COURT FILE NO.: CV-19-625950

DATE: 20211206

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2611009 ONTARIO INC., Plaintiff

-and-

AMBER BALOCH, Defendant

BEFORE: FL Myers J

COUNSEL: Peter Verbeek, for the Plaintiff

Zaheed Moral, for the Defendant

Obaidil Hoque, for the proposed purchaser

HEARD: December 6, 2021

ENDORSEMENT

[1] This is a mortgage enforcement action. The plaintiff mortgagee obtained default judgment for possession on February 22, 2021.

[2] On Friday, December 3, 2021, the defendant mortgagor requested an urgent hearing of a motion to require the mortgagee to discharge its two mortgages on payment into court of amounts to be fixed by the court.

[3] Counsel advised that the mortgagor has sold the property with a closing set for December 10, 2021. The plaintiff and defendant do not agree on the amount required to pay out the plaintiff’s mortgages.

[4] The defendant delivered a motion record with her request and counsel fairly set out the urgency in accordance with s. C.1.8 of the Notice to Profession – Toronto; Toronto Expansion Protocol for Court Hearings During COVID-19 Pandemic. As triage judge, late Friday afternoon, I convened a case conference for first thing this (Monday) morning. I directed the Motions Coordinator to provide the following notice to counsel when setting up the case conference:

Under Rule 50.13 (6) his honour may determine summarily if discharges must be provided on terms requiring payment of sale proceeds into court.

Additionally, it is not at all clear that the proposed sale will yield sufficient proceeds to pay out the existing mortgages (including the amounts paid by the second mortgagee to secure the discharge of the first mortgage).

[5] At the commencement of the case conference this morning, counsel for the mortgagor agreed that the sale proposed by his client will not yield sufficient proceeds to pay out the full amount claimed by the mortgagee including all interest, fees, and costs. However, he presented a chart showing some 30 amounts claimed by the mortgagee in its discharge statement that the mortgagor believes she can challenge successfully.

[6] The mortgagor asks for a hearing before December 10, 2021, i.e. this week, to determine a fair amount for her to pay into court given her numerous potential challenges to elements of the amounts sought by the mortgagee.

[7] The mortgagee says that theses mortgages have been in default since July, 2019. The mortgagor did not appear in this litigation before now. The first time the mortgagee heard from the mortgagor about a proposed sale was on November 25, 2021. On that date, counsel for the mortgagor sought information from the mortgagee to facilitate a sale closing on November 29, 2021.

[8] The mortgagee’s counsel provided the documents sought, or some of them, within a short number of hours.

[9] When it became apparent to the mortgagor that her proposed sale would not yield sufficient proceeds to pay the mortgagee the amounts that it claims, the mortgagor was able to have its purchaser agree to an extension of the closing date to December 10, 2021 to allow this proceeding to be brought.

[10] There is no doubt that the court can require a mortgagee to discharge its security on funds being paid into court. Since the funds are alternative security to the land, the amount to be paid should replicate the security being discharged as best as possible. Generally, a borrower who is asking to have secured collateral released pending an accounting pays into court cash collateral for the full fair market value of the collateral being released or the full amount of the secured creditor’s claim plus some amount for its costs. This is the case whether under Rule 45 or in construction lien cases for example.

[11] The mortgagor is not proposing to pay into court the full amount claimed by her lender. Rather than substituting cash collateral for the full amount of the claim pending a later accounting, the mortgagor here needs an accounting first in order to fix the amount that she is required to pay. The mortgagor understands that, on the current claims of the mortgagee, the proposed sale will not provide sufficient funds. In other words, unless the amount due to the mortgagee is cut back now, the mortgagor will not have enough to pay the mortgagee in full to compel a discharge.

[12] The mortgagee has taken possession of the premises and proposes an MLS sale that its agent has advertised for December 11, 2021. Mr. Verbeek says that the idea is to let the mortgagor close her sale on the 10th if she can obtain sufficient proceeds to pay out the mortgages. If that does not happen, the mortgagee hopes that the one week delayed of its MLS sale will produce an auction to maximize recovery.

[13] The mortgagee points to some terms of the mortgagor’s proposed agreement of purchase and sale that suggest to it that the mortgagor’s proposed sale is not a bona fide sale to a third party at fair market value. It says that the mortgagor appears not to have exposed the property to the public market place to maximize the sale proceeds.

[14] If the mortgagee sells at a price higher than the amount proposed by the mortgagor, that may leave some value for the mortgagor. It is difficult to see what interest the mortgagor has in completing its proposed sale that will leave her little to no proceeds if the proposed sale is truly an arms length sale to a bona fide third party purchaser.

[15] Mr. Moral’s chart shows potential challenges to some 30 items of interest, fees, and costs claimed by the mortgagee. Of those, 12 are for interest, fees, and expense items of more than $1,000.

[16] Mr. Hoque asks whether the court can consider the list of challenges to interest, fees, and expenses claimed by the mortgagee in its discharge statement summarily, at a high level of abstraction, to exercise its discretion to set a lower amount for the mortgagor to pay into court to obtain a discharge. The difficulty with that submission is that while the court can certainly get a flavour of some of the larger amounts claimed, items assumed to be weak may later be found to be properly due and owing. If that occurs, the funds in court may not be sufficient to pay the amounts and the property will already have been released as security. The mortgagee will be giving up its security and leaving itself unsecured and facing a shortfall. That would not be an equitable outcome.

[17] I am bolstered in this view by the absence of evidence from the mortgagor that its sale was the product of a full marketing of the property on public markets. Absent evidence that the sale represents fair market value as determined between arms length parties after sufficient exposure of the property to a pool of potential arms length buyers, I do not see how I can leave the mortgagee deprived of its entitlement to conduct its own a value-maximizing sale of its collateral. Without proof that the creditor will suffer a shortfall on a sale of the mortgaged property at fair market value, it is not equitable in my view, to substitute other collateral that risks being insufficient to pay the mortgagee in full in all circumstances.

[18] Mr. Verbeek offers that the mortgagee will consent to an order requiring it to grant discharges on payment of the full amounts claimed in its existing discharge statements. Some of those amounts, if contested, can be paid into court or to counsel in trust. This is a compromise as the mortgagees would normally be entitled to some security for the costs to be incurred in a future reference for an accounting.

[19] The urgency in this case is self-imposed by the mortgagor. It surprised the mortgagee with a very last-minute sale. It then obtained a ten-day extension in which it asks the court to conduct a reference on the merits for 12 to 30 items in dispute.

[20] There is no judicial time available this week to consider this matter. Even if the reference is limited to the 12 larger matters, or some subset of those that are the most material, the hearing would not be quick. It is a reversal of the normal process of paying the sum claimed into court and then holding a proper accounting on full material in due course.

[21] This is not a matter then that justifies knocking another scheduled matter from its place in the court’s docket for this week.

[22] Order to go as set out in the first sentence of para. 18 above.

[23] It remain in the interests of the parties to reach a negotiated resolution that avoids the need for the mortgagee to conduct its own sale process and then participate in a reference in which its interest, fees, and costs are subject to microscopic assessment. The mortgagor and its proposed buyer indicate a willingness to negotiate to try to satisfy the mortgagee to accept an amount less than it currently claims. Mr. Verbeek invites Mr. Hoque to provide a detailed and reasonable list of materials that he would like to review in order to consider further whether many of the most material claims for interest, fees, and costs, are readily challenged. If I can be of assistance to the parties to spend a brief time trying to help them surmount the final hurdles to a proposed settlement, counsel may contact my office this week.

FL Myers J.

Date: December 6, 2021