Private mortgage deals often move fast, rely on relationships, and lean on professionals to make transactions feel safe. A recent Law Society of British Columbia discipline decision is a reminder that comfort and credibility are not substitutes for controls—especially when a lawyer is involved in moving funds and documenting transactions. In Law Society of BC v. Soon, the hearing panel found professional misconduct where a lawyer used his firm trust account as a conduit for substantial loan-related funds that were not directly tied to legal services, acted despite serious conflicts involving lending companies he controlled, and kept trust records that were not readily traceable without forensic reconstruction. The practical takeaway for private lenders, mortgage brokers/administrators, and counsel is straightforward: if custody of funds, conflict disclosure, and accounting aren’t clear, documented, and auditable, “running it through a lawyer” can amplify—rather than reduce—risk.
What the tribunal decided (high level)
The Law Society issued an amended citation alleging eight categories of misconduct spanning roughly 2015–2020. The panel concluded the Law Society proved professional misconduct on each allegation, including:
- Misuse of trust: receiving and disbursing trust funds in circumstances where the funds were not directly related to legal services.
- Conflicts of interest: acting for clients in lending transactions while the lawyer had a direct or indirect financial interest in lending companies involved, including situations that effectively put the lawyer on both sides of the deal.
- Trust accounting failures: hundreds of deposits, withdrawals, and inter-ledger transfers recorded in a way that was not chronological, not easily traceable, and not supported by the required source/client/transfer documentation.
Notably, the panel emphasized that even without proof of client loss or bad faith, the conduct was still a “marked departure” from what is expected of lawyers—particularly given the public importance of trust accounts and conflict rules.
Why this matters to private mortgage lenders (not just lawyers)
Private lenders and mortgage administrators often rely on lawyers for two things: (1) clean documentation, and (2) confidence that money is handled properly. This decision is a reminder that the appearance of structure—funds moving through a law firm trust account, documents prepared by counsel, long-standing relationships—can mask weak internal controls.
From an industry standpoint, the risks fall into three buckets:
- Custody risk: Where exactly is the money held, and under what rules?
- Conflict risk: Is anyone advising you while having a financial stake in the deal?
- Traceability risk: If something goes wrong, can you reconstruct what happened quickly and conclusively?
Key lessons (with practical implications)
1) A law firm trust account is not a general-purpose escrow for a lending business
The panel treated it as serious misconduct to use trust for funds not tied to legal services. In the decision, the lawyer used trust as a conduit for ongoing lending cash flows and other non-legal transactions, including reallocations intended to cover shortfalls elsewhere.
Industry lesson: “Put it through my trust account” should not be treated as a default operational model for a private lending program. If counsel is acting as true closing escrow for a discrete transaction, that’s one thing. If trust is being used as a standing bank account for the lending business, that is a red flag.
Control to adopt: Maintain lender/investor funds in a dedicated operating or custodial structure designed for the business (and compliant with applicable mortgage administration rules), and limit counsel trust usage to transaction-specific legal closings with written directions and prompt payout.
2) Conflicts aren’t solved by familiarity, sophistication, or verbal understandings
The panel repeatedly returned to the same theme: conflicts rules exist to protect clients and public confidence, and they require meaningful disclosure and informed consent—typically documented. In Soon, the lawyer’s interest in the lending companies created a clear conflict problem, especially where the lawyer also acted for borrowers or co-lenders.
Industry lesson: Even when the borrower is experienced, even when “everyone knows” the relationships, and even when deals have historically performed, undisclosed conflicts can undermine the integrity of the transaction and create significant downstream risk (regulatory, reputational, and potentially civil).
Control to adopt: Make conflict checks and conflict disclosures an operational requirement, not an afterthought. Where a lawyer, broker, or administrator has a financial interest in a lender entity or in a transaction, require:
- written disclosure of the interest,
- written informed consent where appropriate, and
- in many cases, separate independent counsel.
3) “Blanket authority” to deploy investor funds is high risk without hard guardrails
In the decision, one lender client allegedly gave broad authority to the lawyer to use its funds in lending transactions, with limited oversight. That structure—combined with undisclosed co-lending and limited reporting—created a setting where losses and reallocations could occur without timely transparency.
Industry lesson: If your model involves discretionary deployment of investor funds, your documents must be built for accountability: approvals, reporting, limits, and auditability.
Control to adopt: Add clear contractual controls around:
- investment mandate and prohibited transactions (including related-party/co-lending limits),
- approval thresholds (what must be pre-approved),
- default/loss reporting timelines,
- investor statements and reconciliation standards, and
- audit/inspection rights.
4) Recordkeeping failures are not “technical”—they are the mechanism that allows problems to grow
The panel found the trust records were so unclear that investigators had to reconstruct activity through forensic cross-referencing of handwritten notes, bank journals, deposit slips, cheques, and other documents. Transfers between client ledgers lacked required explanations and approvals; deposit sources were misrecorded; and client identification was inconsistent.
Industry lesson: In private lending, recordkeeping is not clerical. It is the control surface for fraud prevention, dispute resolution, regulatory compliance, and investor confidence.
Control to adopt: Require a system where every dollar can be traced from:
- investor source → loan advance → borrower repayment → distribution with clear identifiers (loan ID/file ID), dates, payor/payee, purpose codes, and authorization records—no bundling, no “catch-up” allocations, no unexplained inter-file transfers.
Red flags private lenders should watch for
Use this as a quick screen when onboarding or reviewing a lawyer, broker, or administrator involved in your deals:
- Trust account used for ongoing business cash flow (not just closings).
- “It will look more legitimate if it goes through a lawyer” rationale.
- A lawyer/broker has ownership or control in the lender entity—or a nominee structure obscures control—without transparent disclosure.
- Same professional effectively touches both borrower and lender interests on the same deal.
- Statements are delayed, unclear, or not reconcilable to bank activity.
- Inter-ledger transfers or reallocations without written explanations and approvals.
- “We’ll make it right over time” approach to shortfalls/losses instead of formal reporting and resolution.
Bottom line
Law Society of BC v. Soon is not just a lawyer-discipline story. It is a private lending governance story. The decision underscores a principle lenders and administrators can operationalize immediately: credibility isn’t a control. Strong lending programs rely on clean custody structures, documented conflict management, and records that are simple to trace—because when those elements slip, risk doesn’t just increase; it becomes harder to detect and harder to fix.