near identical concessions in a 2023 Ontario decision involving a different borrower, adding that this pattern is "a common occurrence seen too often by the court."
With the improper charges stripped out, the court set the amount owing at $103,714.59, plus prejudgment interest of $17,429.20 to July 3, 2026, and continuing interest after that date at the contractual 9.99 per cent rate. The fund was also awarded a writ of possession over the property.
Justice Callaghan denied the fund's request for costs, even though its mortgage terms provided a contractual right to them. Costs remain discretionary regardless of contract, the court noted, and advancing unjustified charges without any factual foundation is the kind of conduct courts should discourage. The judge added that the cost claim itself was not large relative to the debt owed, but that denying it might help curb the practice going forward.
For wealth advisors and fund managers who place client capital in private mortgage funds for yield, the ruling is a reminder that fee and collection practices sit inside the same compliance perimeter as investment performance - and that repeat missteps on basic lending law can surface in court records tied to the fund's name.
