It was a helluva shock when it happened. Modern 700-foot ships are not supposed to just blip off the radar without a distress call or anything. The Fitz was in radio contact with other ships and almost in sight of populated land.
The Fitz had warning signs (the radar was busted and it was taking on water a few hours earlier) but nothing bad enough to make you expect what happened. It was probably a combination of factors and then a couple of rogue waves finished the job. The bow got pitched down into the trough of a big wave and it never came back up.
Gordon Lightfoot was friendly with the families of the Fitz's crew. He even tweaked one of the song's lyrics on their behalf.