OSHAWA COURT FILE NO.: CV-22-735

DATE: 20220609

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

ANOJAN THANGAVEL and ROKULAN THANGAVEL

Applicants

– and –

BOWMANVILLE LAKEBREEZE WEST VILLAGE LTD.

Respondent

Ian J. Perry, Counsel for the Applicants

Ankush Sondhi, Counsel for the Respondent

HEARD: May 30, June 2, and June 6, 2022

REASONS FOR DECISION

DE SA J.:

Overview

[1] The issue on this application is whether the respondent mortgagee is in breach of the Mortgages Act, RSO 1990, c M. 40 (the “Act”), entitling the applicant mortgagors to set aside the original Notice of Sale, issued December 23, 2020, and suspend the rights of the respondent mortgagee until it has complied with the Act.

[2] The applicants take the position that the Notice of Sale is defective and, further, that the respondent’s failure to provide a correct mortgage statement suspended its rights as mortgagee as of March 10, 2022. The applicants seek:

• An order voiding and setting aside the respondent’s Notice of Sale, dated December 23, 2020;

• An Order requiring the respondent to deliver a fresh Notice of Sale and subsequent mortgage statements that complies with the Mortgages Act;

• An Order declaring that the respondent’s rights as mortgagee are suspended until it has complied with the above Order;

• An Order staying the purported sale of the Property by the respondent to allow the applicants a reasonable opportunity to redeem the mortgage; and

• An Order for the recovery of the applicants’ costs for this proceeding.

[3] Having reviewed the materials filed, the application is dismissed. The reasons for my decision are outlined below.

Summary of Facts

The Default

[4] The applicants, Anojan Thangavel and Rokulan Thangavel, are brothers. The applicants fell into default of a second mortgage loaned by the respondent, Bowmanville Lakebreeze West Village Ltd. (“Lakebreeze”).

[5] The subject property is municipally addressed as 2 Larkin Lane, Bowmanville, Ontario (the “Property”).

[6] The Property was constructed by the respondent between 2016 and 2020, and the sale of the Property to the applicants eventually closed on February 21, 2020. On closing, the applicants registered a second mortgage in favour of the respondent, Lakebreeze, in the amount of $500,000 (the “Lakebreeze Mortgage”).

[7] The applicants, after moving into the Property, discovered a number of deficiencies which required the respondent’s attention.

[8] In April of 2020, the applicants moved out of the Property so the repairs could be carried out on these deficiencies. According to the applicants, issues with mold resulting from a leaking roof made the Property uninhabitable for their mother.

[9] The cost of carrying their mother’s home and the Property became too much to bear and they stopped making payments under the Lakebreeze Mortgage on April 21, 2020.

[10] There are two mortgages on the Property. The mortgage with first priority on the Property is held by a bank. While the applicants have continued making payments on the first mortgage to the bank, the applicants have not made payments on the Lakebreeze Mortgage since April of 2020.

The Service of the Notice of Sale and Statement of Claim at 2 Larkin Lane

[11] Given the applicants’ refusal to make payments on the Lakebreeze Mortgage, the respondent proceeded with power of sale proceedings. The Notice of Sale dated December 23, 2020 was delivered on the applicants at 2 Larkin Lane (the Property).

[12] The respondent commenced a mortgage action against the applicants for the amounts outstanding on February 16, 2021, with substituted service on the applicants at the address of 2 Larkin Lane. They obtained default judgment as against the defendants on October 28, 2021. A Writ was obtained for the outstanding debt on December 21, 2021. The applicants have recently brought a motion to set aside the default judgment.

[13] According to the applicants, the first time they became aware of the action is on February 28, 2022 when they went to visit the Property to check on the status of the repairs on the Property. According to the applicants, they discovered the locks to the Property had been changed and found a Writ of Possession and Sale taped to the front door.

[14] The affidavit of service which is included in the applicants’ material, however, provides that the process server attempted to serve the applicants with the Statement of Claim on February 17, 2021 at 2 Larkin Lane but was unable to do so. The process server spoke with Rokulan Thangavel about service of the Claim, but he refused to provide his current address and he refused to meet at any alternate place. According to the affidavit of service, she was told by Rokulan to mail the Statement of Claim to 2 Larkin Lane.

[15] Counsel for the respondent also spoke to the applicants and advised them of the Notice of Sale and the Statement of Claim. The applicants were rude with counsel and advised that they would not accept service and ended the phone call.

[16] Various emails included in the applicants’ materials between Anojan and the builder’s representative also demonstrate that Anojan had been attending at the Property quite regularly before February 28, 2022. For example:

(i) On February 10, 2021, Anojan sent an email to the builder asking that a lock box be installed and a list of people coming in his house be provided. He stated, “Randomly people are coming to my house and saying that they are from the builder”.

(ii) On July 11, 2021, he wrote that he attended the house that weekend and saw the garage was open and all the room lights were on.

(iii) On July 21, 2021, an email was sent by the builder to Anojan advising that they had to rekey the house as one of the trades misplaced the key to the lockbox. Apologizing for the inconvenience, the builder advised that the keys would be at 79 Darlington in the Deck restaurant building.

(iv) The inspection report relied upon by the applicants dated January 21, 2021, indicates that the date of inspection occurred on January 21, 2021.

Sale of the Property and Efforts to Redeem the Mortgage

[17] Since March of 2022, the Property has been sold twice. The first sale was cancelled as the applicants registered a caution on the Property. The Property was sold again by the respondent to a third party on April 27, 2022 for $1,749,000 with an initial closing date of May 31, 2022. The third party is aware that the closing is subject to the issue of redemption being resolved with the applicants/owners.

[18] Since February 2022, the applicants have been making efforts to redeem the Lakebreeze Mortgage.

[19] On March 3, 2022, the applicants retained counsel and requested an original copy of the notice of sale and a current mortgage statement from the respondent.

[20] On March 3, 2022, the respondent’s counsel delivered a copy of the original Notice of Sale under mortgage, issued December 23, 2020. The total amount claimed as due and owing under the Notice of Sale was $561,965.19 (the Notice of Sale).

[21] On March 10, 2022, the respondent then provided the applicants with what it alleged was a current mortgage statement. The latest mortgage statement claims a total balance due and owing to the respondent of $783,241.79, over a $221,000 difference from the amount listed in the original Notice of Sale.

[22] The applicants contest various charges included in the most recent mortgage statement. More specifically, the applicants dispute:

i. Three months interest charge in the amount of $12,487.50

ii. Late or missed payments charges in the amount of $11,865

iii. Lender’s possession fees in the amount of $4,859

iv. Locksmith costs in the amount of $565;

v. Lender inspection, insurance, accounting, maintenance fees in the amount of $8,600.

vi. Interest on charges in the amount of $6,440; and

vii. Realtor costs in the amount of $122,040.

[23] The applicants asked the respondent to revise the most recent mortgage statement to reflect the proper amounts owing, but the respondent has refused.

[24] Between March 10, 2022 and May 25, 2022, the applicants have made efforts to qualify for a mortgage capable of redeeming the outstanding balance on the Lakebreeze Mortgage. They have been unable to do so.

[25] The applicants take the position that the respondent’s overstatement of the amounts owing have prejudiced the applicants from qualifying for new financing, preventing them from redeeming the Lakebreeze Mortgage.

The New Mortgage Commitment

[26] This matter initially came before me on May 30, 2022, one day before the scheduled closing date. The applicants maintained that they were in a position to obtain a mortgage commitment sufficient to satisfy the full $783,241.79 by June 2, 2022.

[27] I directed the respondent to delay the closing until Friday, June 3, 2022 with a view to allowing the applicants an opportunity to redeem the mortgage.

[28] By my order, the applicants were required to obtain a mortgage commitment in the amount of $783,241 as soon as possible, but no later than Thursday, June 2, 2022. Of that amount, $561,965.19 would be paid directly to the respondent. The remaining balance ($221,276), which was the amount in dispute, was to be paid into Court pending the outcome of the litigation.

[29] By my order of May 31, 2022, if the applicants were unable to obtain the necessary financing by Thursday, June 2, 2022, the respondent would be permitted to close on the sale on Friday, June 3, 2022.

[30] The matter was adjourned to Thursday June 2, 2022 at 9:30 a.m. for an update on the status of the matter. When the matter returned before me, counsel for the applicants advised that the applicants were able to obtain a Mortgage Commitment for $630,000 from the private lender (the Commitment). The funds could be advanced by June 16, 2022.

[31] The applicants have filed a copy of the Commitment. Of that $630,000, the Commitment requires $20,000 of the funds be paid directly to the new lender for the cost of obtaining the financing. A further $34,000 of the funds is required for municipal taxes that were unpaid on the Property.

[32] The Commitment requires that the new lender take the place of the respondent as the 2^nd mortgage holder on the Property and that no additional mortgages be placed on the Property.

[33] The Commitment also requires an up-to-date appraisal of the Property, showing a value of $1,986,000. It also requires that the amounts outstanding on the Lakebreeze Mortgage not exceed $500,000.

[34] The closing has been now delayed to June 10, 2022. The applicants are still asking that the sale to the third party be set aside given the deficiencies in the Notice of Sale. They are also seeking to set aside the default judgment in a separate motion scheduled in the upcoming weeks.

Position of the Applicants

[35] In this case, the applicants take the position that both the Notice of Sale and the Mortgage Statement are defective and violate the Mortgages Act. They maintain that the respondent’s rights as mortgagee should be suspended until these deficiencies are rectified and the applicants should be afforded a reasonable opportunity to redeem the mortgage once the Notice of Sale is corrected.

[36] According to the applicants, the Notice of Sale, dated December 23, 2020, is defective because:

(i) The Notice of Sale claims an ongoing interest rate of 18% per annum which neither the mortgage terms nor the Mortgages Act provides the respondent with any tenable basis for charging.

(ii) The interest rate increase claimed in the Notice of Sale constitutes fines or penalties prohibited under the section 8 of the Interest Act, R.S.C. 1985, c. I-15, s. 8.

(iii) The Notice of Sale claims various charges totalling over $10,000 that the respondent is not entitled to under the mortgage.

[37] In addition, the applicants submit that the Mortgage Statement, dated March 10, 2022, is incorrect because:

(i) The calculation of principal and interest is not separated or shown on the statement.

(ii) The respondent has presumably calculated the total amount owing using the incorrect rate ongoing interest rate 18% claimed in the Notice of Sale from December 23, 2020 to date.

(iii) The respondent claims numerous charges which are unlawful and were not properly incurred as an expense by the respondent. Most significantly, the respondent sought over $122,000 in additional “realtor fees” before the Property had sold and the fees had been incurred.

Analysis

General Principles

[38] Section 31 of the Mortgages Act provides that a mortgagee shall not exercise a power of sale unless a notice of exercising the power of sale has been given.

[39] The form of the prescribed notice of sale under mortgage requires the disclosure of certain information identifying the property, the mortgage and the amounts due. It warns the mortgagor and others having an interest in the property that, if the amounts are not paid by a certain date, the mortgagee will sell the property.

[40] The recipients of the notice of sale are in danger of losing their interest in the property through its sale by the mortgagee. Accordingly, the law has generally required strict compliance with the legal requirements for the exercise of a power of sale. See Botiuk and Collison (Re) (1979), 1979 CanLII 2060 (ON CA), 26 O.R. (2d) 580, [1979] O.J. No. 4429 (C.A.), at p. 589 O.R.; and Roth v. 340529 Ontario Ltd., [1982] O.J. No. 1149, 24 R.P.R. 198 (H.C.J.), at pp. 199-200 R.P.R.

[41] This is not a formalistic requirement but a substantive one; a notice of sale should not be held inoperative because of minor irregularities, so long as it meets the purpose for which it is required which is to permit the mortgagor to intelligently assess their position with respect to redemption of the mortgage.: Grenville Goodwin Ltd. v. MacDonald (1988), 1988 CanLII 4737 (ON CA), 65 O.R. (2d) 381, [1988] O.J. No. 1437 (C.A.), at para. 6: Hornstein v. Gardena Properties Inc., [2005] O.J. No. 3302, 34 R.P.R. (4th) 301 (S.C.J.), affd 2006 CanLII 23142 (ON CA), [2006] O.J. No. 2757, 46 R.P.R. (4th) 56 (C.A.), at paras. 4-5. As explained in 1173928 Ontario Inc. v. 1463096 Ontario Inc., 2018 ONCA 669, at para. 37:

[I]t is not the court’s function to seek pretexts to invalidate a mortgage sale. The cases insist that the mortgagee is entitled to be paid in full and is entitled to take enforcement steps without undue judicial interference. The courts have taken a functional approach: 1175945 Ontario Ltd. v. Michael Wade Construction Co., [2010] O.J. No. 3070, 2010 ONSC 3732, 95 R.P.R. (4th) 257 (S.C.J.), at paras. 14-17. In a commercial context involving sophisticated parties who know what is going on, reasonable expectations should govern, and a court should be reluctant to force a mortgagee to start over. No useful purpose would be served by replicating the “technical traps and procedural delays” of foreclosure and judicial sale in respect of the contractual power of sale: see the Ontario Law Reform Commission, Report on the Law of Mortgages, at p. 137.

[42] A timely discharge statement can form part of the relevant circumstances and can serve to correct an inaccurate notice of sale. Again, the focus is not on the technicalities but on the substance underlying the purposes of the notice of sale. As Justice Lauwers explained in 1175945 Ontario Limited v. Michael Wade Construction Co. Limited, 2010 ONSC 3732, at paras. 43-47:

Part of the relevant circumstances in assessing reasonableness might also involve assessing the effect of the inaccuracy in the notice of sale on the refinancing effort despite correction by a discharge statement. In the absence of evidence in this case I must conclude that it did not adversely affect that effort. In other words, echoing Zuber J.A.’s words in Grenville Goodwin Ltd. v. MacDonald, supra, the plaintiff as mortgagor was able to intelligently assess its position with respect to redemption of the mortgage, despite the omission of the rental payment from the notice of sale.

[43] The applicable standard is whether the notice of sale was reasonable in the circumstances. The court must assess whether the magnitude of the error in the notice of sale affected whether the borrower and subsequent encumbrancers were misled by it in assessing whether to redeem the mortgage, based on a commercially reasonable standard.

[44] Serious errors will invalidate a notice of sale. In Grenville Goodwin, for example, the court addressed the notice of sale’s failure to accurately deal with municipal taxes. The balance on the mortgage was about $4.7 million. The amount claimed to be due was overstated by $221,331.43. In that case, the court found the magnitude of the error to be fatal to the notice of sale, which it invalidated, along with the sale itself. see Toronto-Dominion Bank v. Pallet Developments Ltd. (1984), 1984 CanLII 3009 (ON SCDC), 47 O.R. (2d) 251, 11 D.L.R. (4th) 91 (Div. Ct.).

Application to the Facts of this Case

[45] In this case, the applicants contest various charges included in the original Notice of Sale and in the most recent Mortgage Statement relied upon by the respondent. More specifically, the applicants dispute the following charges that are listed in the Notice of Sale:

(i) Three months interest charge in the amount of $12,487.50

(ii) Late or missed payments changes in the amount of $11,865

(iii) Lender’s possession fees in the amount of $4,859

(iv) Locksmith costs in the amount of $565

(v) Lender inspection, insurance, accounting, maintenance fees in the amount of $8,600.

(vi) Interest on charges in the amount of $6,440.

[46] In the most recent Mortgage Statement, the respondent has also sought over $122,000 in additional “realtor fees” before the Property had sold and the fees had been incurred. This additional amount is also in dispute.

[47] They also dispute the most recent Mortgage Statement in that the respondent has calculated the total amount owing using an ongoing interest rate of 18% claimed in the Notice of Sale from December 23, 2020 to date.

[48] In P.A.R.C.E.L. Inc. v. Acquaviva, 2015 ONCA 331, the Court explained at para. 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.]

[49] The passage above makes clear that there is a sound basis for the applicants’ complaint with respect to the charging of 18% interest.

[50] I asked the respondent to produce a statement of the amounts owing on the Lakebreeze Mortgage with the interest calculated at 9.99 percent. That statement has been provided to the applicants and produced to the Court. Absent any additional fees, and removing all disputed charges, at the rate of 9.99 percent, the amount owing is $619,011.22.

[51] The applicants have acknowledged that on the existing Commitment, they cannot pay out the Lakebreeze Mortgage. The Commitment they obtained was for $630,000. As noted above, there are back taxes owing of $34,000 on the Property. In addition, there is a $20,000 fee associated with obtaining the funds from the private lender.

[52] The Commitment itself requires an up-to-date appraisal of the Property, showing a value of $1,986,000. The Commitment also contemplates the applicants discharging the Lakebreeze Mortgage on the Property upon receipt of the funds. Neither of these conditions are likely to be met.

[53] In short, there is no realistic possibility that the applicants will be able to redeem the Lakebreeze Mortgage even on the most conservative of estimates.

[54] I do not find the initial Notice of Sale, issued December 23, 2020 to be invalid. The Notice of Sale claimed as due and owing the amount of $561,965.19. This total did not include the 18% interest on the arrears. While there are some disputed amounts, they are clearly referable to the original mortgage commitment. In the context of the overall amounts owing, they are not sufficient to invalidate the Notice of Sale in my view.

[55] In Hornstein v. Gardena Properties Inc., 2006 CanLII 23142 (ON CA), [2006] O.J. No. 2757, 46 R.P.R. (4th) 56 (C.A.), the court considered a mortgagor’s challenge of a notice of sale after the mortgagee had sold the property to a third party. The court stated at paras. 7 and 9:

The law is stated accurately in Toronto Dominion Bank v. Pallett Developments Ltd. (1984), 1984 CanLII 2062 (ON SC), 47 O.R. (2d) 251, where the Divisional Court referred to several sources for the proposition that, under the relief before sale provisions of the Mortgages Act (now R.S.O. 1990 c. M.40, s. 22(1)), a mortgagor who has defaulted can retain the mortgaged property by payment of the amount in default, but only before an agreement for sale has been entered into by the mortgagee “even where the agreement is said to be subject to the right of the mortgagor to redeem or put the mortgage into good standing” (at pp. 255-56).

…Since Arnold v. Bronstein was decided in 1971, the case law has made it clear that the mortgagor has no right to redeem by payment after the agreement has been entered into: Logozzo v. Toronto-Dominion Bank (1999), 1999 CanLII 9313 (ON CA), 45 O.R. (3d) 737 (C.A.); Toronto Dominion Bank v. Pallett Developments Ltd. (1984), supra; Theodore Daniels Ltd. v. Income Trust Co. (1982), 1982 CanLII 1757 (ON CA), 37 O.R. (2d) 316 (C.A.); Mission Construction Ltd. v. Seel Investments Ltd., 1973 CanLII 396 (ON SC), [1973] 2 O.R. 190 (H.C.J.). Therefore, where the mortgagee acts in good faith, it will not be restrained from exercising the power once it has entered into a binding agreement of purchase and sale. After that time, the mortgagor no longer has the right to tender payment.

[56] While the 18% interest charged in the most recent Mortgage Statement has been disputed and reasonably so[^1], it is clear that the applicants are not in a position to redeem the mortgage even if a 9.99% interest rate were charged.

[57] While I agree that the issues raised by the applicants should limit the amount the respondent can claim from the proceeds of sale, I am not prepared to further delay the sale of the Property.

[58] Upon the sale of the Property, after paying out the first mortgagee, the amount of $561,965.19 (the amount referenced in the original Notice of Sale) can be paid directly to the respondent. Given the ongoing dispute between the parties, the remaining balance, after payment of taxes and real estate fees, etc. is to be paid into Court pending the outcome of the litigation.

[59] I will receive costs submissions from the respondent within 3 weeks of the release of this decision. The applicants have one week thereafter to respond.

Justice C.F. de Sa

Released: June 9, 2022

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

ANOJAN THANGAVEL and ROKULAN THANGAVEL

Applicants

– and –

BOWMANVILLE LAKEBREEZE WEST VILLAGE LTD.

Respondent

REASONS FOR DECISION

Justice C.F. de Sa

Released: June 9, 2022

[^1]: See Reliant Capital Ltd. v. Silverdale Development Corp., [2006] B.C.J. No. 1028, 2006 BCCA 226, 52 B.C.L.R. (4th) 13.