Jan 10, 2021
THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part XXIV of a Series – A case comment Part 4 of 4
This is a continuation of the last 3 posts PART XXXIII and PART XXXII and PART XXXI in which I discussed a rather difficult power of sale matter that I deal with this past fall. The owner/mortgagor had prevented us from taking possession of 2 residential rental properties in downtown Toronto. We issued a Notice of Sale and served a statement of claim for possession and for amounts owing under the private mortgages in default. After the owner/mortgagor defended our claim, we contacted the very same 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. We then discovered that the appraisal was forged. That the property was worth less than the first mortgage on title and my client, the 2nd mortgagee, was unlikely to recover any proceeds from a power of sale of the mortgaged property. In essence, her 2nd mortgage was of no value - and her mortgage debt was essentially unsecured.
And so we had no choice but to increase the pressure on the owner/mortgagor - who appeared to be responsible for the forged appraisal. We prepared an affidavit for the appraiser to sign confirming the forgery. We drafted an amendment to the statement of claim – so that it included a very detailed and specific claim for fraud. We reminded the owner/mortgagor’s lawyer about the effect of a judgment in fraud under section 178 of the Bankruptcy and Insolvency Act (the debt based on fraud continues even after the debtor's bankruptcy). And we took steps to get a judge to approve the amendment to the statement of claim and to start the process for creating a timetable for our motion for summary judgment. All of this coupled with the notice of sale having expired. And the properties being listed for sale on the local MLS, even though we did not have possession of the properties.
We did get lucky. It appears that having thrown the kitchen sink at this owner/mortgagor, especially the steps that we were taking to include a claim for fraud in the statement of claim – and to move for summary judgment – were enough of a thorn in the owner/mortgagor’s side that he managed to refinance the properties in question and repay my client, the second mortgagee, all of her principle and outstanding interest. And most of her mortgage remedy and power of sale costs incurred, as well. To my way of thinking, this was a tremendous victory for this 2nd mortgagee.
However, what was not paid to the private mortgagee were the default fees and default charges set out in her mortgages (and included in many - if not all - private mortgages). Because those ‘standard default fees’ are simply unenforceable. I’ll get into that in the next couple of posts.
And remember, that 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 power of sale 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.