Court File and Parties

COURT FILE NO.: 2626/19 DATE: 20200416 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: Bindaas Capital and Freilach Resorts Inc., Plaintiffs – and – Bang Chen and Li Deng Lin, Defendants

Counsel: Matthew Harris, for the plaintiffs Tung-Chieh Wu, for the defendant Bang Chen

HEARD: in writing

S.T. Bale J.

1The defendant Bang Chen moves for the following orders:

• that the plaintiffs be prohibited from selling 5 Upperview Place, Whitby, or 51 Dempster Street, Toronto, pending the hearing of her motion to set aside the default judgment dated November 12, 2019;
• that the default judgment dated November 12, 2019 be set aside or varied to reflect the correct amount owed;
• that the order dated January 13, 2020 granting the plaintiffs leave to issue writs of possession, and the writs themselves, be set aside;
• that the Sheriff’s notices to vacate be set aside; and
• that this action be declared null and void and be stayed.

2Given the potential loss of both properties, and the delay resulting from the suspension of court operations due to the Covid-19 pandemic, I have accepted the motion as sufficiently urgent to require disposition at this time.

Background facts

3The defendant Bang Chen is the owner of 5 Upperview Place, Whitby. She mortgaged the property to the plaintiffs on June 19, 2017, for a term of one year. The mortgage was guaranteed by her then spouse, the defendant Li Deng Lin.

4Bang Chen and Li Deng Lin are the owners of 51 Dempster Street, Toronto. They mortgaged the property to the plaintiffs on June 20, 2017, also for a term of one year. The mortgage was stated to be collateral to the mortgage on 5 Upperview Place.

5The mortgages were renewed on July 1, 2018, for further terms of one year.

6The mortgages matured on July 1, 2018 but were not repaid.

7Chen and Lin separated sometime in 2018, and were divorced in September 2019.

8The plaintiffs commenced this action on September 13, 2019, and served the statement of claim on September 18, 2019. The defendants failed to defend, and on November 12, 2019, the plaintiffs obtained default judgment on the covenant for payment, and for possession. On January 13, 2020, the plaintiffs obtained an order granting them leave to issue writs of possession, and subsequently took possession of both properties.

9On September 30, 2019, the plaintiffs issued and served notices of sale under mortgage in relation to both properties, with a redemption date of November 6, 2019. The properties were not redeemed in accordance with the notices.

10The property at 5 Upperview has been sold pursuant to an agreement of purchase and sale dated March 28, 2020, and with a closing date of April 10, 2020. By an endorsement dated April 9, 2020, I ordered that no further steps be taken in relation to the sale of the property, pending further order of the court.

Analysis

11Chen asks that the plaintiffs be prohibited from selling the two properties pending the hearing of her motion to set aside the default judgment. This request is curious. The validity of the notices of sale, and the plaintiffs’ entitlement to sell the properties, do not depend upon the existence of a default judgment. The two proceedings are independent. Provided that the plaintiffs have complied with the requirements of the sale process, they would be entitled to sell the properties, even if the default judgment were to be set aside. However, if as argued by Chen, the plaintiffs have not complied with the requirements of the sale process, she may be entitled to an order prohibiting the sale of one or both of the properties.

12Chen argues that the sale of the properties should be prohibited for the following reasons:

• that the mortgages were renewed following service of the notices of sale;
• that the redemption period set out in the notices of sale was deficient;
• that the notices of sale were not properly served;
• that the amounts stated in the notices of sale were incorrect; and
• that the pending sale of 5 Upperview is suspicious and at an undervalue.

13She also argues that the default judgment is irregular and should be set aside.

Whether the mortgages were renewed following service of the notices of sale

14Chen’s position is that on November 6, 2019, the mortgages were renewed for one year from July 1, 2019 to June 30, 2020. She argues that as a result of the renewal, the notices of sale under mortgage were no longer valid. I disagree.

15In support of her position, Chen has produced a copy of a renewal document that she signed in November 2019. However, the document was not signed by Lin, and there is no evidence that he was even aware of the renewal discussions. He is not a party to this motion.

16Chen is the sole owner of 5 Upperview. Chen and Lin are joint owners of 51 Dempster. The terms of the two mortgages are identical and they secure the same loan. In my view, these mortgages should be interpreted as if they were a single mortgage secured on both properties. As such, they could only be renewed together, and by agreement of both mortgagors.

17Chen argues that plaintiffs’ counsel confirmed the renewal in emails to her lawyer on February 24 and 25, 2020. After receiving the Sheriff’s notice to vacate, she retained counsel who then communicated with plaintiffs’ counsel seeking a delay in the sale process pending resolution of a number of issues. Plaintiffs’ counsel responded by saying that his clients were prepared to allow the defendants a month to repay the mortgage or refinance the property, provided that the defendants made a forbearance payment of $15,000. Chen’s counsel then asked: “Does you client confirm about the renewal of the mortgage?” In response, plaintiffs’ counsel made two statements relied upon by Chen: (1) “We’ll agree to what was signed before – the renewal – but want the $15,000 wired to my trust account”; and (2) “If your client wants the renewal, which we will honour, it requires the forbearance agreement.”

18In the circumstances described above, the statements made by plaintiffs’ counsel must be interpreted to mean that the plaintiffs remained prepared to renew the mortgages on the terms set out in the renewal document signed by Chen, and were prepared to refrain from any further enforcement of the mortgages pending such renewal, provided that a forbearance fee was paid. Apparently, the plaintiffs were unwilling or unable to make such a payment, and this motion was brought.

19I also note that following the signing of the renewal document, Chen continued to dispute the amount owed to the plaintiffs and that the renewal terms required a number of conditions to be satisfied (provision of evidence that municipal taxes were in good standing and evidence that the properties were insured with loss payable to the plaintiffs). A cheque dated November 1, 2019, given to the plaintiffs at the time Chen signed the document, was subsequently dishonoured by her bank; and there is no evidence that she did anything further in relation to the proposed renewal, until she obtained a copy of the Sheriff’s notice to vacate, in February 2020.

Whether the redemption period set out in the notices of sale under mortgage was deficient

20Chen argues that she was entitled to a forty-day redemption period (presumably pursuant to s. 26 of the Mortgages Act), and that the notices of sale were defective because they provided for a redemption period of only thirty-seven days. However, the power of sale exercised by the plaintiffs is contractual, and s. 32 of the Act provides for a minimum redemption period of thirty-five days where a mortgage confers a power of sale.

Whether the notices of sale were properly served

21Chen says that the premises at 5 Upperview were rented, that she did not receive the notices of sale, and that as a result, they are null and void. I disagree.

22Section 33(1) of the Mortgages Act provides:

A notice of exercising a power of sale shall be given by personal service or by registered mail addressed to the person to whom it is to be given at the person’s usual or last known place of address, or, where the last known place of address is that shown on the registered instrument under which the person acquired an interest, to such address, or by leaving it at one of such places of address, or, where the mortgage provides for personal service only, by personal service, or, where the mortgage provides a specific address, to such address.

23In Wood v. Bank of Nova Scotia (1980), 29 O.R. (2d) 35 (C.A.), at para. 11, the court held that the service provisions of the Mortgages Act are complied with “when the requisite notice is sent by registered mail to the person to whom it is addressed at his usual or last known place of address, whether or not it is ever received by the mortgagor.” In that case, the registered letter had been returned to the bank unopened before the bank carried out the exercise of its power of sale.

24In CIBC Mortgage Corp. v. Chopra (1997), 35 O.R. (3d) 362 (C.A.), at para. 19, the court held that s. 33 of the Mortgages Act was complied with “when the requisite notice was sent by registered mail to the respondent addressed to the specific address provided for service in the mortgage, even though that notice was not received by the respondent.” The court also noted, at para. 17, that the only provisions of the Mortgages Act dealing with service, as opposed to notice, are those dealing with service of a notice of sale under mortgage, and that the primary purpose for including an address for service in the mortgage is therefore to facilitate service of a notice of sale on the mortgagor.

25In Wells Fargo Financial Corp. Canada v. Brazeau (2009), 86 R.P.R. (4th) 293 (Ont. S.C.J.), at para. 19, the court emphasized the mortgagor’s contractual obligation to notify the mortgagee in writing of any change of address:

Even more importantly, Brazeau's assertion ignores his clear contractual obligation to notify Wells Fargo in writing of any change of address. The mortgage agreement he signed states precisely how service is to be effected, and what he must do if he wishes to alter that arrangement. He simply ignored that, and now expects that because he may have mentioned his new living arrangements to an unspecified bank representative on an unspecified time and date he should be relieved of his contractual duties. That approach not only ignores the clear wording of the mortgage agreement but also imposes an unfair burden on the bank to track and record errant debtors who cannot be bothered to deliver notice in writing.

26The notices of sale were served by registered mail to the defendants at their addresses for service as set out in the mortgages, pursuant to s. 33(1) of the Mortgages Act. In relation to 5 Upperview, that address was 5 Upperview and in relation to 51 Dempster, that address was 51 Dempster.

27The premises at 5 Upperview were rented to others and the notices of sale mailed to that address were not picked up from the post office and were returned to the plaintiffs. However, five of the notices mailed to 51 Dempster were picked up and signed for by Lin. One of them related to 5 Upperview and the other four related to Dempster. Of the five that were picked up (and signed by Lin), one was addressed to Chen and one was addressed to “Spouse of Li Deng Lin”.

28The standard charge terms of the mortgages contained the following provisions in relation to the obligation of the mortgagors to keep the mortgagees informed:

Change in Status

21. Immediately after any change or happening affecting any of the following, namely: (a) the spousal status of the Chargor, (b) the qualification of the land as a family residence within the meaning of Part II of the Family Law Act, and (c) the legal title or beneficial ownership of the land, the Chargor will advise the Chargee accordingly and furnish the Chargee with full particulars thereof, the intention being that the Chargee shall be kept fully informed of the names and addresses of the owner or owners for the time being of the land and of any spouse who is not an owner but who has a right of possession in the land by virtue of Section 19 of the Family Law Act. In furtherance of such intention, the Chargor covenants and agrees to furnish the Chargee with such evidence in connection with any of (a), (b) and (c) above as the Chargee may from time to time request.

29Evidently, following the separation of the parties in 2018, Chen failed to keep the plaintiffs informed of her address.

30There is no evidence that the plaintiffs had any reason to believe that the notices of sale would not come to the attention of both mortgagors, if mailed to them at the addresses for service contained in the mortgages.

31In a text message sent to Karia on November 8, 2019, Chen says: “I have your lawyer letter There are already charge me 3mons mortgage payment”. In their responding materials, the plaintiffs argue that this constitutes an admission of receipt of the notices of sale. In a reply affidavit, Chen says that she was referring to a letter received from plaintiffs’ counsel enclosing a notice of change of lawyer. However, that letter was not mailed to her until December 11, 2019.

Whether the amounts stated in the notices of sale were incorrect

32Chen argues that the principal balance of the mortgages is misstated in the notices of sale. She says that she made payments not reflected in the notices, including a number which she says she made in cash. The plaintiffs deny receiving any such payments.

33Chen argues that the three-months’ interest “penalty” included in the notices is improper. I agree. The mortgages do not include a provision for such a penalty, and I agree with the decision of Boswell J. in Lee v. He, 2018 ONSC 5932, 2 R.P.R. (6th) 154 where he held that s. 17 of the Mortgages Act does not apply in cases where a mortgage has matured.

34In the circumstances of this case, these are issues to be dealt with on a subsequent accounting and should not be allowed to invalidate the sale proceedings. In particular, Chen has not tendered any amount to the plaintiffs, nor has she provided a calculation of what she says is properly owing. Although she had a letter of commitment back in July 2019, there is no evidence of any recent or present attempts to obtain financing. The mortgage matured more than nine months ago, and the redemption period expired more than five months ago.

Whether the circumstances of the sale of 5 Upperview are suspicious and the sale is at an undervalue

35A mortgagee’s contractual power of sale should be interfered with only in extreme and exceptional cases. As a general rule, a mortgagee, acting in good faith and without fraud, will not be restrained from a proper exercise of a power of sale, except upon tender by the mortgagor of the full amount due: 967305 Ontario Ltd. v. North American Trust Co. (1996), 28 O.R. (2d) 212.

36The sale of 5 Upperview is pursuant to an agreement of purchase and sale dated March 28, 2020 (several days before the plaintiffs were served with the motion record), with a short closing date of April 10, 2020 (which was Good Friday). Chen says that the sale is “highly suspicious” and that she believes it is not a genuine sale or is a sale to an affiliated party or company. She also notes that it does not appear that a brokerage was involved in the sale.

37While I understand Chen’s concern, this is simply conjecture and not sufficient grounds to interfere with the plaintiffs’ exercise of their power of sale.

38Chen notes that the sale price is $770,000 and says that she paid “around $830,000” for the property in 2017. However, the parcel register discloses that the purchase price was $719,313. In the absence of an appraisal, I cannot conclude that the current sale price is so low as to be evidence of fraud.

39Although 5 Upperview is a rental property, Chen says that she requires possession because she might decide to live there or because she requires the rental income to pay her mortgages. However, in my view, her interest is purely financial, and damages would provide an adequate remedy.

Whether the default judgment should be set aside

40The difficulty with Chen’s motion to set aside the default judgment is that she has not demonstrated a defence on the merits, nor could she, given that the mortgages matured on July 19, 2019 and have not been repaid. Her dispute with respect to the amount of the judgment can be dealt with on a motion to vary the judgment, following a final accounting.

41Chen argues that the statement of claim was served in violation of s. 42 of the Mortgages Act and that the default judgment and subsequent steps to enforce the judgment were irregular and should be set aside. I disagree.

42Section 42 of the Mortgages Act provides that following service of a notice of sale under mortgage,

[N]o further proceeding and no action either to enforce the mortgage, or with respect to any clause, covenant or provision therein contained, or to the mortgaged property or any part thereof, shall, until after the lapse of the time at or after which, according to such demand or notice, payment of the money is to be made or the power of sale is to be exercised or proceeded under, be commenced or taken until an order permitting the same has been obtained from a judge of the Superior Court of Justice.

43The statement of claim was issued on September 13, 2019 and served on September 18, 2019. The notices of sale were not mailed to the defendants until September 30, 2019. No steps in the action were taken by the plaintiffs between the date of mailing and the redemption date of November 6, 2019. There is no prohibition against the concurrent running of the two notice periods.

Disposition

44The motion is dismissed in relation to 5 Upperview Place, Whitby, and the temporary injunction ordered on April 9, 2020 is vacated.

45In his affidavit in support of the plaintiffs’ position, Ash Karia says that if there is a dispute as to the amount owing (which there is), the principal should be paid to Bindaas and the sale proceeds over and above that amount should be paid into court, or held in trust, pending a resolution of the amount owed. I agree.

46The plaintiffs say that the principal amount owed is $652,050. The sale price is $770,000. It therefore appears clear that following an accounting, the balance of the proceeds of sale will be more than sufficient to satisfy any balance owed. In these circumstances, further enforcement of the default judgment will be stayed pending the accounting, and there will be an order prohibiting the sale of 51 Dempster and an order restoring possession of 51 Dempster to the defendants.

47The accounting required in this case is not one where immediate and significant financial repercussions may result if there is no judicial hearing. Accordingly, it is not an urgent matter requiring a hearing under the Covid-19 protocol outlined in the March 15, 2020 notice to the profession.

48I am not seized with the accounting.