Dorothy Litwin v. NRD Management Services Ltd. 2021 ONSC 3238
COURT FILE NOs.: CV-19-00625143
CV-21-00659349
DATE: 20210430
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: NRD Management Services, Plaintiff/Responding Party
AND:
Dorothy Litwin, Defendant/Moving Party
And
RE: Dorothy Litwin, Applicant
AND:
NRD Management Services Ltd., Respondent
BEFORE: M.D. Sharma
COUNSEL: John Wallace, for the Plaintiff/Responding Party and Respondent
Daniel Campoli and Peter Werhurn, for the Defendant/Moving Party and Applicant
HEARD: April 26, 2021
reasons for judgment
This Motion and Application
[1] This is a motion by the Defendant, Ms. Litwin, for various relief arising from a mortgage enforcement action commenced against her by the Plaintiff, NRD Management Services Ltd. (“NRD”).
[2] 19 months after the action was commenced, on March 18, 2021, Ms. Litwin commenced her own application against NRD. It appears that an application under the Mortgages Act was commenced, as Ms. Litwin had been noted in default in the action. Pursuant to r. 19.02(b), leave of the Court was required for her to bring a motion in the action.
[3] The issues and relief sought in Ms. Litwin’s motion and application are similar if not identical. As such, in my view, it is not necessary for me to determine whether leave to bring the motion is granted.
[4] The facts are straightforward. Ms. Litwin defaulted on her mortgage obligations to NRD. NRD obtained default judgment and a Writ of Possession. The Writ of Possession has not been executed. Ms. Litwin wishes to refinance with a new lender. There is now a dispute about what amounts must be paid by Ms. Litwin, over and above the default judgment obtained, so that NRD may discharge the mortgage and allow for Ms. Litwin to refinance with a new lender. Ms. Litwin challenges the authority of these additional charges not included in the default judgment, which she asserts are “fines” or “penalties” prohibited under the Interest Act, R.S.C. 1985, c I-15 (“Interest Act”). She also alleges wrongful conduct on the part of NRD that demands intervention of the Court.
[5] The issues to be decided are:
i. By virtue of obtaining default judgment in the action, is NRD estopped from seeking payment from Ms. Litwin on other charges purported to be due under the mortgage and as set out in its subsequent discharge statement of February 4, 2021?
ii. If the answer to the previous question is “no”, what is the amount payable by Ms. Litwin to have NRD discharge its mortgage to allow her to refinance the Property with a new lender? Do the amounts that NRD is charging offend s. 8 of the Interest Act, are they otherwise unlawful or unsupported by the covenants in the mortgage contract, or should they even be made payable as a result of the conduct of NRD?
iii. Does the conduct of NRD justify varying or setting aside the default judgment, restraining enforcement of the writ of possession, or the imposition of punitive damages against NRD?
Background
[6] The following facts are found in the evidence submitted.
[7] NRD is an investor that provides funding for mortgages. NRD works with Hosper Mortgage Administration (“Hosper”), a licensed mortgage administration company, which manages mortgages and acts on behalf of NRD. Mr. Nicholas Chimienti is the President of Hosper and provided evidence in this case on behalf of NRD.
[8] On July 3, 2018, Ms. Litwin took a $300,000 mortgage loan from NRD for a one-year term at an interest rate of 10.99% per annum (the “Mortgage”). The loan was secured by a Charge registered over Ms. Litwin’s condominium townhouse property described by Land Titles PIN No. 12685-0041 (LT), 12685-0109 (LT) and No. 12685-0140 (LT), municipally known as 202-55 Halton Street, Toronto, Ontario (the “Property”).
[9] On July 1, 2019, there was default in payment of principal and interest. Ms. Litwin admits this fact. In addition, the affidavit of Mr. Chimienti advises that five of Ms. Litwin’s twelve monthly payments during the 1-year term of the mortgage were returned or rejected for insufficient funds.
[10] On August 8, 2019, NRD commenced an action (CV-19-00625143-000) to enforce mortgage obligations against Ms. Litwin. In its action, NRD claimed $317,022.49 plus pre-judgment and post-judgment interest at the rate of 10.99% per annum, possession of the Property, and costs. Paragraph 8 of the Statement of Claim itemized the amounts due under the Mortgage, as of August 7, 2019, as follows:
Principal
$300,000
Discharge Fee
$750
Statement Prep Fee
$250
Per Diem Total to August 7, 2019
$3,432.49
NSF Fee
$1,123.75
July 1, 2019 Payment
$1,373.75
Interest Bonus
$8,242.50
Demand Letter Fee
$350
Default Proceedings Fee
$1,500
Total as of August 7, 2019
$317,022.49
[11] Ms. Litwin did not defend the action.
[12] On October 21, 2019, NRD through its lawyers, Richardson Law Professional Corporation, issued a Notice of Sale to Ms. Litwin. It identified the amounts alleged to be due as of that date on the mortgage principal, interest and other costs totalling $326,057.24. The increase in amounts due under the Notice of Sale as compared to the Statement of Claim is solely attributable to the per diem interest since the Statement of Claim was issued. The Notice of Sale was delivered by registered mail on that day. The Defendant did not respond to the Notice of Sale.
[13] On December 2, 2019, Ms. Litwin was noted in default.
[14] Also on December 2, 2019, NRD filed a requisition for default judgment for all the amounts set out in the Statement of Claim. By memo dated January 15, 2019, this requisition was rejected by the registrar because the registrar could only sign default judgment for the principal amount owing plus interest, but the requisition sought “additional costs, such as discharge fees, demand letter fees and default proceeding fees, etc.” and on this basis, it was rejected.
[15] On February 5, 2020, NRD submitted a further requisition for default judgment limited to only principal and interest on the mortgage, plus costs. In other words, it did not include other costs set out in the Statement of Claim, such as discharge fees, demand letter fees, and default proceeding fees.
[16] On February 6, 2020, the registrar issued default judgment against Ms. Litwin for only the principal outstanding on the mortgage, with interest, totalling $320.060.43, plus costs fixed at $1,230.00. This amount represents the principal $300,000, plus the per diem interest ($3,432.49) to August 7, 2019, plus 10.99% interest ($16,627.94) up to February 5, 2020. Interest on the judgment was fixed at 10.99% per year, and interest on costs was fixed at 2% per year. The default judgment also ordered Ms. Litwin to deliver possession of the Property.
[17] On October 28, 2020, NRD, through its lawyer, submitted a third requisition for default judgment. The affidavit of Mr. Chimienti explains that this third requisition was submitted because NRD had not received confirmation that its second requisition for default judgment filed on February 5, 2020 was even received, and now, it was possible to submit the requisition digitally as a result of the COVID pandemic. Accordingly, it tried again to obtain default judgment. In this third requisition, it again claimed only principal and interest, plus costs, except it reflected a higher total judgment to reflect for the increased per diem charges for occupancy between August 7, 2019 through to October 28, 2020 (448 days) valued at $40,930.30. There is no evidence of what happened to this third requisition, since the registrar had already signed default judgment on February 6, 2020.
[18] The affidavit of Mr. Chimienti attests to the fact that NRD did not receive default judgment on its second requisition until November of 2020. The default judgment on the second requisition was entered on November 27, 2020.
[19] On December 7, 2020, NRD sent by registered mail to Ms. Litwin a Notice Demanding Possession with a copy of the Default Judgment. The Notice indicated that if Ms. Litwin did not vacate and deliver possession by December 17, 2020, an Order for a Writ of Possession would be sought. Ms. Litwin did not respond to the Notice Demanding Possession.
[20] On February 16, 2021, NRD obtained from Master Short an order for the issuance of a Writ of Possession against the Property. The Order indicates Ms. Litwin may bring a motion to set aside Master Short’s Order or the Default Judgment.
[21] Both Ms. Litwin’s and Mr. Chimienti’s affidavits attest to efforts by Ms. Litwin, Hosper, and new potential lenders on Ms. Litwin’s behalf, to refinance the debt owed to NRD. I note the evidence of Ms. Litwin is not compelling in terms of her own efforts to resolve this issue. Ms. Litwin states that she was delayed in refinancing the property “because of Covid” but provides no particulars to explain why the COVID pandemic contributed to her delay. She also says she was delayed because of the conduct of NRD’s agents, which evidence was equally lacking in particulars. The only particulars provided by Ms. Litwin were:
“For instance, for much of 2020, I attempted to communicate with an agent of the Plaintiff who had been handling my file and did not receive any response. Only months later was I informed that the agent I had been dealing with was no longer working with the company.”
[22] From Ms. Litwin’s evidence, I find that Ms. Litwin did not seem concerned about the fact that her mortgage was mature and overdue, with months of missing payments. She offered no details about her efforts to refinance with new lenders, whether or how she contacted others at NRD or Hosper to resolve this matter given her inability to communicate “with an agent”, and any other steps she may have taken to address the amounts due. As explained below, no actions seem to have been taken by Ms. Litwin until December 2020, when she received a copy of the default judgment.
[23] Mr. Chimienti’s affidavit, in contrast, does provide some details about Hosper’s discussions and efforts to support Ms. Litwin’s efforts to refinance. In particular:
a. Phone calls between Hosper and Ms. Litwin and her boyfriend to discuss a grace period to allow refinancing in July of 2019,
b. On January 1, 2020, discussions Hosper had with a mortgage agent at NuBorrow to advise that Ms. Litwin (and her boyfriend) have “dragged their feet” on the refinance, and the bank had cancelled their application.
c. In late February 2020, there were discussions with a mortgage options specialist from CIBC, seeking a report on the status of the mortgage between Ms. Litwin and NRD.
d. In mid-September 2020, another mortgage broker at NuBorrow submitted a refinance application for Ms. Litwin, but the amount requested was not enough to even cover the principal and interest.
e. Hosper received no further communications from Ms. Litwin or anyone else on her behalf until mid-December 2020. At that time, NRD, through its solicitor, prepared mortgage instructions that were sent to Ms. Litwin and indicated they would hold off on enforcement.
[24] In January and February of 2021, there were further communications, now between Ms. Litwin’s lawyer, and NRD’s solicitor, Mr. Richardson. The issues in that correspondence form the substance of this motion/application – namely, whether NRD was limited to collecting only the amounts set out in the Default Judgment, and the quantum of other charges NRD was demanding be paid in order to have the mortgage discharged. Of greatest concern to Ms. Litwin were amounts charged in NRD’s February 9, 2021 discharge statement, totalling $447,427.71, which Ms. Litwin claims are far in excess of the default judgment amount of $320.060.43 obtained on February 6, 2020.
Parties’ Positions
[25] From the hearing of the motion/application, and from the parties’ material filed, the parties have conceded or agreed that:
[26] Ms. Litwin must pay the principal, and interest on the Mortgage, and reasonable legal fees that have accrued in order to discharge the mortgage.
[27] NRD acknowledges that some of the charges on its February 9, 2021 were improper. It has further conceded or reduced some of the charges in its discharge statement, although Ms. Litwin notes these concessions were not made until April 6, 2021 after these proceedings commenced.
[28] Both parties agree that they would like Ms. Litwin to secure a new lender, and have NRD’s mortgage discharged, rather than enforce the Writ of Possession and sell the Property. NRD has agreed to delay enforcement of the Writ until May 27, 2021 to allow this to occur, and Ms. Litwin’s counsel has confirmed Ms. Litwin’s willingness and ability to secure a new lender by May 27, 2021.
[29] As a result, the principal issues are whether the default judgment estops NRD from seeking amounts that it could have obtained had it proceeded with a motion for judgment (as opposed to a default judgment), a review of the charges NRD is seeking to have paid by Ms. Litwin to discharge the mortgage, and whether the conduct of NRD disentitles NRD from the amounts it seeks to have Ms. Litwin pay.
Issues and Analysis:
Issue 1: By virtue of obtaining default judgment, is NRD estopped from seeking payment from Ms. Litwin on other amounts due under the mortgage for mortgage enforcement?
[30] Ms. Litwin, in her factum and through counsel, argues that after the registrar rejected NRD’s first requisition for default judgment filed on December 2, 2019 because it sought judgment on items other than principal and interest, NRD ought to have pursued a motion for judgment before a judge. Instead, NRD decided to resubmit a requisition for default judgment for only the principal, interest and costs. In so doing, Ms. Litwin argues that the issue of all amounts outstanding under the mortgage, including the fees sought by NRD, was decided by the default judgment issued on February 6, 2020. She argues the doctrine of res judicata precludes NRD from enforcing on amounts claimed in its Statement of Claim but not included within the default judgment.
[31] Ms. Litwin relies on XLO Investments Ltd. v. Hachey, 1987 CarswellOnt 2655 (Ont. Dist Ct) (“XLO Investments”), notably, para 10 where the Court held:
“…it is not open to the plaintiff to go behind the judgment it has obtained on the covenant in the mortgage and claim a larger amount than is shown in it. While the mortgage may contain a provision against merger of the respective remedies contained in the mortgage, the claim under the covenant has merged in the default judgment.”
[32] In response, NRD relies upon section 20 of the Standard Charge Terms 200033, incorporated by reference into the mortgage. It reads:
The taking of a judgment or judgments on any of the covenants herein shall not operate as a merger of the covenants or affect the Chargee’s right to interest at the rate and times provided for in the Charge; and further that any judgment shall provide that interest thereon shall be computed at the same rate and in the same manner as provided in the Charge until the judgment shall have been fully paid and satisfied. [emphasis added]
[33] NRD also relies on Violi v. McLeod, 2006 CanLII 15911 (ON SC) (“Viola”) where the Court was faced with a near identical set of circumstances. In that case, default judgment was taken out for the principal balance and an order for possession of the charged property with costs fixed by the registrar. The mortgagor asserted that the mortgage must be discharged upon payment of the judgement. The standard charge terms contained the same non-merger provision as in this case. Justice Flynn declined to find that the mortgage debt was satisfied upon payment of the default judgment. He explained his rationale in paras 22 - 24:
“[22] The Standard Charge Terms are not ambiguous. They are contractual terms to which the mortgagors agreed. Accordingly, this judgment on the covenant does not merge.
[23] I prefer and adopt the reasoning of Juriansz J. in Benson v. Gibson, [2000] O.J. No. 4063, where he ruled that a mortgagee exercising its rights under a Power of Sale contained in a mortgage was not bound by a judgment obtained in an action on the covenant in respect of the costs and expenses it claims and where he denied the Applicants’ requests for a declaration that there are no monies owing under the mortgage and for an order discharging the mortgage (as here).
[24] At paragraph 13, Juriansz J. writes this:
“Given the non-merger provision, while the Chargee might have included in its action a claim for all costs already incurred in respect of the Power of Sale, I was not persuaded it was required to do so. After obtaining judgment it would in the ordinary course continue with its Power of Sale and incur further expenses, which it would charge against the sale proceeds. The judgment does not preclude the Chargee from claiming further expenses incurred in exercising the Power of Sale, and, in my view, it does not preclude the Chargee claiming expenses already incurred in respect of the Power of Sale where it has not claimed them in the action.”
[34] NRD further argues that the charges not included in the default judgment were not adjudicated, and that NRD should not be barred from requiring they be paid simply because it opted for default judgment as the more expedient and economical route for it to take, which was also of benefit to Ms. Litwin.
[35] Finally, NRD argues that if the mortgage debt does merge with the default judgment, NRD requests that the Default Judgment be amended to include those additional amounts that would otherwise be payable on the Mortgage but for the merger. In the further alternative, it argues it should only be estopped from claiming those amounts explicitly enumerated in the Statement of Claim, and not to enforcement expenses that are not explicitly sought in the claim (see Legault v. Bertram, 2011 ONSC 879 at paras 35-40).
[36] I agree with the reasoning of Justice Flynn in Viola, supra, which apply equally in this case. To the extent there is conflict with XLO Investments, it can be reconciled by the language used in XLO Investments which speaks to “a provision against merger of the respective remedies”, but in this case, the mortgage term expressly states “the taking of a judgment…shall not operate as a merger”. Given this clear and unambiguous language of s. 20 of the Standard Term Mortgages, I find that the default judgment obtained by NRD did not operate as a merger of the other covenants due under the mortgage.
[37] The fact that NRD tried previously to obtain default judgment with the additional charges due under the Mortgage, but the registrar rejected that requisition, does not change this result. The registrar only had authority to issue damages that were liquidated. It would be exceedingly demanding on registrars to review each provision of a Mortgage to determine what other fees and charges are due when issuing default judgment. As such, in my view, the fact that a previous attempt was made to seek further charges due under the Mortgage, in addition to principal and interest, does not change the result.
[38] If I am wrong in my analysis or conclusion, I exercise my authority to vary the default judgment issued on February 6, 2020 to include those additional amounts ordered to be paid to discharge the mortgage, as set out below. I do so because the evidence of Mr. Chimienti demonstrates NRD’s clear intention to collects these amounts and to bring this proceeding to a conclusion in a timely and cost-effective manner. In contrast, evidence of Ms. Litwin’s efforts to pay the amounts due under the Mortgage, and her explanation of delays in seeking to refinance the mortgage, is lacking. It does not evidence an intention to achieve a prompt and cost-effective resolution. Where a defendant fails to make payments due and to promptly refinance a defaulted mortgage, it would be entirely reasonable for a plaintiff, such as NRD, to obtain default judgment and an order of possession, as they did, to demonstrate that they were serious in collecting amounts outstanding in the hope that it would compel the mortgagor to take action. This hope was realized in this case. It was not until December 2020 or January 2021, a matter of weeks after Default Judgment and the order of possession was served on Ms. Litwin, did Ms. Litwin begin to take serious efforts to resolve this matter. NRD’s cost-effective litigation strategy appears to have worked, and it should not be prejudiced as a result.
Issue 2: What is the amount payable by Ms. Litwin to have NRD discharge the mortgage to allow her to refinance the Property with a new lender? Do the amounts that NRD is charging offend s. 8 of the Interest Act, are they otherwise unlawful or unsupported by the covenants in the mortgage contract, or should they even be made payable as a result of the conduct of NRD?
[39] Ms. Litwin takes issue with several charges on the mortgage discharge statements issued by NRD’s lawyer on February 4, 2021, which includes amounts owing to February 9, 2021, totalling $447,427.71. NRD subsequently conceded, in Mr. Chimienti’s affidavit served on April 6, 2021, that some of these charges were improperly included in the discharge statement and that some charges, while due, were not being pursued on discharge. The concessions offered by NRD is valued at $60,973.
[40] At paras 52-55 of Mr. Chimienti’s affidavit, he explains that:
a. Two renewal fees ($12,000 each) were improperly charged. This administrative error was made because Hosper has included this charge in its most current standard schedule, but since Ms. Litwin’s Mortgage dates to 2018, they do not apply and should not have been included.
b. The mortgage Impairment Insurance Charge ($185) was improperly charged. It similarly is part of its new standard schedule, but it is not within the version used in 2018.
c. Placement Fees ($8,600 and $5,400), Broker Fees ($12,995 and $8,995) and Admin Fees ($399 x 2) were charges related to two transactions that Ms. Litwin arranged in December 2020, but subsequently “walked away from”. While Mr. Chimienti believes they are payable for the work thrown away, they are not being pursued on discharge.
[41] At the hearing and in NRD’s compendium, the following are the charges NRD is claiming to discharge the Mortgage, calculated as at April 26, 2021:
Principal
$300,000.00
July 1 Payment returned NSF
1,373.75
Interest (Aug 1 – Feb 1)
52,202.50
Interest (Feb 1 – Feb 9)
812.96
Per Diem Interest to April 26 Hearing Date (76 days @ $90.33)
6,865.08
Discharge Fee
750.000
Statement Prep Fee (6 x $250)
1500.00
NSF Fees
1250.00
Demand Letter
350.00
Default Proceedings Fee
3000.00
Termination Bonus
8,242.50
Legal Fees
16,973.00
Total
$393,319.79
[42] Ms. Litwin does not dispute payment of principal or interest as set out in items 1-5 in the above chart. For the most part, the balance of the remaining fees is in dispute. Ms. Litwin argues that many of the fees imposed were not incurred or were not reasonable, that they are fines or penalties and thereby offend s. 18 of the Interest Act, or they are costs that would not have been incurred had the February 4, 2021 discharge statement accurately reflected the correct amount due for a discharge. She further alleges that there is duplication in some of the fees charged for administration which were also charged and included as part of the legal fees.
[43] In response, NRD states that the administrative charges incurred were separate and apart from the legal fees, reflecting the distinct roles played by Hosper as NRD’s mortgage administrator and by NRD’s counsel. These charges, NRD argues, are a genuine pre-estimate of administrative expenditures, which were agreed to by Ms. Litwin in the Mortgage contract. Mr. Chimienti, in his affidavit evidence, explained some of these charges.
Application of Legal Principles to Administrative Costs Charged by NRD
[44] Due to the relative bargaining positions as between financial mortgagees and individuals and families who seek mortgages, there is statutory and common law protection in place for borrowers. These protections also seek to balance the interests and business needs of mortgagees. Justice Myers, in BMMB Investments Limited v. Naimian, 2020 ONSC 7999 (“BMMB”), summarized the governing principles and authority as follows:
“[35] Section 8 of the Interest Act prevents additional charges from being added to mortgages that are in arrears.
8(1) No fine, penalty or rate of interest shall be stipulated for, taken, reserved or exacted on any arrears of principal or interest secured by mortgage on real property or hypothec on immovables that has the effect of increasing the charge on the arrears beyond the rate of interest payable on principal money not in arrears.
[36] Case law has consistently held that lenders may lawfully recoup from mortgagors who are in default of their payment obligations the administrative costs incurred by the lenders caused by the defaults. The common law recognizes that for good business reasons such costs can be estimated in advance and fixed in a contract. But fees and charges levied on a mortgage default that are not genuine pre-estimates of costs actually incurred by a lender are penalties that can be void at common law and may violate the statute.
[37] In P.A.R.C.E.L. Inc. v. Acquaviva, 2015 ONCA 331, the Court of Appeal held:
[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.”
[45] With respect to administrative costs, while a mortgagee is generally entitled to be indemnified for the costs that are incurred to respond to a default by a mortgagee, the costs claimed must be reasonable and properly incurred. There must be some basis in the evidence to determine that costs were incurred at the amounts claimed. Absent proof of specific costs being incurred, the costs are rightly subsumed in the ordinary course of the mortgagee’s business. See Lee v He, 2018 ONSC 5932 at para 43, and BMMB, supra at paras 26 and 43.
[46] Below, I apply these principles to the fees charged by NRD.
[47] Discharge Fee ($750)
This amount is chargeable pursuant to the Mortgage contract (s. 8). Mr. Chimienti’s affidavit states it is to cover administrative efforts in preparing final accounting, liaising with the investor to have discharge documents signed off, and remitting funds. In my view, it is reasonable, properly incurred, and payable.
[48] Statement Prep Free (6 x $250 = $1500)
This amount is also chargeable pursuant to the Mortgage contract (s. 7). Mr. Chimienti’s affidavit states that over the course of the various refinance attempts, Hosper on behalf of NRD has produced six different discharge statements or information statements at the Defendant’s request. It was a cost incurred, although the evidence shows that at least one statement, dated February 4, 2021, had administrative errors that significantly inflated the amount. It would be inappropriate and unfair to pass this cost on to Ms. Litwin. Therefore, the total amount payable for statement prep fees is $1250 and not $1500.
[49] NSF Fees (5 x $250 = $1250)
This amount is also chargeable pursuant to the Mortgage contract (s. 3). Mr. Chimienti’s affidavit asserts that these are not merely late charges for missed payments but intended to cover the administrative cost of the bank fees for reversed payments and staff time “to follow-up with the borrower and the underlying investor”. I accept that there are bank fees for each reversed payment that was incurred. However, when a mortgagor is in default repeatedly, as Ms. Litwin was, I fail to appreciate what the subsequent “follow-up with the borrower and underlying investor” would entail for each subsequent NSF payment other than be a brief email or call advising of the NSF payment and demanding payment. Mr. Chimienti did not provide particulars to justify what proportion represented bank fees versus administrative fees, although I accept that some administrative time would be needed with each NSF payment. As such, I reduce this total amount by half to $625.
[50] Demand Letter Fee ($350)
The Mortgage contract demands payment of $1500 for a demand letter (s. 5). NRD has voluntarily agreed to reduce this amount to $350. Mr. Chimienti states that this is to cover administrative costs. It was a cost incurred. In my view, this reduced amount is reasonable and payable.
[51] Default Proceedings Fee (4 x $750 = $3000)
The Mortgage contract imposes a $1,500 default proceedings fee (s. 6). According to Mr. Chimienti, it is to cover the various administrative costs associated with instructing counsel and coordinating with NRD. NRD/Hosper has reduced this fee by 50% to $750 to bring it in line with the actual costs incurred. I find this is not unreasonable. However, I further reduce it by one payment, for a total of three default proceeding fees, on the basis that had the February 4, 2021 not erroneously inflated the mortgage discharge statement, the fourth default proceeding fee to obtain the Writ of Possession may not have been incurred. Therefore, the total amount owing for Default Proceedings Fee is $2,250.
Application of Legal Principles to Termination Bonus / S. 17 Mortgages Act
[52] Counsel for NRD acknowledged that there is no authority within the Mortgage contract or schedule for NRD to collect the termination bonus, which represents three months interest on the principal. He advised that the authority rests solely from s. 17 of the Mortgages Act, which reads:
17 (1) Despite any agreement to the contrary, where default has been made in the payment of any principal money secured by a mortgage of freehold or leasehold property, the mortgagor or person entitled to make such payment may at any time, upon payment of three months interest on the principal money so in arrear, pay the same, or the mortgagor or person entitled to make such payment may give the mortgagee at least three months notice, in writing, of the intention to make such payment at a time named in the notice, and in the event of making such payment on the day so named is entitled to make the same without any further payment of interest except to the date of payment.
(2) If the mortgagor or person entitled to make such payment fails to make the same at the time mentioned in the notice, the mortgagor or person is thereafter entitled to make such payment only on paying the principal money so in arrear and interest thereon to the date of payment together with three months interest in advance.
(3) Nothing in this section affects or limits the right of the mortgagee to recover by action or otherwise the principal money so in arrear after default has been made.
[53] There are two decisions from the Court of Appeal that have interpreted the purpose and application of s. 17 of the Mortgages Act and its interplay with s. 8 of the Interest Act: Gullett v. Income Trust Co, [1985] OJ No 200, and Mastercraft Properties Ltd. v El Ef Investments Inc., 1993 CanLII 8545 (ON CA), [1993] OJ. No. 1704. As said in Mastercraft by McKinlay JA in discussing s. 16 [now s. 17] of the Mortgages Act:
“By its terms, the provisions of s. 16 are incorporated into every mortgage in Ontario, and override any contrary provision in the mortgage. Section 16 gives a mortgagor a right, when in default of payment of principal, to repay that principal on giving three months' notice to the mortgagee of his intention to pay, and protects him from any further payment of interest except to the date of payment. Such interest would merely constitute payment for the use of the principal during the notice period. The provision protects the mortgagor by permitting payment of arrears without penalty, or by permitting early redemption at a price. It protects the mortgagee by giving him a three-month period during which to arrange for reinvestment of his principal, or monies to compensate for lack of that notice. The option is that of the mortgagor.”
[54] Courts have come to varying results when interpreting whether s. 17 confers authority on a mortgagee to charge three months’ interest in circumstances where a mortgage has matured, or where the mortgagee has initiated enforcement proceedings. At the hearing, counsel acknowledged that courts have not been consistent. Those cases are relevant here, since NRD is seeking to levy three months’ interest on the principal after the mortgage matured in July of 2019, and after it commenced enforcement proceedings.
[55] In Ialongo v. Serm Investments, 2007 CanLII 6242 (ON SC), Brown J. (as he then was), sought to rationalize the various jurisprudence. He concluded that Gullet remains authority for the ability of a mortgagee to require payment of three months’ interest as a bonus upon a default occurring at the maturity of a mortgage (para 24). However, at para 30 he stated,
“Once, however, the mortgagee takes steps to realize on its security, such as by issuing a notice of sale (see: Re Shankman and Mutual Life Assurance Co. of Canada (1985), 1985 CanLII 2196 (ON CA), 52 O.R. (2d) 65 (C.A.)), it cannot convert the rights of the mortgagor under section 17 into obligations of the mortgagor upon the realization of the security. The amounts a mortgagee may demand from a mortgagor upon realization are those spelled out in the mortgage contract, not in section 17 of the Mortgages Act.”
[56] More recently, in Lee v. He, 2018 ONSC 5932, Boswell J. dealt with a fact situation similar to the one in this case. A mortgage with a one-year term was not paid on maturity, and the mortgagors disputed fees the mortgagee insisted be paid to discharge the mortgage. The mortgagors brought an application to obtain a discharge of the mortgage. Boswell J. noted the purpose of s. 17 of the Mortgages Act ceases to make sense when a mortgage goes into default after maturity, at paras 26 - 27:
“Providing that a mortgagor in default may redeem the mortgage on the payment of three months interest, or on the provision of three months notice, serves to cap the damages payable for the mortgagee’s lost income stream, while concurrently fixing the mortgagee’s responsibility to mitigate its losses. In effect, it is afforded three months to reinvest its capital.
The rationale behind s. 17 ceases to make sense when a mortgage goes into default after maturity. In that circumstance, the lender has already received (or is entitle to receive) the whole of the income stream contracted for. The three months bonus interest would, in such circumstances, be nothing more than a penalty, something it was not intended to be: see Mastercraft Properties at para 4.”
[57] I agree with the reasoning of Justice Boswell. Specifically, if NRD were entitled to collect the three month “termination bonus” (as NRD has called it), it would amount to a penalty over and above the amount of interest that it contractually agreed to receive upon repayment. Moreover, the decisions in Ialongo, supra, and 2468390 Ontario Inc. v 5F Investment Group Inc., 2017 ONSC 4641 suggest that once a mortgagee takes enforcement proceedings, it has removed the option from the mortgagor of redeeming the mortgage. If three months’ interest was due after enforcement proceedings had begun, the rights of a mortgagor would become obligations of a mortgagor.
[58] If I am wrong in this analysis, I find that Ms. Litwin has provided more than three months notice of her intention to repay the mortgage under s. 17 of the Mortgages Act when, on January 15, 2021, her counsel forwarded an email request to Hosper advising that they (Ms. Litwin and her boyfriend) have secured alternative funding to bring the mortgage into good standing, and to “start the process of paying them out.” In response, counsel to NRD advised, “Thanks for this information. We are proceeding with enforcement in the interim and will not delay for any reason unless funds are in hand.” What followed was the inaccurate and inflated discharge statement from NRD of February 4, 2021. Accordingly, I find the “termination bonus” of $8,242.50 is not owed by Ms. Litwin to NRD.
Legal Fees
[59] Section 19 of the Mortgage contract states “all expenses incurred by the Chargee(s) related to the administration and maintenance of the Charge/Mortgage contract, including but not limited to legal costs, …shall be paid as demanded by the Chargee(s)…” Section 8 of the Standard Charge Terms further states that Ms. Litwin shall pay all NRD’s legal fees on a solicitor and client basis in generally any proceeding taken to realize upon the security. While these provisions may exist in the Mortgage documents, those legal fees must be reasonable and are subject to the Court’s overriding discretion with respect to costs. See Royal Bank of Canada v. Davidson, 2018 ONSC 6143 at para 17.
[60] The total legal expenses demanded to discharge the mortgage is $16,973.00, which represents $12,300 in legal fees plus $3,403.17, plus HST. NRD’s counsel advised at the hearing that its solicitor, Jeremy Richardson, charges $500/hour, although NRD’s legal account utilizes block fees rather than hourly rates. Upon review of the legal account, dated April 6, 2021 filed with the Court, it appears that several of these fees are excessive, inappropriate or duplicative of administrative expenses charged by NRD as administrative expenses. For example:
i. $500 in legal fees was charged for the preparation of a discharge statement, which had already been prepared by Hosper and charged as an administrative expense to Ms. Litwin. I fail to see how any significant legal fees can be incurred once an administrative discharge statement is prepared;
ii. $2,000 in legal fees for a Statement of Claim that constituted 3 pages of text outside of the usual boiler plate language that must appear in a Statement of Claim form;
iii. $2,000 to prepare a 2-page Notice of Sale, that contained virtually the same language as in the Statement of Claim, and could not have been more than a “cut and paste” job;
iv. $2,000 in preparation for a motion for substituted service; and
v. Questionable legal steps from February 3, 2021, which by then, Ms. Litwin had clearly communicated her intention to discharge the mortgage and after she had received a discharge statement with significant administrative errors.
[61] In exercising my broad discretion to determine costs, and with regards to all relevant factors in this case, I find that a reasonable and fair amount of legal costs that are properly chargeable by NRD to Ms. Litwin, excluding the costs of this motion/application, is $6,000, plus HST. The disbursements are also reduced from $3,403.17 to $3,010.81, plus HST, as they included fees not yet incurred to enforce the eviction. Therefore, legal costs payable by Ms. Litwin to discharge the mortgage is $9,010.81, plus HST, totalling $10,182.22.
[62] Accordingly, I order that the following amount be paid by Ms. Litwin to discharge the mortgage with NRD:
Principal
$300,000.00
July 1 Payment returned NSF
$1,373.75
Interest (Aug 1 – Feb 1)
$52,202.50
Interest (Feb 1 – Feb 9)
$812.96
Per Diem Interest to April 26 Hearing Date (76 days @ $90.33)
$6,865.08
Discharge Fee
$750.000
Statement Prep Fee (6 x $250)
$1250.00
NSF Fees
$625.00
Demand Letter
$350.00
Default Proceedings Fee
$2250.00
Termination Bonus
0.00
Legal Fees
$10,182.22
Total
$376,661.51
Issue 3: Does the conduct of NRD justify varying or setting aside the default judgement, restraining enforcement of the writ of possession, or the imposition of punitive damages against NRD?
[63] Ms. Litwin, through her counsel, argues that NRD’s conduct disentitles it from amounts accruing after Ms. Litwin attempted to payout the mortgage in February of 2021, or is otherwise worthy of sanction by the Court. While I do find that the erroneous discharge statement dated issued by NRD added to the delay in resolving this matter, I accept that it was a mere administrative error, reasonably explained by Mr. Chimienti in his affidavit. The other administrative charges and legal expenses were also slightly inflated by NRD. However, there is no question that the cost to discharge this mortgage today is much higher than it would have been had it been refinanced by Ms. Litwin promptly at maturity in July of 2019. Ms. Litwin must accept responsibility her burden of these additional cost.
[64] Accordingly, this is not an appropriate case to impose sanctions on NRD in terms of a punitive damages award, or to restrain NRD from enforcement of the writ of possession. However, as agreed by the parties at the hearing, NRD will not enforce the writ of possession until at least May 27, 2021, to afford Ms. Litwin time discharge the mortgage based on the total discharge amount as ordered by this Court in this decision.
Costs of this Motion/Application
[65] Pursuant to s. 131 of the Courts of Justice Act, RSO 1990, cost orders are at the discretion of the Court are to be guided by the factors set out in Rule 57.01. Ms. Litwin submitted a costs outline totalling $19,132.24, inclusive of disbursements and HST. NRD’s counsel submitted a costs outline totalling $13,124.95 all-inclusive.
[66] There was divided success on this motion/application. This was a simple collection case. While Ms. Litwin was successful in some of the relief claimed, she sought relief in the nature of an interlocutory and final injunction, as well as punitive damages. Those claims did not properly reflect Ms. Litwin’s own responsibility for the liability she owed to NRD, or her own delay in resolving this dispute through a refinance. It was only once she obtained a copy of the Default Judgment and order of possession that she took tangible steps. NRD, for its part, demanded administrative charges that it only conceded after this motion/application was scheduled. It also sought excessive legal fees which I found were improper. I ordered a significant reduction in fees and charges sought by NRD in its February 4, 2021 discharge statement. I can appreciate why those fees may have precluded Ms. Litwin from being able to discharge the mortgage in February 2021, which might have rendered this litigation unnecessary.
[67] As a result, and in consideration of the factors set out in rule 57.01, I order that no costs are payable by either party.
Order
[68] I make the following orders with respect to this motion/application:
a. The default judgment in court file CV-19-00625143-0000, issued February 6, 2020, is hereby set aside and replaced with this judgment, save and except the order of possession issued by the registrar, which shall remain in force.
b. Dorothy Litwin is ordered to pay to NRD Management Services Ltd. $376,661.51, plus interest fixed at 10.99% commencing as the day of this judgment. Upon payment of this amount, NRD Management Services Ltd. will forthwith discharge its mortgage registered on title with respect to the Property municipally known as 202-55 Halton Street, Toronto, Ontario.
c. The Writ of Possession issued in CV-19-00625143 shall also remain in force.
d. The Sheriff is hereby ordered not to take steps to execute the Writ of Possession until May 28, 2021. If Ms. Litwin fails to pay the amount ordered in this judgment by May 27, 2021, the Sheriff shall proceed to enforce the Writ of Possession, on an expedited basis, on May 28, 2021.
e. There shall be no cost award arising from this motion/application.
Sharma J.
Date: April 30, 2021