Court File and Parties

COURT FILE NO.: 650/20

DATE: 2020-12-23

SUPERIOR COURT OF JUSTICE-ONTARIO

RE: KELLY MARTIN, Applicant

AND:

11037315 CANADA INC., 2670082 ONTARIO CORP., and AUTODOME LTD., Respondents

BEFORE: Gibson J.

COUNSEL: Dennis Van Sickle, counsel for Applicant

Samir Chhina, counsel for Respondent 2670082 Ontario Corp.

HEARD: December 10, 2020

ENDORSEMENT

Overview

[1] This is an Application to set aside a Default Judgment obtained in a foreclosure action. The property at issue is 1560 Reeves Gate, Unit 22, Oakville, Ontario (“the Property”).

[2] The Applicant Kelly Martin (“the Applicant”) submits that the equities of the case call for the Court to use its discretion to set aside the Default Judgment. She also submits that the Default Judgment should be set aside because it was obtained by way of an irregularity.

[3] The Respondent 2670082 Ontario Inc. (“267”) submits that it is a bona fide purchaser for value without notice. It submits that the Applicant, by her own actions, has caused her misfortune and now seeks the court’s assistance in reversing multiple steps and prejudicing multiple parties, most significantly the innocent third-party purchaser 267.

[4] 267 seeks a dismissal of the Applicant’s Application and furthermore seeks a Writ of Possession for the subject property.

[5] The Respondent 11037315 Canada Inc. (“110”) is a corporation that carries on business as a private mortgage lender. It deals with distressed properties. Roy D’Mello is 110’s sole director. Mr. D’Mello is a lawyer. 110 has never delivered a Notice of Appearance and has not participated in the within proceedings.

[6] The Respondent Autodome Ltd. (“Autodome”) is a corporation that carries on business as a private mortgage lender. Autodome delivered a Notice of Appearance, but has not otherwise participated in the within proceedings.

Background Facts

[7] The Applicant bought her home in 2010 for $289,000 with mortgage financing from TD Bank. By the fall of 2019, the Applicant had paid her TD mortgage down to about $160,000. The property was worth about $575,000.

[8] The Applicant encountered financial difficulties due to various personal and health problems.

[9] On January 11, 2019, the Applicant obtained a one-year, interest only, Second Mortgage from 2148468 Ontario Ltd. (“214”) in the amount of $65,000 at 12% interest. The monthly mortgage payment under this Second Mortgage was $650.

[10] The Applicant’s chequing account was frozen at one point in 2019, because of a TD investigation concerning a potential fraud concerning her account. 214 attempted to cash a cheque on June 15, 2019, and the cheque bounced. 214 never made any demands that the Applicant cure the June 2019 non-payment.

[11] Shortly after this, 214 assigned the Second Mortgage to the Respondent 110. No one, including 267 and 110, notified the Applicant of the assignment.

[12] On October 29, 2019, the Applicant was served with a statement of claim by 110 for foreclosure of the Property. She thought the claim was from her original mortgagee on the Second Mortgage 214, and did not appreciate that 110 was a different numbered company. The claim at paragraph 1(c) of the statement of claim sought $70,407.08 due under the Second Mortgage. At the time, the Applicant avers, and I accept, that she understood that if a mortgagor failed to pay her mortgage, the bank or lender had the right to force the sale of the property to recoup its principal and outstanding interest – in this case approximately $160,000 for her First Mortgage, and approximately $70,000 for her Second Mortgage – but that whatever proceeds were left over ( in this case some $350,000) would be paid to the mortgagor. She thought that this was what was meant by a foreclosure. In effect, the Applicant confused the meanings of foreclosure and a power of sale. She did not seek the advice of a lawyer at that time. She says that she did not do so because she thought that she could not afford one, and that she thought that the worst that could happen was that her home would be sold, something she was going to do anyway, and that she would still get to keep her equity.

[13] Default judgment was obtained on November 20, 2019. Nobody notified the Applicant that she had been noted in default, and nobody notified her that Default Judgment had been obtained.

[14] The home was worth $575,000, but 110 sold it to 267 for only $425,000. The two corporations had essentially split the Applicant’s equity in the home between themselves.

[15] The Applicant was notified in early 2019 that 267 had bought her home. This came as a complete shock to the Applicant.

[16] Only 38 days passed between the time the Applicant was served with the statement of claim on October 20, 2019, and when 110 sold the home to 267 (December 5, 2019). The sale closed on January 8, 2020. 267 paid for the property with mortgage financing from the Respondent Autodome. Even though the purchase price was $425,000, the Autodome mortgage was for $465,000. This strongly suggests that the home was sold for less than its true market value.

The test for setting aside a default judgment

[17] The court has a broad jurisdiction to set aside a default judgment and grant relief against foreclosure wherever the equities in the mortgagor’s favour outweigh all that are against him or her: 99254 Ontario Inc. v. 8657181 Canada Inc., 2018 ONCA 416.

[18] The test for setting aside of a default judgment for foreclosure was recently articulated by the Court of Appeal for Ontario in Winters v. Hunking, 2017 ONCA 909 at paras. 12-15:

12 No one contests that the court has a broad jurisdiction to set aside a default judgment and grant relief against foreclosure "wherever the equities in the mortgagor's favour outweigh all that are against him or her". As stated in Walter M. Traub, Falconbridge on Mortgages, loose-leaf, 5th ed. (Toronto: Thomson Reuters, 2017), at p. 26-33:

It has been said that a court of equity is always ready to hear a meritorious application for relief against a foreclosure, and will open it whenever good and substantial reasons for such a course are shown to it, provided the application is reasonably made. The mere fact that the land has been sold to a third person is not alone an insurmountable obstacle, and the true equitable principle is that the mortgagor may be permitted to redeem whenever the equities in the mortgagor's favour outweigh all that are against him or her. [Emphasis added.]

13 Nor is there much debate that the factors to be considered in the exercise of the court's discretion include:

(i)whether the motion to set aside was made with reasonable promptness;

(ii)whether there is a reasonable prospect of payment at once or within a short period of time;

(iii)whether the applicant has been active in endeavouring to raise the money necessary;

(iv)whether the applicant has a substantial interest in the property or the property has some special intrinsic value to him or her; and

(v)where the property has been sold after foreclosure (not the case here), whether the rights of the purchaser will be unduly prejudiced. See generally, Royal Bank of Canada v. Swan, 1979 CarswellOnt 3420 (Master), at paras. 15-16, aff'd 1980 CarswellOnt 3624 (Div. Ct.), at paras. 6-7; 355498 B.C. Ltd. v. Namu Properties Ltd., 1998 CarswellBC 2815 (S.C.), at para. 41, aff'd 1999 BCCA 138, 171 D.L.R. (4th) 513; Ricard v. Richards, 1986 CarswellBC 3757 (C.A.); Coast-to-Coast Industrial Investment Co. (2009), 88 R.P.R. (4th) 86 (Ont. S.C.) at paras. 14-20; Gowling Lafleur Henderson LLP, Marriott and Dunn, Practice in Mortgage Remedies in Ontario, loose-leaf, 5th ed. (Toronto: Thomson Reuters, 2017 Reissue), at pp. 15-12 to 15-13.

14 Various authorities have added a further more all-encompassing factor, namely, whether there are "special circumstances" justifying the reopening of the foreclosure or, more generally (as noted above), whether the equities in favour of reopening the foreclosure order outweigh the equities against doing so: see Ricard, at para. 14, Namu Properties (S.C), at para. 41, Golansky v. Vellucci, 2006 CarswellOnt 2100 (Ont. S.C.), at paras. 6-8, aff'd 2006 CarswellOnt 6504 (C.A.); Marriott and Dunn, at p. 15-14. To this I would add that a weighing of the equities cannot be done without taking into account the relative prejudice to the respective parties in making or not making the order.

15 Cases reopening a final order of foreclosure generally depend on their own particular facts: Marriott and Dunn, at p. 15-11. Since it is clear that this may be done at any time, even after the property has been sold (which is not the case here), I would observe as well that the various factors outlined above that turn on timeliness, need to be applied with this consideration in mind. As this Court has stated, in the context of setting aside default judgments generally, the various applicable factors are not to be treated as rigid rules; the ultimate task on such a motion is "to determine whether the interests of justice favour granting the order": Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 317 O.A.C. 255, at paras. 47-51.

16 All parties accept that the decision to set aside a default judgment for foreclosure is discretionary. As such, it is entitled to deference in the absence of an error in law or principle, a palpable and overriding error of fact, or unless the decision is so clearly wrong as to amount to an injustice: see HSBC Securities (Canada) Inc. v. Firestar Capital Management Corporation, 2008 ONCA 894, 245 O.A.C. 47, at para. 22; Ontario Housing Corp. v. Ong, (1988) 63 O.R. (2d) 799 (Ont. C.A.). Again, however, it is the latter consideration that prevails in the end: the motion judge "must ultimately determine whether the interests of justice favour granting the order": Firestar, at para. 30.

Issues

[19] The issues to be determined by the Court on this Application are essentially: 1) should the Default Judgment be set aside on the basis of the principles set out in Winters v. Hunking; and 2) should the Default Judgment be set aside on the basis that it was irregularly obtained?

Analysis

[20] In this case, the Applicant has moved promptly to set aside the Default Judgment. She put the Respondents on notice of her intention to move to set aside the Default Judgment shortly after learning of its existence, and issued her Notice of Application on February 14, 2020.

[21] The subject mortgage obligations were fully satisfied from the property’s sale proceeds in January 2020. The particular relief sought by the Applicant in this Application will not disturb this, as her relief sought seeks redress only with respect to the recovery of her equity in the property net of those obligations.

[22] The Applicant was actively endeavouring to raise the money necessary by proceeding with the sale of her home when 110 obtained the Default Judgment. In any event, as submitted by the Applicant, the money necessary has already been raised from the sale proceeds of the home.

[23] The Applicant clearly had a substantial interest in the home. The home had an appraised value of $575,000 when it was sold. The Applicant’s First Mortgage had a balance of about $160,000, and the Second Mortgage had a balance of about $65,000, leaving the Applicant with a net interest of about $350,000. This is a significant interest to anyone, and is particularly so to the Applicant, who is a single, 55-year-old unemployed woman with a high school education and no savings, and who suffers from serious mental and physical health problems, during a pandemic.

[24] As stated in Winters v. Hunking, a weighing of the equities cannot be done without taking into account the relative prejudice to the respective parties in making or not making the order.

[25] I am satisfied on the facts of this case that there would not be undue prejudice to the purchaser. 267 bought the property to flip it for a profit. It will not suffer any undue prejudice if the Default Judgment is set aside and the property is again sold, this time for fair market value. 267 will have its original purchase price of $425,000 repaid. It will not get to keep the windfall it received by having obtained the property for some $150,000 below market value.

[26] The principal of 267, Mr. Mangal, knew that he was purchasing the property by way of a Default Judgment for foreclosure. As the Applicant submits, Default Judgments for foreclosure can be and do get set aside. I accept the submission that a person with Mr. Mangal’s experience in flipping distressed properties for profit ought to have known this.

[27] I find that in this case, 267 was not a bona fide purchaser for value without notice. It is not an innocent third-party purchaser.

[28] The Applicant made a mistake. She should have consulted a lawyer promptly. She should have delivered a notice requesting a sale. But I do not accept the Respondent’s contention that, because she does not come with entirely clean hands, she should suffer the disproportionate consequences that have befallen her. I do not accept the submission made by counsel for the Respondent in oral submissions that she was “the culprit of her own demise.”

[29] I find that in this case, the equities in favour of setting aside the Default Judgment outweigh the equities against doing so.

[30] 267 submits that it was a fatal mistake on the part of the Applicant to assume the meaning behind the Claim she was served with, and that the Court cannot “rescue” the Applicant when the Applicant herself elected not to retain counsel or defend her position with a statement of defence.

[31] I do not accept this submission. The mortgage default in question was one missed payment of $650. The Applicant had tendered the balance of her monthly payments to her original mortgagee. No one told her that the mortgage had been assigned. No one complained or demanded new cheques nor did they ever demand that she cure her default. The manner in which the Applicant dealt with matters after being served with the statement of claim was far from ideal. However, it does not preclude the Court from using its discretion to assist her. What happened to the Applicant is completely disproportionate to her default.

[32] 267 submits in its factum that there is “an enormous concern that such a decision would open the floodgates for every litigant to simply use the excuse that they did not understand the claim as against them.” I do not accept this argument. As the Court of Appeal noted at para. 15 in Winters v. Hunking, “cases reopening a final order of foreclosure generally depend on their own particular facts.” It is clear to me that, on the particular facts of this case, the equities in the Applicant’s favour outweigh all that are against her.

[33] I also consider that the Default Judgment should be set aside on the basis that it was irregularly obtained. The court is able to set aside a Default Judgment that has been irregularly obtained: Benolo v. Barzakay, [2003] O.J. No. 602 (Div. Ct.) at para. 4.

[34] An assignee of a mortgage is permitted to foreclose. However, written notice of the assignment must be given by the assignee to the person liable for the debt before the assignee is permitted to foreclose. The failure to give notice does not nullify the assignment but does prevent the assignee from moving against the mortgagor until notice is given. No notice was given to the Applicant that her Second Mortgage had been assigned, nor was this pled in 110’s statement of claim.

[35] I find that, in this case, this failure by 110 precluded its entitlement to the Default Judgment and that in the circumstances its issuance was obtained by way of an irregularity, which warrants it being set aside.

[36] The Applicant’s Application will be granted.

Order

[37] The Court Orders that:

1. The Default Judgment is set aside;
2. The Property at 1560 Reeves Gate, Unit 22, Oakville, Ontario should forthwith be listed for sale;
3. The net proceeds of sale in excess of $425,000 shall be paid to the Applicant Kelly Martin; and,
4. 110 shall forthwith pay to the Applicant Kelly Martin the proceeds it received from the sale of the Property that are in excess of that amount contemplated by paragraph 1(c) of its statement of claim.

[38] In the present circumstances of the COVID-19 pandemic, this Endorsement is deemed to be an Order of the Court that is operative and enforceable in its present form, without a formal typed Order. Approval of the form and content of this Order by the Respondents is dispensed with.

Costs

[39] The parties are encouraged to agree upon appropriate costs. If the parties are not able to agree on costs, they may make brief written submissions to me (maximum three pages double-spaced, plus a bill of costs) by email to my judicial assistant. The Applicant may have 21 days from the release of this decision to provide her submissions, with a copy to the Respondents; the Respondents a further 14 days to respond; and the Applicant a further 7 days for a reply, if any. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves. If I have not received response or reply submissions within the specified timeframes after the Applicant’s initial submissions, I will consider that the parties do not wish to make any further submissions, and will decide on the basis of the material that I have received.

M. Gibson J.

Date: December 23, 2020