REASONS FOR JUDGMENT

Introduction

[1] This is a motion for summary judgment by the defendant, Amanda Stanley (“Stanley”), in an action brought against her for allegedly making an improvident sale of a property and failing to account for the sale adequately under the Mortgages Act, R.S.O. 1990, c. M.40, s. 43. The defendant was the holder of a second mortgage who exercised a power of sale after the mortgage went into default. The plaintiffs, holders of a third mortgage received nothing from the sale and claim that the defendant could and should have obtained a larger sum for the property. The plaintiffs also claim that there has not been an adequate accounting of the distribution of the funds received from the sale, suggesting that Stanley inflated her costs and improperly took more from the proceeds than was reasonable or justified.

[2] For the reasons that follow, I find that the sale was not improvident. I also find that an accounting has been provided to the plaintiffs, and that the plaintiffs remaining grievance is with the accounting itself, which they wish to assess. In this regard, the plaintiffs are entitled to seek an assessment of the accounting through the assessment office under s. 43(4) of the Mortgages Act “without an Order”.

Factual Background

[3] The plaintiffs purchased a property on December 19, 2014 at 65 Martindale Road in Toronto (the “Property”) for approximately $565,000. Less than a year later, on November 12, 2015, they sold it to three people for $699,000. These purchasers - David Prince, Jeffrey O’Connor and Robert Murphy (the “Mortgagors”) - financed the sale, in part, through a first mortgage for $500,000, and a second mortgage in favour of Stanley for $67,000 (the “Stanley mortgage”). The plaintiffs agreed to accept a promissory note for the balance, subject to the Mortgagors obtaining alternate financing by December 31, 2015, failing which a vendor-take-back mortgage (the “VTB mortgage”) would be registered in favour of the plaintiffs in the amount of $181,087.06. The plaintiffs are acquaintances of the Mortgagors, and one of the plaintiffs, Sarkis Kalfayan, is a director of a company together with the 3 Mortgagors. Stanley was aware that a promissory note and VTB mortgage had been contemplated and had objected. The Mortgagors apparently did not obtain a new source of financing and the VTB mortgage was registered by the plaintiff on February 2, 2016.

[4] The registration of the VTB, or third, mortgage, was in breach of the standard terms of the Stanley mortgage which provides that if “the Chargor sells, transfers, disposes of, leases or otherwise deals with the land, the principal amount secured by the Charge shall, at the option of the Chargee, immediately become due and payable.” Also, the Stanley mortgage was in default as the post-dated cheques provided by the Mortgagors for monthly payments had bounced. Stanley received no payments and for that reason she issued a notice of sale on February 9, 2016. However, as she was unaware at the time that the VTB mortgage had been registered, the plaintiffs were not served with the power of sale proceedings, although they were made aware of it no later than February 25, 2016. As discussed below, the plaintiffs were subsequently served with a new Notice of Sale on August 6, 2017, and in my view, nothing turns on the initial deficiency in service.

[5] The real estate agent who had acted for the plaintiffs and, subsequently, the Mortgagors, Kurt Christensen, had provided a one-page “evaluation” on February 23, 2016, claiming that the Property was worth $799,000. However, the Property was listed by that same agent with David Kwan (“Kwan”) as broker of record, for only $739,000 between February and May 2016. There is no evidence of any offers being made on the Property. A new listing from May to August 2016 with Kwan as broker of record had the same asking price of $739,000. Again, there is no evidence of any offers being made on the Property.

[6] On September 11, 2016, through a new real estate agent, Gary Brown, the Mortgagors entered into an Agreement of Purchase and Sale (“APS”) to sell the Property to Mohammad Habibur Rahman (“Rahman”) for $760,000, to close on November 15, 2016. Rahman included a $20,000 deposit with his offer. The sale, however, did not close due, in part, to disputes over the amounts included in Stanley’s and the first mortgagee’s discharge statements. Rahman, however, took the position that the APS was binding, and registered a Caution on title on December 15, 2016. In order to do so, Rahman also paid almost $17,000 for land transfer and other taxes, increasing his investment to at least $37,000. However, the Caution is not a Certificate of Pending Litigation and could be removed by the registrar, on request, after 60 days.

[7] Stanley sued the Mortgagors. She obtained default judgment against Robert Murphy on September 28, 2016 and, on March 2, 2017, obtained summary judgment against the other Mortgagors for the full amount of the mortgage of $89,305.25, plus costs of $11,900.00. On March 24, 2017, each of the Mortgagors declared personal bankruptcy and appointed Rumanek & Company Ltd. (“Rumanek”) as their trustee in bankruptcy. Stanley also obtained a writ of possession which could be enforced as of April 18, 2017. However, Kwan and one of the Mortgagors, David Prince, were occupying the premises and Stanley was required to engage in proceedings to obtain vacant possession, which was only achieved when the occupants were forcibly removed by the Sheriff on July 26, 2017.

[8] In the meantime, on April 1, 2017 the Mortgagors received an offer to purchase the Property from Lai Sheung Chan (“Chan”) for $800,000, which provided for a deposit of $8,000, or just 1% of the purchase price. There is no evidence as to whether the deposit was actually provided. The offer also had other conditions favourable to the purchaser. Shortly after, on April 6, 2017, Rahman’s lawyer again asserted his client’s right to the Property based on a binding APS signed on September 11, 2016 and stated that Rahman was ready, willing and able to close the transaction.

[9] In anticipation of getting vacant possession and the ability to sell the Property, Stanley obtained detailed appraisals from two different appraisers in mid-2017. They appraised the value of the Property as of September 2016 (the time of the APS with Rahman), and as of July 20, 2017. One appraiser used a comparative sale method and opined as to fair market values of $750,000 in September 2016 and $770,000 in July 2017. The other appraiser used two methods, the comparative approach and the cost approach, and stated fair market values of $727,000 and $730,000 in September 2016, and $772,000 and $775,000 in July 2017.

[10] Rumanek obtained an appraisal of the Property showing an approximate value of $825,000 as of June 5, 2017; however, Stanley was unaware of that appraisal until it was disclosed in this litigation. The plaintiffs have not led evidence of any other appraisal but only another one page “evaluation” from their agent, Kurt Christensen, asserting that the Property was worth $899,000 as of March 10, 2017. This is the same Mr. Christensen who a year earlier had claimed in a similar one-page letter that the Property was worth $799,000 but then listed it for $739,000, and saw it sold for $760,000.

[11] On July 21, 2017, Kwan, who with David Prince was facing eviction, together with another individual, Daniel Murphy, made an offer to Rumanek to purchase the Property for $899,000. The offer contained no deposit. Further, Kwan was named as the listing broker. Rumanek advised Stanley that he did not believe the offer was bona fide and did not accept it. Eviction followed on July 26, 2017.

[12] Upon obtaining vacant possession, on August 6, 2017, Stanley again served a Notice of Sale, this time to all parties including the plaintiffs. Rahman continued to take the position that he was entitled to the Property. However, in light of the appraisals Stanley had obtained, Rahman agreed to pay $780,000, an increase of $20,000 from the APS, to more closely reflect the fair market value based on the appraisals Stanley had obtained which found a current fair market value of between $770,000 and $775,000 as of July 2017. This transaction subsequently closed on October 5, 2017.

[13] As a result of the sale, the first mortgagee was paid out in full, with interest; however, as a result of various fees due in part to the writs of execution against the Mortgagors which were paid out in priority to the mortgages, Stanley received only partial payment of the amount owing under the judgment she had obtained on March 2, 2017. The plaintiffs received nothing and commenced this lawsuit, claiming that Stanley had made an improvident sale, and seeking an accounting of the fees which they claim were inflated, allowing Stanley to improperly profit from the sale.

[14] When the lawsuit was commenced, Stanley’s lawyer on the transaction, Ryan John Atkinson (“Atkinson”), was included as a defendant. He moved for summary judgment which was granted by Dietrich J. on May 23, 2018, on the basis that he delivers “the accounting to which the plaintiffs are entitled pursuant to the Mortgages Act” within 10 days. An accounting was then delivered, and the plaintiffs consented to an Order dismissing the action against Atkinson. Subsequently, the plaintiffs sought more documents in support of the accounting which were provided by Atkinson’s counsel. Nevertheless, the plaintiffs continue to be dissatisfied with the accounting, complaining of a lack of invoices and noting certain discrepancies between the accounting and Stanley’s evidence on this motion on the disbursement of funds following the sale to Rahman.

Issues

[15] The defendant Stanley moves for summary judgment. There are three issues to be determined:

Was the sale of the Property to Rahman improvident?
Are the plaintiffs entitled to an Order for an accounting? and,
Are the plaintiffs entitled to an assessment of the accounting by a judge of this Court?

Accounting Issues

[16] The accounting issues may be dealt with in short order. The plaintiffs have already received an accounting under the Mortgages Act from Stanley’s lawyer pursuant to the Order of Dietrich J. The plaintiffs’ consent to Justice Dietrich’s Order makes this clear. They have followed up and received more documents in support of the accounting. Any continuing dissatisfaction with the accounting should be pursued through the assessment process as provided in s. 43(4) of the Mortgages Act and is not appropriately done through this continuing proceeding.

Improvident Sale

[17] The test for an improvident sale is whether the seller, in this case the mortgagee Stanley, acted negligently, as the mortgagee is under a duty to take reasonable precautions to attempt to obtain the market value of the Property. As Perell J. stated in Armanasco v. Linderwood Holdings Inc., 2016 ONSC 1605 at para. 46, appeal dismissed, 2017 ONCA 156, at para. 47:

The determination of whether the duty of care of a mortgagee exercising a power of sale has been breached is highly contextual and will depend upon the facts of the particular case, and the questions to consider may include: (a) did the mortgagee exercise the power of sale in good faith?; (b) did the mortgagee attempt to realize the fair market value for the property?; (c) did the mortgagee consider the interests of the mortgagor?; (d) was the property marketed widely?; (e) did the mortgagee obtain appraisals?; (f) did and how did the mortgagee advertise? (g) did the mortgagee use a multiple listing service? and (h) how long was the property on the market?

[18] Counsel for the plaintiffs submit that while the accounting issues, which I have disposed of above, are appropriate for summary judgment, the determination of improvident sale is not. Counsel argues that there are credibility issues regarding Stanley’s motivation which ought to be subject to cross-examination, that Kwan could be examined about the bona fides of his offer, and that the appraisers should be subject to cross-examination.

[19] The plaintiffs’ argument about Stanley’s credibility relates to the allegation that she ran up costs unnecessarily during the enforcement process. This is an issue for the assessment. Further, while Stanley did not provide an affidavit on the motion, her husband did, who states that he was more involved in the matter than her. He was cross-examined, but the transcript of the cross-examination has not been filed on the motion. In the circumstances, I do not see how cross-examination of Stanley at trial will affect the determination of whether the sale to Rahman was improvident.

[20] The plaintiffs must put their best foot forward on a motion for summary judgment. They did not file the transcript of Stanley’s husband’s cross to support their alleged need further explore the defendant’s motivation. They have not filed evidence that suggests the three appraisals obtained by Stanley and Rumanek are flawed, nor have they filed any other appraisals other except the one obtained by Rumanek which is not significantly different from Stanley’s appraisals. Even if Kwan were to say that his offer was a serious one, in my view Rumanek acted reasonably in thinking otherwise, as it was not accompanied by a deposit, and Kwan had his own personal interests at stake in trying to delay a sale. In fact, in lieu of a deposit the offer stated that the broker, represented by Kurt Christensen (the sometime agent for the Mortgagor and the plaintiffs) was to waive part of his commission. But this is hardly a deposit. And I can give no weight to Christensen’s so called “evaluation letters”, which have no analysis, do not purport to be appraisals, and note that the first one was for considerably more than he subsequently listed the property, and more than the arm’s length price agreed upon by Rahman and the Mortgagors.

[21] Having regard to the direction of the Supreme Court in Hryniak. v. Mauldin, 2014 SCC 7, including the requirement that the responding parties must put their best foot forward, and that the court is entitled to assume the record contains all the evidence upon which the parties would rely if the case went to trial, I conclude that I am able to make the necessary findings of fact to reach a fair and just determination of the merits of the case. Accordingly, whether the sale to Rahman was improvident can and should be determined on this summary judgment motion.

[22] Counsel for the plaintiff relies, largely, on three points in submitting that Stanley acted improvidently, or negligently, in selling the Property to Rahman: (1) Stanley ought to have listed the Property to solicit other offers; (2) the appraisals obtained by Stanley were low, as they both found a lower fair market value as of September 2016 than Rahman had agreed to pay; and (3) Stanley operated on a mistaken belief that she was legally bound to sell the Property to Rahman noting, in particular, that the caution did not create a legal interest in the land.

[23] I do not accept these arguments.

[24] First, while it may be that listing the Property might have solicited other offers, just a year earlier the Property had been listed on the MLS service for some 6 months, at a selling price of $739,000 and there is no evidence that any offers were received, and so the Property had been recently exposed to the market with little, if any, interest other than from Rahman. I give little weight to the Chan and Kwan offers. Chan’s offer was for only slightly more than the final purchase price and there was only the promise of a 1% deposit, which would reasonably raise concerns as to whether there was any ability to close. Kwan’s offer was even less credible, with no deposit and he had an interest in delaying the sale. Accordingly, the caution with which offers should be treated in valuation applies here. In this regard, see Kelner v. Toronto (City), 1974 CarswellOnt 1306, 6 L.C.R. 200, where the Ontario Land Compensation Board noted, at para. 50:

The Board is mindful that offers generally are not highly regarded as relevant evidence, and normally is inclined to reject evidence of offers following Re Harnack and Town of Hanover (1925), 27 O.W.N. 383 and Federal District Commission v. Leahy et al., 1940 CanLII 526 (CA EXC), [1940] Ex. C.R. 115. See a decision of this Board (differently constituted) in A. M. Souter and Co. Ltd. v. City of Hamilton (1972), 2 L.C.R. 167 at p. 172[affirmed 1973 CanLII 592 (ON CA), 5 L.C.R. 153, 1 O.R. (2d) 760] where oral evidence was ruled inadmissible as to what a person who had not made a binding offer at the time would have been prepared to offer but for the imminence of expropriation. In the Leahy case, after stating that offers to purchase are always open to suspicion, easy of fabrication and generally unsatisfactory and probably in most cases should be rejected entirely, it was said [at pp. 121-2]:

It has been held in some jurisdictions that offers to purchase the lands in question, made in good faith, within a reasonable time, and with the intention and ability to carry out the transaction if the offer were accepted, are admissible as independent evidence of value. If a person qualified to speak about land values, and who has made an offer ... appears in court and testifies as to his reasons ..., the grounds upon which he reached the price offered, it probably would be another thing.

See also Halifax Relief Commission v. City of Halifax (1962), 1962 CanLII 475 (NS SC), 36 D.L.R. (2d) 126, [affirmed 1965 CanLII 618 (NS CA), 50 D.L.R. (2d) 69, 51 M.P.R. 9] where at pp. 131-2, Coffin, J., in giving judgment said: "In my view the evidence of an actual offer is very strong evidence of value, but only as strong, as the considerations on which it is based.

[25] Rahman’s continued position that he was entitled to the Property, whether legally correct or not, and his ability to close, suggested that selling to someone else would likely lead to litigation either blocking the sale or a claim for damages by Rahman. Accordingly, with Rahman’s offer still open for acceptance, and following the successful upward renegotiation of the purchase price with Rahman, it was not unreasonable for Stanley to decide there was nothing to be gained by listing the Property again. Indeed, doing so might have resulted in a lower overall recovery if legal action had been taken by Rahman.

[26] Second, as to the appraisals, all three were within a similar range, and supported the purchase price Stanley ultimately obtained from Rahman. While the appraisal obtained by Rumanek was higher at $825,000, it was not significantly higher. The fact that Stanley’s appraisals were slightly lower than the offer made by Rahman in 2016 and slightly lower than what Rahman ultimately paid in 2017, suggests that the sale price was in the range of the fair market value of the Property. Indeed, as the original sale price was negotiated between two parties at arms-length, Rahman and the Mortgagors, it is a marker of the fair market value at that time which, as noted, was very close to the appraisals Stanley obtained, and there is no suggestion that the Mortgagors acted improvidently in agreeing to sell the Property to Rahman for $760,000 in the fall of 2016. It also confirms my view that the “evaluation letters” from Kurt Christensen, who is not an appraiser and has his own connections to the plaintiffs and the Mortgagors, should be ignored.

[27] Third, whether or not Stanley was correct in believing she was bound to sell the Property to Rahman, his commitment to purchasing it, as evidenced by his investment of almost $40,000 in deposits and payments to place the caution on title, are important factors. Rahman was a ready, willing and able purchaser, with demonstrated means to close. As noted, selling the Property to a third party for more, if that was possible, raised the likelihood of legal action by Rahman, the costs of which might quickly absorb any difference in price that might have been obtained.

[28] The plaintiffs rely on 1141339 Ontario Inc. v. Surgeoner, 2003 CanLII 46912 (ON SC), and Canadian Imperial Bank of Commerce v. Income Trust Co., [1989] O.J. 1509, in arguing that Stanley acted unreasonably in failing to expose the Property to the market and limiting negotiations to only one buyer.

[29] However, unlike Surgeoner, in this case there had been relatively recent exposure to the market. And unlike CIBC, in which the plaintiffs led evidence of inadequate efforts to sell even though it was listed, there is no such evidence here. As well, concerns were raised in CIBC about the methodology of the appraisal, but there is no challenge to the methodologies used in this case.

[30] As noted in Armanasco, the “determination of whether the duty of care of a mortgagee exercising a power of sale has been breached is highly contextual and will depend upon the facts of the particular case”. In my view, having regard to the appraisals, the time the Property had previously been on the market without any offers, the arms-length price previously negotiated with Rahman, the agreed upon increase to that price, the fact that Rahman was not only ready and able to close but was also asserting a right to the Property, and the lack of any persuasive evidence that the Property was sold for an amount that was below fair market value, I conclude that the sale was not improvident.

[31] Accordingly, the motion for summary judgment is granted and the action is dismissed.

Costs

[32] Unless the parties can agree on costs, they may make brief submissions to me not exceeding 3 pages in length, not including supporting documents.

The defendant shall provide submissions within 14 days of release of these reasons, and the plaintiffs shall have 10 days to file responding submissions.

Schabas J.

Released: August 9, 2019

Kalfayan et al. v. Stanley et al., 2019 ONSC 4680

Case Summary

REASONS FOR JUDGMENT

Introduction

Factual Background

Issues

Accounting Issues

Improvident Sale

Costs

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Issues

Statutory Provisions 1

Legal Tests 1

Legislation 3