COURT FILE NO.: CV-20-00000171-00
DATE: 2021 04 30
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Eva Roopchand, Applicant
AND:
Devinder Ghuman, Daku Financial Corporation, 988081 Ontario Inc., and Inderjit Arora, Respondents
BEFORE: FRAGOMENI J.
COUNSEL: T. Morris, Counsel for the Applicant
R.W. Dowhan, Counsel for the Respondents
HEARD: March 8, 2021
E N D O R S E M E N T
[1] This Application relates to a dispute over charges in various Discharge Statements.
[2] The Applicant, Eva Roopchand, alleges that the mortgagees have charged unlawful amounts in the Discharge Statements.
[3] The two Discharge Statements are set out in the Affidavit of Eva Roopchand, sworn October 22, 2020 as follows:
DISCHARGE STATEMENT
The following is the amount required to obtain a DISCHARGE of Charge/Mortgage of Land DC207403 thereto, if applicable:
Principal
$250,000.00
Interest to April 30, 2020
$3,732.87
Interest from April 20, 2020 – October 9, 2020
$13,512.42
2 months interest Penalty
$5,000.00
8 NSF or Late Payment Charges
$1,600.00
8 Late Payment Administration
$1,600.00
Current Renewal Fee
$5,000.00
Missed Renewal Fees
$13,750.00
Legal Fees
$10,908.12
Power of Sale Fee
$2,500.00
Total E&O excluded
$307,603.41
Per diem $83.41 from April 30, 2020
PLUS Legal Discharge Fee ($500.00), registration cost ($75.90) & applicant HST ($66.41): $642.31
TOTAL OUTSTANDING: $308,227.72
DISCHARGE STATEMENT
The following is the amount required to obtain a DISCHARGE of Charge/Mortgage of Land DC02824, Assignment of Rents DC02825 thereto, if applicable:
Principal
$250,000.00
Interest to April 30, 2020
$3,732.87
Interest after April 30, 2020 – October 9ember 11, 2020
$13,512.42
3 months interest Penalty
$7,500.00
6 NSF or Late Payment Charges
$3,000.00
6 Late Payment Administration
$3,000.00
4 payout statement requests
$2,000.00
Renewal Fees
$5,000.00
Legal Fees
$7,500.00
Total E&O excluded
$294,970.29
Per diem $83.41 from October 0, 2020
PLUS Legal Discharge Fee ($500.00), registration cost ($75.90) & applicant HST ($66.41): $642.31
TOTAL OUTSTANDING: $295,612.60
Position of the Applicant:
[4] The Applicant acknowledges that there is no issue with respect to the principle of $250,000.00. There is also no issue with respect to the interest in the two rows at ‘2.’ of the Charts. There would be one more week of the per diem interest to October 16, 2020, in the sum of $83.41.
[5] The Applicant agrees that ‘3.’ is fine, unless the Respondents, Devinder Ghuman, Daku Financial Corporation, 988081 Ontario Inc., and Inderjit Arora, insist on renewal fees. Under the charge they are not intitled to renewal fees. The Applicant submits that the Respondents are entitled to a two-month interest penalty, but not the renewal fees. There is no fixed amount for the renewal fees.
[6] With respect to ‘4.’ and ‘5.’, the Applicant acknowledges that these amounts are set out in the mortgage schedule term but $300.00 for each late payment is prohibited unless they can show they actually expended these funds.
[7] In addition to these submissions on ‘4.’ and ‘5.’, the Applicant points out that the mortgage was renewed to March 2020, so the Respondents are not entitled to late payment fees when the mortgage matures.
[8] With respect to ‘7.’, Renewal Fees, the mortgage was renewed once in September 2019 and the payments were made in November 2019.
[9] The charge sets out that if the mortgage is not renewed then the interest penalty becomes payable. Further, there is no fixed amount and the parties negotiated a renewal fee of $5,000.00 and that was paid as part of the $31,500.00 payment made by the Applicant.
[10] With respect of ‘8.’ and ‘9.’, Legal Fees and Power of Sale Fee, the Applicant acknowledges that the Respondents are entitled to legitimate and reasonable fees. The real issue here relates to quantum.
[11] The Applicant submits that if the Court finds that the Discharge Statements were incorrect, it suspends the right of the mortgagee under the Mortgages Act, R.S.O. 1990, c. M.40 with respect to Power of Sale proceedings.
Position of the Respondents
[12] In this case, the second mortgage was to be a short mortgage for six months. Included in this private mortgage were terms that there were going to be charges if payments were missed or were late or not forthcoming. There would also be a charge if any legal action was necessary. There was also a Maturity Clause.
[13] The Applicant was Cross-examined, and she acknowledged that she saw all of the additional charges set out in the charge. The Respondents explain that as the second mortgage came to maturity, there was no payout and instead the third mortgage goes on. The mortgages then go into default, starting as early as September 2019.
[14] The one payment of $31,250.00 is acknowledged by the Respondents, however, the Respondents take the position that that payment was made to bring the second mortgage into good standing and extend it to May 2020. The Respondents submit that a valid Power of Sale proceeding was initiated.
[15] With respect to the Discharge Statement Charts, the Respondents submit the following:
• ‘1.’, ‘2.’, and ‘3.’ are conceded by the Applicant.
• ‘4.’ and ‘5.’, the Applicant agreed to these terms. They are listed as fees and not as a penalty; “Fees will still apply if legal action is commenced”.
[16] The Respondents submit that the Applicant was obliged to make a $2,500.00 interest payment each month to these mortgages from May to October. Whether this amount is reasonable is in the Court’s discretion.
[17] With respect to renewal fees and legal fees, the Applicant states that she paid $7,500.00 of the renewal fee but does not provide proof it was made. Further the legal fees of $7,225.00 are with respect to a valid Power of Sale proceeding instituted. The fees are reasonable.
[18] With respect to the renewal fees, the Respondents acknowledge that if the Court does not find that there was an agreement between the parties then these fees ought to be removed from the Discharge Statements.
[19] The Respondents submit that if the Court does not find sufficient evidence to support renewal fees, they can be excluded. If the late payments are extraordinary then they should be reduced. Finally, if the Court has concerns about the quantum of legal fees, the legal fees can be assessed under the Mortgages Act by an Assessment Officer.
Analysis and Conclusion
Re: Legal Fees and Power of Sale Fees
[20] I am satisfied that these fees ought to be assessed by an Assessment Officer pursuant to the Mortgages Act.
Re: Renewal Fees
[21] I am not satisfied that the evidentiary records support a finding that there was an agreement with respect to renewal. The Affidavit of Inderjit Arora sworn December 22, 2020, sets out the following at paragraphs 19, 21, 22, and 33:
The payment of the $31,500.00 has extended the mortgage through to May 15, 2020. Despite the renewal to May 15, 2020 there was no payment of the principal arranged for. On or about May 5, 2020 Eva Roopchand was provided with the payout statement listed in paragraph 18 above and advised that the mortgage has to be extended officially or paid out.
On May 27, 2020 the lenders advised that they were unwilling to extend the mortgage without proper compensation. The lenders sough $7500 fee to extend the mortgage to June 30, 2020. A copy of that offer is attached as exhibit “K” to this affidavit.
As a result of the failure to payout the mortgage, extend the terms or refinance as of May 15, 2020 a new power of sale had to be issued. A copy of the June 4, 2020 notice of sale is attached as exhibit “L” to the affidavit as it related to the First Mortgage. The notice of sale included the charges from the May 5, 2020 payout plus the ongoing accrued interest and missed payments.
The renewal fees represent the fees incurred to continue the mortgage past its 6 month term. The legal fees were costs incurred to issue power of sale proceedings when there was no renewal or payment of maturity.
[22] In Cheung v. Moskowitz Capital Mortgage, 2018 ONSC 1322 the Court set out the following at paragraphs 5 and 6:
[5] When the Mortgagee finally delivered the discharge statement dated February 2, 2018, it contained a number of obvious errors. In the first place, it contained an automatic renewal fee of $40,316.34. It is the Mortgagors’ position that given that the discharge statement is supposed to be an end-of-term statement, there was no real renewal. As counsel for the Mortgagors states, the only reason the Mortgage was not paid off on the maturity date was the Mortgagee’s refusal to prepare a discharge statement or to accept the funds.
[6] This type of very high renewal fee was addressed by the Court of Appeal in Romano v Sills, 2017 ONSC 6367, at paras 56-57. The Court reasoned that an exorbitant renewal fee, combined with an automatic renewal clause that allows a lender to charge a much higher interest rate for the renewal period, is “a type of penalty and one controlled entirely by the plaintiffs.” Under those circumstances, the Mortgage renewal fee was disallowed.
[23] In the Lender’s Schedule A, ‘8)’ states: “AT THE END OF THE MORTGAGE MATURITY DATE 3 MONTHS INTEREST PENALTY WILL APPLY IF THE MORTGAGE IS NOT RENEWED OR PAID OUT IN 10 BUSINESS DAY.”, and “AT THE END OF THE MORTGAGE MATURITY DATE 2 MONTH INTEREST PENALTY WILL APPLY IF THE MORTGAGE IS NOT RENEWED OR PAID OUT IN 5 BUSINESS DAYS.”.
[24] I agree with the position of the Applicant on this issue, that pursuant to the parties’ contract there is an election to either renew or if it’s not renewed then the interest penalty becomes payable.
Re: NSF or Late Payment Charges, Late Payment Administration
[25] In Cheung, the Court set out the following at paragraph 10:
The discharge statement also contains a $700 “missed payment fee”. Again, Mortgagors’ counsel submits that there was only a missed payment because the Mortgagee would not provide a discharge statement in a timely fashion. In any case, the Court of Appeal has found that this type of charge is invalid as being a penalty contrary to section 8 of the Interest Act: see PARCEL Inc. v Acquaviva, 2015 ONCA 331. A Mortgagee is not permitted to charge administrative costs that do not reflect real costs incurred in the administration of the Mortgage. Such fees are invalid.
[26] In P.A.R.C.E.L. Inc. v. Acquaviva, 2015 ONCA 331, the Court stated the following at paragraphs 51, 92, 93, 94, 95, 96, and 97:
[51] Thus, s. 8 creates an exception to the general rule that lenders and borrowers are free to negotiate and agree on any rate of interest on a loan. Section 8 prohibits lenders from levying “fine[s], penalt[ies] or rate[s] of interest” on “any arrears of principal or interest” that are “secured by mortgage on real property”. The Reliant Capital court elaborated, at paras. 51 – 53:
It is not uncommon now in the commercial world for loan contracts, other than mortgage loans, to require a substantially higher interest rate if the loan becomes in arrears. Common sense suggests that this is recognized as a legitimate and effective way to ensure the prompt or timely repayment of the loan.
The prohibition against extra charges on arrears remains in place for loans secured by a mortgage. Moreover, the additional charge on arrears is prohibited in mortgage loans whether that charge is expressed as such, or whether the interest provision simply has “the effect” of increasing the charge in respect of arrears.
Parliament has singled out mortgages on real estate for special treatment, or at least treatment that differs from loans that are not secured on real property. I infer that at least one legislative purpose was to protect the owners of real estate from interest or other charges that would make it impossible for owners to redeem, or to protect their equity. If an owner were already in default of payment under the interest rate charged on monies not in arrears, a still higher rate, or greater charge on the arrears would render foreclosure all but inevitable. [Emphasis added.]
[92] The appellants contend that the Late Payment Charges ($11,110) and the Default Fees ($7,200) allowed by the motion judge also offend s. 8 of the Interest Act.
[93] The Mortgage provides that the respondents are entitled to a late charge of $10 per day in the event of their late receipt of monthly payments due under the Mortgage. It also provides for the payment of a $300 “Missed [P]ayment Fee” if payments under the Mortgage are missed or late or returned for payment. The appellants submit that the Late Payment Charges and the Default Fees awarded by the motion judge, which are based on these provisions of the Mortgage, constitute “fine[s]” or “penalt[ies]” prohibited under s. 8 of the Interest Act.
[94] I agree.
[95] The respondents point to no evidence on the record before this court demonstrating that they incurred any actual losses as a result of late or missed payments under the Mortgage, apart from the amount of the non-payment itself. This is not a case where it is alleged that payments made by or on behalf of Parcel under the Mortgage were returned “NSF” or otherwise rejected for payment, giving rise to administrative costs for the respondents.
[96] In the absence of evidence that the charges in question reflect real costs legitimately incurred by the respondents for the recovery of the debt, in the form of actual administrative costs or otherwise, the only reason for the charges was to impose an additional penalty or fine, apart from the interest otherwise payable under the Mortgage, thereby increasing the burden on the appellants beyond the rate of interest agreed upon in the Mortgage. The courts have not hesitated to disallow similar charges on the basis that they offend s. 8 of the Interest Act: see for example, Chong v. Kaur, 2013 ONSC 6252, at paras. 54 – 56; Bhanwadia v. Clarity Financial Corp., 2012 ONSC 6393, at paras. 43 – 46; NBY Enterprises Inc., at para. 29; 2088300 Ontario Ltd. v. 2184592, 2011 ONSC 2986, at paras. 22 – 23 (Mast.); Nesci v. Ramrattan, 2009 CanLII 5153 (Ont. S.C.), at para. 28.
[97] Accordingly, I would set aside the impugned Late Payment Charges and Default Fees.
[27] In Chong & Dadd v. Kaur, 2013 ONSC 6252, Tzimas J. noted the following at paragraphs 52-56:
[52] Paragraph 4 of Schedule A of the Standard Charges to the mortgage requires the mortgagor to pay $300.00 for every cheque that is dishonoured. The mortgagee claims and additional charge of $900.00. She also argues that since the NSF charges in the sum of $600.00 were not defended, Dadd and Chong are deemed to be admitting to the obligation to pay all such charges, including future charges not claimed in the statement of claim.
[53] Insofar as the sum of $600.00 is included in the judgment of $52,352.64, it is not open to this court to look behind that judgment. However, the deemed admission for the payment of $600.00 does not extend to an admission to pay future such charges. Nor does it extend to a full admission as to the appropriateness of such a charge.
[54] The additional claim of $900.00 is problematic for a number of reasons. First, $300.00 for NSF charges, is in the nature of a penalty. Section 8(1) of the Interest Act, R.S.C. 1985, c. I-15, as amended, prohibits fines, penalties or rates of interest on account of any arrears of principal or interest secured by a mortgage.
[55] Second, once the applicants defaulted, and more particularly, after May 14, 2012, when the mortgagee commenced legal proceedings, as she was entitled to do, it defies logic that she would continue to deposit post-dated cheques and incur additional NSF costs. She would have an obligation to mitigate her costs and damages arising from the default.
[56] Even if there were some explanation for depositing additional cheques that post-dated the default, Kaur did not provide the court with any evidence that the claimed costs of $900.00 were actually incurred. The absence of such evidence underscores the concern that this charge category is in the nature of a penalty and not a reflection of an actual cost. The claim for $900.00 is therefore denied.
[28] I agree with the position of the Applicant on this issue.
Summary
[29] First Discharge Statement Chart on Page two (2) herein:
Allowed.
Allowed.
Allowed.
Not allowed.
Not allowed.
Not allowed.
Not allowed.
To be assessed pursuant to the Mortgages Act by an Assessment Officer.
To be assessed pursuant to the Mortgages Act by an Assessment Officer.
[30] Second Discharge Statement Chart on Page three (3) herein:
Allowed.
Allowed.
Allowed.
Not allowed.
Not allowed.
Allowed.
Not allowed.
To be assessed pursuant to the Mortgages Act by an Assessment Officer.
[31] Order to issue accordingly.
[32] The parties shall file written submissions on costs within 20 days of release of this endorsement.
FRAGOMENI J.
DATE: April 30, 2021
COURT FILE NO.: CV-20-00000171-00
DATE: 2021 04 30
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Eva Roopchand, Applicant
AND:
Devinder Ghuman, Daku Financial Coproation, 988081 Ontario Inc., and Inderjit Arora, Respondents
COUNSEL: T. Morris, for the Applicant
R.W. Dowhan, for the Respondents
ENDORSEMENT
FRAGOMENI J.
DATE: April 30, 2021