CORRIGENDA: 20180723
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Seyed Razi Rokhsefat and Nasibe Kazemzadeh-Khorasgha, Applicants
AND:
8758603 Canada Corp. (Formerly known as Ascend Mortgage Investment Corp.), Respondent
BEFORE: Di Luca J.
COUNSEL: Mr. Benjamin Salsberg, Counsel, for the Applicants
Mr. Matthew Kaslik, Counsel, for the Respondent
HEARD: May 16 and 17, 2018
revised ENDORSEMENT
The text of the original Endorsement has been corrected with the text of the corrigendum
(released today’s date)
1The Applicants bring an application seeking, inter alia, an Order under section 12 of the Mortgages Act for a discharge of the mortgage on their property upon payment into court of an amount of funds to be determined by the court; a determination of the amounts due and owing under the terms of the mortgage; and a declaration that the Notice of Sale issued by the Respondent under the mortgage is invalid and of no force or effect.
2The Respondent argues that the application has been improperly constituted and is, in essence, an attempt to renegotiate more favourable terms while holding the amount due under the mortgage ransom.
3This application was initially before the court on September 15, 2017. At that time, Salmers J. established a timeline for the filing of materials. He also granted an interlocutory injunction preventing the Respondent from taking further steps to enforce the mortgage.
4Following that appearance, the Respondent brought a motion to remove then counsel of record for the Applicants, Ms. Zomorodi, due to a conflict. That motion was successful and counsel of record was removed by Order of Bale J.
5The application came before me during the May sittings. The application is contentious and the parties are deeply divided and entrenched in their respective positions. This is most unfortunate given the dollar amount that is truly at stake. In any event, the passage of time since the start of the application has had two results. First, the Applicants have not paid a penny towards the mortgage principal, interest or costs, including the costs order of Bale J. dated January 20, 2018. Second, the Respondent has been enjoined from taking any steps to enforce the mortgage since September 2017.
6The material filed on the application was not subject to any cross-examination. The evidence of each side is essentially diametrically opposed on key issues, such as events of default and the various communications between the parties. Nonetheless, the parties maintain that this application can and should be decided on the record that is before me.
Background to the Mortgage
7The Applicants are husband and wife. They own the property located at 8 Gannet Drive in Richmond Hill. The Respondent is the mortgagee who advanced funds for a second mortgage on the property.
8The mortgage was registered on July 15, 2016 as instrument YR2506925 in the York Region Registry Office. The mortgage is made pursuant to standard charge terms #200033. It is in the principal amount of $120,000 and bears interest at the rate of 10.99% per annum compounded semi-annually, not in advance. The interest adjustment date is August 1, 2016, and thereafter the mortgage is repayable in monthly payments of $1,074.65 commencing September 1, 2016 and including August 1, 2017. It is apparently an interest only mortgage. In this regard, the Applicants provided the Respondent with a series of post-dated cheques for each monthly interest payment.
First Discharge Statement
9On July 31, 2017, the Applicants received, via email, a discharge statement dated July 25, 2017. The statement confirmed a mortgage maturity and payoff date of August 1, 2017. The amount required to be paid according to the discharge statement was $128,604.30. The statement provided that legal enforcement action would be commenced “after 15 calendar days”. It did not state from when the 15 calendar days would be counted.
10The discharge statement included a number of fees that were concerning to the Applicants. In particular, the discharge statement listed $2,100 as “Late Payment Fees” for ostensibly late payments in February and July of 2017. It also listed a fee of $1,500 in relation to two demand letters.
11The Applicants did not redeem the mortgage.
Letter and Notice of Sale
12On August 2, 2017, counsel for the Respondent sent a letter to the Applicants indicating that the mortgage had a due date of August 1, 2017 and was now in default. The default specified was the failure to pay the amount due on the redemption date of August 1, 2017. The cover letter made reference to no other default or date of default.
13The letter included a “Notice of Sale under Mortgage” dated August 2, 2017. Counsel wrote that he had been “instructed to commence mortgage enforcement legal proceedings” and “move for the property’s immediate sale”. But, he purported to serve the Notice on the Applicants pursuant to the Mortgages Act and Rules of Civil Procedure. The letter and Notice specified that $153,285.10 was due and owing, and unless it was paid before the date set out in the Notice of Sale of August 2, 2017, the commencement of enforcement proceedings would be without further notice. The letter also stated that unless payment in full was made costs would increase. The letter and the Notice are remarkable. Counsel obviously inflated the mortgage account as at August 2, 2017, and gave the impression that unless the inflated amount was paid in one day legal remedies would be exercised.
14The Notice of Sale listed additional fees and charges over and above the discharge statement that had been provided a few days earlier. Included in these fees and charges was an amount of $11,284.01 for “Professional and Lender Administration Fees including Appraisal Reports, Legal Costs, Expenses, Disbursements and Various Court and Sherriff Filings Fees Incurred”. Also included was a three month interest penalty totalling $3,340.80.
15The “Late Payment Fees” that had been listed as $2,100 in the discharge statement had grown to $3,988.75. In addition to the interest for outstanding principal to August 1, 2017 of $2,149.30 that had been listed in the discharge statement, the Notice of Sale now also included $4,062.42 per month of July and August 2017 for “Defaulted and Unpaid Mortgage Interest Payments for July 2017 and August 2017, totalling $8,124.84. Lastly, the Notice of Sale also listed “Administrative and Legal Costs” relating to the “ongoing” defaults and related notices in the amount of $2,986.34.
Applicant’s Position and Correspondence
16On August 15, 2017, the Applicants, through their then counsel, wrote to the Respondent’s counsel and raised concerns about the discharge statement and the purported Notice of Sale. The Applicants took the position that amounts claimed in both documents were excessive, improper and fraudulent. They noted the Respondent was acting in a “heavy handed and aggressive” manner by seeking legal and administrative fees of approximately $15,000 one day after the mortgage matured. They also disputed the facts behind the purported late or NSF payments in February and July 2017. Lastly, they noted that the Notice of Sale was grossly premature. The letter concluded with an offer to pay $124,189.64 to discharge the mortgage.
17On August 17, 2017, Mr. Kaslik, counsel on behalf of the Respondent, replied rejecting the offer and indicating that the Applicants had either misstated or misunderstood the relevant facts.
18Further correspondence proved fruitless and this application was brought before the court on September 15, 2017.
The Alleged Defaults
19The Respondent has filed affidavit material alleging certain past and ongoing defaults on behalf of the Applicants.
20The Respondent relies on the nature of the relationship it had with Mr. Zolfaghari, the mortgage broker who had arranged the mortgage between the parties. In particular, it argues that Mr. Zolfaghari acted as an agent on behalf of the Applicants on an ongoing basis, and that in that capacity he had many discussions and communications with the Respondent regarding the Applicants’ mortgage. The Applicants deny that Mr. Zolfaghari was deputised as their ongoing agent in relation to any matter dealing with the mortgage. They take the position that they were not privy to discussions between Mr. Zolfaghari and the Respondent. That said, it is also clear that the Applicants communicated with Mr. Zolfaghari in relation to the problems with the July 2017 payment, among other matters.
21Neither party provided any direct evidence from Mr. Zolfaghari in relation to his involvement in these proceedings.
22The central position advanced by the Respondent is that it was advised by Mr. Zolfaghari that the Applicants had failed to arrange for a timely pay-out of the mortgage, failed to obtain a renewal of the mortgage and failed to advise the Respondent that they would be in default on maturity of the mortgage. Knowing this information, the Respondent acted to secure its interests in the mortgage.
23The Respondent alleges that the various acts engaged in by the Applicants, including seeking the discharge statement and then contesting various charges and fees, were not bona fide and instead were aimed at covering up their imminent default and effectively buying time. The Respondent notes that at no time did the Applicants seek to tender any monies under the mortgage and have remained in default since at least July 15, 2017.
24In relation to specific instances of default, the Respondent alleges that the February interest payment was late and therefore in default. In particular, the Respondent indicates that it made several attempts to deposit the cheque but was advised by the bank that the cheque would not clear. This was the normal procedure used by the Respondent in order to avoid the delay and expense that would be occasioned by an NSF cheque. As such, the cheque was not actually deposited until it could clear and as such, there was no actual NSF charge applied by the bank. Nonetheless, the Respondent had to make more than one effort to deposit the cheque. On February 15, 2017, the Respondent sent an email to Mr. Zolfaghari requesting his assistance with this payment. There was a follow up email on February 17, 2017, and a further follow up on February 22, 2017. In the last follow up, the Respondent advised Mr. Zolfaghari that a fee of $200 would be applied for each of the four attempts to deposit the cheque. It appears that the late payment was rectified on February 23, 2017.
25The Applicants dispute the February default and argue that they had a sufficient credit facility attached to their account such that the cheque, if it had been deposited, would have cleared. They also provide copies of banking records, though in neither of the Applicants’ names, and assert the bank records confirm that there were no NSF charges at any time in relation to payments made on the mortgage.
26The Respondent alleges a second default on June 1, 2017, relating to an alleged failure by the Applicants to keep their first mortgage on the property in good standing. Apart from a purported utterance by Mr. Zolfaghari to the Respondent in this regard, there is nothing else substantiating this claim.
27A third default relates to a late payment in July 2017. This default is similar to the February default. The Respondent went to the bank on a number of occasions seeking confirmation that the cheque would clear if deposited. The bank advised that it would not. Mr. Zolfaghari was contacted and asked to direct the Applicants to rectify the default. In this instance, the Applicants sent emails advising the Respondent to cash the cheque. According to the Applicants these emails were sent upon discovering that the cheque for July 2017 had not been deposited. The Respondent argues that these emails were self-serving and sent to cover up the ongoing and impending defaults.
28Around this same time the Applicant, Mr. Rokhsefat, contacted the Respondent seeking an extension of the mortgage which was coming due in a few days’ time. Earlier requests for extensions had been made by Mr. Zolfaghari and had been denied by the Respondent. Also by this time, the Respondent was involved in litigation with Mr. Zolfaghari regarding a mortgage he was personally involved in.
29The fourth default occurred on August 1, 2017 when the Respondent again attended at the bank on a number of occasions in an attempt to deposit the monthly payment, only to be advised that there were insufficient funds in the bank to cover the cheque.
30The Applicants take the position that at no time did they “bounce” a cheque for a mortgage payment. They assert that they at all times had a sufficient credit facility on their account to cover the monthly cheques. Specifically in relation to the purported defaults in July and August, the Applicants argue that the Respondent was engaged in essentially “manufacturing” defaults.
Analysis and Findings
31The Applicants defaulted on payment of the mortgage on the maturity date. They probably did not have financing in place to pay out the amount on the discharge statement which they then disputed. They have since that date, not paid a dime owing on the mortgage to the Respondent. They also have not paid the costs Order of Bale J. Nonetheless, they seek equitable relief from the court so that they can refinance their home.
32The Respondent adopted an aggressive, perhaps abusive approach to dealing with what was anticipated to be a default on payment of the mortgage principal on August 1, 2017. The initial discharge statement sought a payment of $128,604.30 in relation to the mortgage due as of August 1, 2017. The discharge statement noted that “Legal enforcement action will be commenced after 15 calendar days. This mortgage must be rapid in full ASAP”. The discharge statement is dated July 25, 2017, though it clearly refers to the fact that the mortgage maturity and payoff date is August 1, 2017. There is nothing on or appended to the discharge statement indicating a default as of July 25, 2017. On August 2, 2017, the Respondent, through counsel, made it appear that the sale proceedings had already begun.
33On August 2, 2017, one day after the mortgage matured and was due, a document purported to be a Notice of Sale showed that the amount owing ballooned from $128,604.30 to $153,285.10. That fact alone casts serious doubt on the reliability of the statements.
34I turn next to an examination of the fees and disbursements in the first discharge statement and the Notice of Sale.
First Discharge Statement – Fees and Disbursements
35The first discharge statement lists a “Lender Discharge Statement Fee” of $395 and a “Lender Discharge Provision Fee” of $995. The distinction between these two items is lost on me. Paragraph 23 of the Standard Charge Terms deals with the mortgagee providing a discharge. There is nothing in the circumstances here that would justify a discharge fee of more than $395. Be that as it may, the Applicants do not contest the $995 fee.
36The fee for the late/NSF payments in February and July 2017, which relate to the attempt to deposit cheques is listed at $2,100. I will have more to say about this charge when discussing the Notice.
37The “Lender Lawyer Fees & Disbursements” is listed at $1,465 and the “Demand Letter (2 x $750)” is listed at $1,500. Again, at this juncture, the distinction between the two is lost on me. However, the cover letter to the Notice of Sale, lists only the failure to pay the amount owing on August 1, 2017 as the default. It makes no mention of the earlier alleged defaults in February or July. There is no earlier correspondence to the Applicants regarding any of the alleged defaults. There is nothing in the circumstances here that satisfies me that any legal services would have been obtained except those relating to sending the letter of July 25, 2017, and those would have been included in the discharge fee.
The Notice of Sale – Fees and Disbursements
38The fee for the late/NSF payments in February and July ballooned to $3,998.75 by August 2, 2017. Days earlier the fee for the same defaults was listed as $2,100 in the first discharge statement. This increase in the purported fees is inexplicable and suggests an absence of bona fides. It is even more inexplicable when one considers that the Respondent had initially sent an email to the mortgage broker indicating that the defaults would be charged at $200 apiece, for a total of $1,400. The fee for the late/NSF cheques went from $200 per attempt deposit to $571.25 per attempt without any explanation or justification. That said, I do not accept the Applicants’ position that their account was always in funds or had sufficient overdraft protection to permit the cheques to clear. I accept the Respondent’s position that it did not deposit certain cheques because it had been advised by the bank that the cheques would not clear. As such, the payments were not made on time even though the cheques technically did not “bounce”. In my view, it is reasonable for the Respondent to check with the bank to see if a cheque will clear so as to avoid an NSF charge. I would allow a fee of $200 for each late payment for a total of $400. In my view, it is not reasonable for a fee to be applied each time the mortgagee checks with the bank before depositing the cheque.
39The Notice of Sale lists administrative and legal costs of default and notice before August 2, 2017 of $2,986.84. There is no indication what these expenses are and in the absence of any such explanation, I am not prepared to allow the fee.
40The Notice of Sale also lists $3,340.80 as a three month interest penalty. Counsel has not satisfied me that there is any prepayment penalty payable on this mortgage, either on default or the failure to pay on the maturity date.
41The Notice of Sale lists professional and administrative fees of $11,284.01 for services which had not even been undertaken, even remotely, at the time the Notice was delivered. Counsel argued that these fees were, in part, “prospective fees” that would have been incurred to enforce the mortgage. That may or may not be true but it matters not. As of the date of the demand, with what was essentially a draft Notice of Sale attached, those were not fees due and owing. In any event, no particulars of these professional and administrative fees have been provided.
42Lastly, the Notice of Sale lists $8,124.84 for interest for July and August, in addition to the interest of $2149.30 for the same time period already listed in the discharge statement. It appears that this amount relates to the “Additional Provisions” in the mortgage document which provided “Should this mortgage not be repaid in full upon maturity, the new interest rate of 39.99% semi-compounded per annum shall be charged”. This clause is unenforceable. A mortgage agreement may not provide for and charge a higher interest rate on a mortgage after default.
Date of Default
43I find that the mortgagee treated August 1, 2017 as the operative date of default. In fact, the cover letter and the enclosed Notice of Sale both state that the default is the failure to pay the mortgage principal on August 1, 2017. The Notice of Sale is dated August 2, 2017, and as such it was premature and therefore invalid. It was not provided at least 15 days after the operative default and served by registered mail as required by section 32 of the Mortgages Act.
44I reject the submission that the Notice was issued in relation to the failure to pay the interest on July 1, 2017. That date is not mentioned in the cover letter. What appears to have happened is that the Respondent learned through the mortgage broker, Mr. Zolfaghari, in late July that the Applicants had not been able to secure alternate financing and were likely not going to be in a position to pay the mortgage on its due date. This was the triggering event.
45That said, I also find that the July interest payment was never made, despite suggestions to the contrary. Indeed, it appears that despite the email from the Applicants to the Respondent asking them to deposit the cheque, the cheque would not have cleared had it been deposited. The banking records provided reveal that the account in use to pay the mortgage was near the limit of its overdraft protection through July and into August 2017. While this was the usual state of affairs for this account, in previous months deposits were made allowing the mortgage cheque to clear. No such deposit was made in the month of July.
46While the mortgagee would have been entitled to base the Notice of Sale on the defaulted July interest payment, they did not do so. Instead, they relied on the August default in payment of principal.
Amount Owing on August 1, 2017
47I turn now to assessing, as best as I can on this record, what was owing on the mortgage as of August 1, 2017. There is no issue that the principal amount owing was $120,000. The interest owing on July 1 and August 1, 2017 is $2,149.30. The discharge statement fee and discharge fees are $395 and $995. The late/NSF cheque fees are $400. Some nominal amount of interest would be owed for the late February payment, perhaps $2, and perhaps $10 for the unpaid interest owed on July 1. This totals $123,951.30 owing on August 1, 2017.
48This amount has been due and owing since August 1, 2017, and the Applicants have paid nothing since that date.
Current Amount Owing
49I estimate that the amount owing on the mortgage as at June 1, 2018 is approximately $135,500, with a per diem rate of interest thereafter of approximately $38.95. I say approximately because the mortgagee has failed to provide a proper statement even at this juncture. The Applicants also owe costs of $7,500 pursuant to the Order of Bale J. That brings the minimum owing to $143,000.
50There is also an issue of costs relating to these proceedings that must be addressed.
Going Forward
51At this juncture, I am not prepared to make an order under section 12 of the Mortgages Act. It is not required in order to resolve this dispute and it will only have the effect of unnecessarily prolonging this litigation.
52The sole issue is the precise amount owing on the mortgage, and that can be rectified by the mortgagee providing me with a proper statement as to the amount owing in accordance with this Endorsement. I appreciate that the mortgagee cannot currently enforce its security, but that is its fault for its failure to provide proper statements. As well, I appreciate that the mortgagors cannot currently refinance, but they are adequately protected by the Order of Salmers J. Moreover, this Endorsement gives them an approximation of what is owing, subject to the question of costs, so they may take steps to have their financing in place.
53For these reasons, I order the mortgagee to provide me with (a) written submissions as to the exact amount owing on the mortgage with interest properly compounded in the manner specified in the mortgage, and a per diem rate of interest in keeping with my factual determinations; and (b) written submissions on costs of this proceeding – on notice to the mortgagors. The submissions should be no more than 5 pages in length and shall be submitted no later than 15 days after the release of this Endorsement. The mortgagors shall have 10 days thereafter to reply and make their submissions on costs. The submissions shall be sent to my judicial assistant, Diane Massey, at Newmarket with proof of service.
54Upon receipt of the submissions, I will make a determination of the amount owing on the mortgage and costs and provide the mortgagors with a short period in which to pay the amount owing and obtain a discharge, and failing that payment I will lift the stay on enforcement.
55It may be that in view of this Endorsement the parties will be able to reach an agreement on the amount owed on the mortgage, thus obviating the need for further determination of that issue. If that is the case, the parties are to advise the court accordingly and submissions on costs and any remaining issues, including the stay, can proceed in writing.
Justice J. Di Luca
Date: July 23, 2018
CORRIGENDA
- Paragraph [54] – the text of the original Endorsement has been corrected to substitute the word “mortgagees” for “mortgagors” in the second line.