Superior Court of Justice – Ontario

COURT FILE NO.: CV-12-464325
DATE: 20121005

IN THE MATTER OF SECTION 39(1) OF THE MORTGAGES ACT , R.S.O. 1990, C.M.40 ;

AND IN THE MATTER OF A MORTGAGE REGISTERED ON SPETEMBER 11, 2008 AS INSTRUMENT NO. YR1223190 IN FAVOUR OF IVAN TERZIEV

RE: Ivan terziev , Applicant

AND :

Stoyka todorova georgieva , Respondent

BEFORE: Low J.

COUNSEL:
Nicanor G. Catre , for the Applicant
Stoyka Todorova Georgieva, in person

HEARD: October 1, 2012

ENDORSEMENT

[ 1 ] This is the second application that the applicant has brought for an order under s. 39 of the Mortgages Act for leave to sell under power of sale without having complied with s. 31 of the Act.

[ 2 ] The first application was heard by me on September 17, 2012. Although formally an ex parte application, notice of the application did make its way to the respondent, Stoyka Todorova Georgieva and to her spouse, Stanley Georgiev. I permitted Mr. Georgiev to make representations to the court on that occasion. Mrs. Georgieva was not present as she was ill.

[ 3 ] On the application currently before the court, again an ex parte application, notice was given of the attendance and both the respondent and her spouse appeared. I did not call upon them for submissions.

[ 4 ] There are two mortgages on the property, both in default. The applicant is the second mortgagee. His mortgage, securing the original principal sum of $100,000, was registered on September 11, 2008 has been in default since 2008.

[ 5 ] On January 10, 2012, the first mortgagee, CIBC Mortgages Inc., obtained judgment, on consent, for possession.

[ 6 ] On February 9, 2012, the first mortgagee obtained an order granting leave to issue a writ of possession. On February 17, 2012, CIBC Mortgages Inc. assigned its judgment to Elle Mortgage Corporation. The abstract of title shows that on February 24, 2012 there was a transfer of charge from the first mortgagee, CIBC Mortgages Inc., to Elle Mortgage Corporation.

[ 7 ] In June 2012, Elle Mortgage Corporation evicted the respondent pursuant to a writ of possession and took possession of the property. There is no evidence that the applicant obtained a judgment for possession.

[ 8 ] An appraisal of the property obtained for Elle Mortgage Corporation as of July 4, 2012 suggested that the value of the property was $360,000 on an “as is” basis by the direct comparison approach. Photographs accompanying the appraisal report show that the property was in need of rubbish clearance and repair.

[ 9 ] On August 18, 2012, the applicant entered into an agreement to sell the property under power of sale under the second mortgage for $350,000. The closing date under the agreement of purchase and sale was September 17, 2012. There is no explanation for why the applicant did not attempt to obtain a price which was the appraised value of the property.

[ 10 ] At the time that he entered the agreement to sell the property, the applicant had not given notice of sale under charge as required under s. 31 of the Mortgages Act . The notice of sale is dated September 11, 2012 and was mailed to the respondent and her spouse the same day. The 35 day redemption period therefore does not expire until a month after the contractual date of closing under the applicant’s agreement of purchase and sale.

[ 11 ] When the applicant’s first application came on before me on September 17, Mr. Georgiev stated to the court that there was equity in the property and that the mortgagor wanted to redeem.

[ 12 ] The mortgage discharge statement for the first mortgage shows a balance owing of $160,358.45 at September 19, 2012. The discharge statement under the applicant’s mortgage, also as at September 19, 2012, shows a balance owing of $170,069.24. On September 17, Mr. Georgiev stated that there was equity in the property. On that occasion, Mr. Catre, counsel for the applicant, acknowledged this. The arithmetic bears it out.

[ 13 ] I declined to grant an order under s. 39 of the Act dispensing with or abridging the 35 day redemption.

[ 14 ] The applicant has now commenced a new application for the same relief on the same material subject to a small number of changes in the affidavit of the solicitor, Mr. Walman. There is also a supplementary affidavit. The supplementary affidavit indicates that the applicant’s purchaser is willing to extend the closing date for the purchase to October 18 on the basis of a $10,000 reduction in purchase price. In the revised affidavit, the affiant deposes that there would have been a deficiency on the second mortgage of $19,927.69 had the applicant’s sale closed on September 19, 2012 and a deficiency of approximately $30,000 if the transaction closes on October 18, 2012.

[ 15 ] Mr. Catre argues that it an urgent matter and that the court should excuse the applicant from compliance with s. 31 of the Act because there is no equity, that there will be a deficiency after closing the applicant’s sale of the property, and the respondent likely has no ability to pay the deficiency if and when there is a judgment on the covenant.

[ 16 ] The fact that there will or may be an unrecoverable shortfall after sale under mortgage is not a sufficient reason to abrogate the mortgagor’s statutory rights of redemption. Counsel has shown no authority to support such a proposition.

[ 17 ] To the contrary, the mortgagee must comply strictly with the notice requirements at s. 31 of the Act: see Botiuk and Collison et al ., 1979 2060 (ON CA) , [1979] O.J. No. 4429; 26 O.R. (2d) 580 at para 31 (C.A.): " They are there for the benefit of the defaulting mortgagor and they are requirements imposed by the Legislature on the exercise by the mortgagee of a self-help remedy.” Similarly, as Quinn J. noted at para 133 of 1224948 Ontario Ltd. v. 448332 Ontario Ltd., [1998] O.J. No. 5555 ; 91 O.T.C. 81 , “It must never be forgotten that s. 39 is not a provision which enables a mortgagee to avoid the nuisance of giving proper notice of an intention to exercise its power of sale. A s. 39 order is an abridgement of the rights of those who have an interest in the mortgaged property; it should not be seen as trivial or treated as routine."

[ 18 ] Although there are a number of decisions concerning s.39 of the Mortgages Act readily available by way of a cursory electronic search, counsel for the applicant advised the court that he had been able to locate none except Lashbrook v. Larson , 2011 ONSC 3014 .

[ 19 ] In my view, that decision does not assist the applicant. In Lashbrook , the defendants defaulted in payment of taxes and thus defaulted on the mortgage. The plaintiff sued for foreclosure. The plaintiff gave an indulgence of time to deliver a statement of defence after which the defendant stopped making monthly payments on the mortgage. The plaintiff then obtained a default judgment of foreclosure without further notice. The court was not uncritical of the conduct of either party: the plaintiff, having granted an indulgence, ought not to have obtained a default judgment of foreclosure without further notice and the defendants, having obtained the indulgence, ought not to have stopped making monthly mortgage payments. The plaintiff’s professed sole interest was in being repaid and the plaintiff was content to undertake the sale of the property and pay over to the defendants any amount over and above what was owing to her. The court set aside the default judgment of foreclosure and gave the defendants 33 days to redeem with the proviso that if the defendants failed to do so in the time allotted, the plaintiff would, under authorization granted under s. 39 of the Act, be entitled to sell the property by power of sale without requirement of further notice.

[ 20 ] In effect, the court in Lashbrook imposed a 33 day redemption period following the hearing of the motion. This is in contrast to the case at bar where the plaintiff has purported to sell the property without giving notice at all.

[ 21 ] Counsel for the applicant acknowledges that this application is brought under s. 39 expressly because of the failure of the applicant or his solicitor to comply with s. 31. In my view, abrogating the redemption rights of a mortgagor under s. 39 in order to rectify a negligent or improper exercise of the mortgagee’s power of sale is not a proper application of the provision.

[ 22 ] If the mortgagee suffers damages as a result of having entered into an agreement of purchase and sale with a third party without having perfected his right to do so, those damages, in this case an additional shortfall of $10,000 according to the applicant’s reckoning, are of his own making. There is, in my view, no cogent reason for the court to exercise its discretion under s. 39 of the Act to abrogate the mortgagor’s rights to redeem and to relieve the mortgagee of his obligation under s. 31.

[ 23 ] There are, in any case, significant problems with the evidence filed on this application. The affiant deposes that there is no equity. In my view, that is a questionable assertion. The amount said to be owing on the second mortgage is $170,069.24. Of that amount, $4,500 is shown for costs and $13,200 is said (in the discharge statement) to be for “property management fee/costs, charges and expenses in connection with seizure, securing of property, clean out and storage of contents of property, necessary repairs to stoop ongoing deterioration, maintenance, pest eradication and control.” There is no substantiation of this as an expenditure of the applicant and there is no evidence that the applicant had possession and thus the ability to effect such repairs, etc. if in fact they were undertaken. The affiant deposes that there is an amount of $21,000 for real estate commission “against the subject Property”. In my view, this is not an encumbrance against the property. The mortgagor can redeem by paying off what is owed for principal, interest and costs. The real estate commission becomes an obligation of the mortgagee and thus taken into account only if and when there is a proper sale under the power of sale. Second, since costs to September 19, and therefore the costs of issuing the notice of sale, have been included in the $170,069.24 said to be owed under the second mortgage, the additional amount of $6,500 for costs deposed by the affiant to be an amount “against the property” is suspect.

[ 24 ] The application is brought ex parte and on what counsel professes is an urgent basis. I am not satisfied that the evidence in support of the application is reliable and, for that reason as well, I would dismiss the application.

Low J.

Date: October 5, 2012