Jan 04, 2021
THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part XXXIII of a Series – A case comment Part 3 of 4
This is a continuation of the last 2 posts PART XXXII and PART XXXI in which I discussed a power of sale matter that landed on my desk last fall. You may recall that the owner/mortgagor had prevented us from taking possession of 2 residential rental properties in downtown Toronto. We issued a Notice of Sale. We issued and served a statement of claim for possession and for amounts owing under the 2 private mortgages in default. After the owner/mortgagor defended our claim, we contacted the appraiser whose appraisal was provided to the mortgagee by the owner/mortgagor at the time when the mortgage loan was approved and advanced some 18 months prior.
And this is where the story gets really interesting. The private mortgagee delivered a copy of this older appraisal to the appraiser and asked him what he would charge to update the appraisal – so that we could use the current appraised value to help set the price on an MLS listing for the properties.
The appraiser immediately call to inform us that the old appraisal was a forgery. He said that he never issued or signed that appraisal. And that that old appraised value was way higher than the actual market value of the property at the time.
This meant that the private mortgagee had based her lending decision on a falsified appraisal document. Simple math told us that the value of the property when the loan was advanced was quite a bit lower than the mortgagee had previously believed and that the loan to value ratio was near 100% when she advanced her mortgage loan. And now, taking into consideration 5% realty commission and other power of sale and mortgage remedy costs, the net sale proceeds of the property (following its sale) would likely just pay the first mortgage and leave nothing for my client, the second mortgagee. In other words, her second mortgage, that she thought was secured against the property was, in fact, valuless and her mortgage loan was effectively unsecured; all because of the fraudulent appraisal.
We immediately notified the owner/mortgagor who (of course) denied tampering with the appraisal. So, we amended the statement of claim to include a claim for damages based on this fraud and fraudulent misrepresentation. We then asked solicitor representing the owner/mortgagor to either consent to the amendment or to co-operate with us in attending a court motion seeking permission from a judge to amend the statement of claim to add the fraud claim. We also were planning on asking the judge for a timetable for a motion for judgment. So that we could expedite getting a judgment for possession and taking possession of the properties.
All of this, to further tighten the proverbial noose around the owner/mortgagor in order to get him to repay my client. The next blog post will finish this story. And as always, this blog is intended for information purposes only. It is not legal advice and cannot be relied on as such. Nor is it a substitute for hiring your own legal counsel, who will be an essential member of your mortgage default and mortgage remedy team. And lastly, this blog is just my opinion. I reserve the right to change my mind. And I reserve the right to be wrong.
Be well and stay healthy.