Court File and Parties

Court File No.: CV-22-1006 Date: 2022-11-14 Superior Court of Justice - Ontario

Re: Trudy Lorraine Laekeman, Applicant And: 2748204 Ontario Inc. o/a Flex Homes Loans, Michael Yosher, Manjit Singh, Shalom Malca and Iris Malca, Respondents

Before: Justice D.A. Broad

Counsel: Amanda Geiger, for the Applicant Solomon Ross Fischhoff, for the Respondents 2748204 Ontario Inc. o/a Flex Homes Loans, Michael Yosher, Shalom Malca and Iris Malca

Heard: November 2, 2022

Endorsement

Background

[1] This matter concerns an Application for an order authorizing the issuance of a Certificate of Pending Litigation in the context of a dispute involving the enforceability of a mortgage alleged by the applicant to have been obtained by fraud.

[2] The applicant is a 64-year-old retiree. She is the owner of a residential property municipally known as 22 Fairview Avenue, Kitchener, Ontario (the “property”). She has owned the property since October 2001 and has resided there alone since that time.

[3] On or about October 17, 2020 the applicant executed certain loan and mortgage documentation (the “documents’) authorizing and directing the respondent 2748204 Ontario Inc. o/s Flex Home Loans (“Flex Loans”) to register a mortgage on the property to secure a loan in the principal amount $24,000 (the “loan amount”). The registered mortgage (the “Mortgage”) is in the principal amount of $30,999.85, comprised of the loan amount, administration and registration fees of $1000 and 15 months’ deferred interest. The stated interest rate was 15.48% per annum.

[4] The loan amount was used by the applicant to pay an invoice dated November 17, 2020 from 2758729 Ontario Inc. o/a Complete Home Comfort (CHC”) for various household goods and services specified in the invoice and signed by the applicant. The mortgage funds were advanced by Flex Loans directly to CHC and not to the applicant in accordance with her written direction in the documents.

[5] The applicant did not name CHC as a respondent to the application, but rather named Manjit Singh (“Singh”) who appears to be a director of CHC. Singh did not enter an appearance in the proceeding and is not represented by Mr. Fischhoff.

[6] The respondent Michael Yosher (“Yosher”) is the sole director of Flex Loans.

[7] The respondents Shalom Malca and Iris Malca (the “Malcas”) are the present holders of the mortgage. Flex Loans sold the Mortgage to the Malcas on January 18, 2021 for the discounted sum of $27,124.87 and a Transfer of Charge was registered in their favour. Flex Loans continues to manage and administer the mortgage for and on behalf of the Malcas.

Applicant’s Allegations of Fraud

[8] The applicant alleges that she granted the mortgage to Flex Loans based upon a fraudulent representation made by an unidentified male person who approached her at her home. She states that the individual himself as representing a law firm recruiting claimants for a class-action lawsuit against a business called Eco-Global with which the applicant contracted in or about 2016 for an air purifier system to be installed in her home.

[9] The applicant deposed that, in the course of the meeting, the unidentified individual placed various papers before her and told her to sign them. He did not explain the particulars of the documents but told her that the documents were for her to agree to participate in the lawsuit against Eco-Global and to get various home services installed.

[10] The applicant deposed that she did not read the documents before signing them and did not have the opportunity to obtain independent legal advice with respect to the documents. She has poor eyesight and was not wearing her glasses at the time. She also deposed that she had been drinking, and her cognition was impaired and her defences were down. She said that she was never provided with copies of the documents she executed.

[11] In the days following the unidentified man’s attendance, two other unidentified men attended at the applicant’s home to install a surge protector on her electrical panel and to blow a small amount of insulation into her attic. This work took about 1.5 hours.

[12] Following the execution of the documents, the applicant noticed monthly withdrawals from her BMO chequing account in the amount of $9.99, identified on her statement as “Flex Homes Loans.” She believed these to be payments required to include her as a plaintiff in the class-action lawsuit against Eco-Global.

[13] In July 2020 the applicant noticed a withdrawal of $399.99 from her Bank of Montreal (BMO) account from Flex Home Loans. She contacted BMO and instructed it to stop payment on any future withdrawals from Flex Loans. BMO reversed three monthly payments in the amount of $399.99 each.

[14] In August 2022 the applicant received a Notice of Sale under Mortgage issued on behalf of the Malcas.

[15] The applicant deposed that she has limited means and is retired and a recipient of Worker’s Compensation benefits. The property is her primary asset and it is her intention to live there indefinitely until the point at which she would need to move into long-term care or another form of seniors’ living. She intends to live off the sale proceeds from her property if and when she sells it.

Response of the Respondents (excepting Singh) to the applicant’s allegations of fraud

[16] In response to the application and on behalf of Flex Loans, the Malcas and himself, (the “responding parties”) Yosher deposed that Flex Homes is a completely distinct entity from CHC, Singh and the Malcas, except as described in his affidavit.

[17] Yosher deposed further that, in order to finance the purchase of the goods and services from CHC, the applicant applied for financing through Flex Loans. She received and signed a series of documents on November 17, 2020, which included an authorization and direction to register the mortgage against the property. Yosher did not identify the person who gave the documents to her for execution.

[18] The applicant acknowledged in the documents being strongly recommended to obtain independent legal advice and/or representation.

[19] Yosher stated that on November 19, 2020 the applicant signed a Letter of Confirmation and Completion. As part of the Flex Loans “verification process” the applicant was required to meet by video conference with a paralegal to confirm that she had agreed to, understood and received a copy of the Flex Loans mortgage documents and understood the terms of the loan and mortgage.

[20] She was also contacted by telephone by a Flex Loans representative during which she confirmed that she understood the terms of the loan and the mortgage. She also confirmed that she was satisfied with the goods and services.

[21] No affidavits of the paralegal and the Flex Loans representative were filed attesting to the accuracy of the “transcripts” of the conversations appended to Yosher’s affidavit. In the absence of such attestation these transcripts are hearsay.

[22] Pursuant to the written terms of the loan, the applicant opted to defer payments for a period of 15 months and prepaid interest was added to the loan amount.

[23] Yosher deposed that, but for the written and verbal representations of the applicant, Flex Loans would not have advanced any funds to CHC in respect of its invoice and would not have sold and transferred the mortgage to the Malcas.

[24] After the applicant caused her bank to reverse three months of mortgage payments Yosher caused Flex Loans, as mortgage administrator for the Malcas, to issue a Notice of Sale on their behalf which was received by the applicant on or about August 18, 2022. Yosher deposed that as of October 27, 2022 the applicant is indebted to the Malcas in sum of $39,404.77 comprising principal, interest in arrears, and legal fees respect of the power of sale proceeding. Yosher also deposed that the applicant has neglected or refused to redeem the mortgage or to bring it into good standing and has not offered to redeem it.

[25] In response to the applicant’s affidavit in support of her Application Yosher deposed that he has no knowledge of any of the facts stated by her relating to her earlier involvement with Eco-Global in 2016 and the male individual who approached her at her property making representations respecting a class-action lawsuit against Eco-Global. He stated that he has never heard of a company called Eco-Global and has no idea how they relate to the matter involving the mortgage to Flex Loans.

[26] Shalom Malca deposed that he and his spouse Iris Malca purchased the mortgage as an investment relying on representations of Yosher and the documents executed by the applicant, but had no direct knowledge of the particulars of the loan secured by the mortgage. He stated that he has never met the applicant, has never heard of or met Singh, has never had any interaction with CHC and never heard of a company named “Eco-Global.”

[27] It is noted that the responding parties introduced no admissible evidence respecting the circumstances by which the documents came to be presented to the applicant for execution by her, and what oral representations, if any, were made to her concerning the nature and purpose of the documents or to induce her to execute them. The only current admissible evidence on these matters is that of the applicant. She was not cross-examined on her affidavit.

Application

[28] The Notice of Application claims:

a) leave to obtain and register a Certificate of Pending Litigation against the title to the property (“CPL”);

b) an order rescinding and/or cancelling the direct agreement entered into between the applicants and the respondents, or any of them;

c) a declaration that the direct agreement entered into between the applicant and the respondents, or any of them, is void ab initio; and

d) damages sufficient to discharge the mortgage against the property

Claim for issuance of a Certificate of Pending Litigation

[29] The applicant brought her claim for a CPL on for hearing apart from the remainder of the relief sought in her application, which is to be heard at a later date to be scheduled.

Guiding Principles Respecting the Granting of Leave to Issue a CPL or Ordering the Discharge of a CPL

[30] S. 103(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 (as am.) provides that:

"the commencement of a proceeding in which an interest in land is in question is not notice of the proceeding to a person who is not a party until a certificate of pending litigation is issued by the court and the certificate is registered in the proper land registry office under subsection (2)."

[31] Subrule 42.01(1) of the Rules of Civil Procedure provides that a certificate of pending litigation under section 103 of the Courts of Justice Act may be issued by the registrar only under an order of the court. Subrule 42.01(3) provides that a motion for an order under sub rule 42.01(1) may be made without notice.

[32] S. 103(6) of the Courts of Justice Act provides as follows:

(6) The court may make an order discharging a certificate,

(a) where the party at whose instance it was issued,

(i) claims a sum of money in place of or as an alternative to the interest in the land claimed,

(ii) does not have a reasonable claim to the interest in the land claimed, or

(iii) does not prosecute the proceeding with reasonable diligence;

(b) where the interests of the party at whose instance it was issued can be adequately protected by another form of security; or

(c) on any other ground that is considered just,

and the court may, in making the order, impose such terms as to the giving of security or otherwise as the court considers just.

[33] The principles which have application on a motion to discharge a CPL were succinctly summarized by Master Glustein (as he then was) in Perruzza v. Spatone, 2010 ONSC 841 (Ont. S.C.J.) at para. 20 as follows (citations omitted):

(i) The test on a motion for leave to issue a CPL made on notice to the defendants is the same as the test on a motion to discharge a CPL

(ii) The threshold in respect of the "interest in land" issue on a motion respecting a CPL is whether there is a triable issue as to such interest, not whether the plaintiff will likely succeed;

(iii) The onus is on the party opposing the CPL to demonstrate that there is no triable issue in respect to whether the party seeking the CPL has "a reasonable claim to the interest in the land claimed";

(iv) Factors the court can consider on a motion to discharge a CPL include (i) whether the plaintiff is a shell corporation, (ii) whether the land is unique, (iii) the intent of the parties in acquiring the land, (iv) whether there is an alternative claim for damages, (v) the ease or difficulty in calculating damages, (vi) whether damages would be a satisfactory remedy, (vii) the presence or absence of a willing purchaser, and (viii) the harm to each party if the CPL is or is not removed with or without security; and

(v) The governing test is that the court must exercise its discretion in equity and look at all relevant matters between the parties in determining whether a CPL should be granted or vacated.

[34] In determining the question of whether there is a triable issue as to an interest in land on a motion to discharge or issue a CPL, the court does not assess the credibility of deponents or decide disputed issues of fact.

[35] The court must examine the whole of the evidence as it stands after cross-examination and, without deciding disputed issues of fact and credibility, consider whether on the whole of the evidence the plaintiff's case constitutes a reasonable claim to the interest in land claimed.

[36] The non-exhaustive factors derived from 572383 Ontario Inc. v. Dhunna [1987 CarswellOnt 551 (Ont. S.C.)] are not a code, and whether a CPL should be vacated is an exercise of the court's discretion, having regard to the factors that are relevant in the circumstances of the particular case.

Threshold Issues applying to a claim for a CPL by a mortgagor seeking to prevent enforcement by the mortgagee

[37] Prior to making a finding on whether there is a triable issue as to an interest in land and prior to the court exercising its discretion in equity to determine whether a CPL should be granted, it is necessary to consider certain threshold issues that may have application to a claim for issuance of a CPL by a mortgagor with a view to preventing the enforcement of a mortgage.

[38] The starting point is the strong public interest, recognized in the jurisprudence, in allowing mortgagees to enforce their contractual rights. In Canadian Western Trust Company v. 1324789 Ontario Inc., 2019 ONSC 4789 Ryan Bell, J. observed as follows at paras. 34-35:

As the court in Duffin v. Norina Holdings Inc., 2011 ONSC 6431 (Ont. S.C.J.), summarized at para. 7:

Arnold v. Bronstein [1970 CarswellOnt 776] reiterates longstanding common law doctrine that a mortgagee will not be restrained from exercising a power of sale (whether contractual or by court order) unless the mortgagor pays the amount claimed by the mortgagee into court, "provided no case of fraud be made out."

The underlying rationale for the doctrine is straightforward: there is a very strong public interest in allowing mortgagees to enforce their contractual rights; lenders will not lend if they cannot enforce their right to be paid back (Duffin, at para. 8).

[39] At para. 14 Ryan Bell, J., citing Maletta v. Thiessen (1996), 1996 11765 (ON CA), 28 O.R. (3d) 251 (Div. Ct.), application for leave to appeal dismissed (1996 CarswellOnt 2035 (C.A.)), stated that in the absence of fraud, a mortgagor may not obtain a certificate of pending litigation to stop power of sale proceedings without having offered to redeem the mortgage.

[40] She went on to observe that where fraud is alleged, it must be fraud that affects the mortgagor’s right to redeem the mortgage, citing Muhammad v. 2156555 Ontario Inc., 2017 ONSC 7226, and noting that in Maletta the order granting a certificate of pending litigation was set aside by the Divisional Court because there was no connection between the alleged fraud and the loss of the plaintiffs’ right to redeem.

[41] Steele, J., writing for the panel, put it this way in Maletta at para.13:

In my opinion if fraud was proven at trial and the sale was set aside the respondents would then be in a position to redeem. However, based upon the pleadings, it is not the alleged fraud that has caused the inability to redeem, but the respondents' own inability to redeem due to market conditions. Even if the market conditions were favourable at the end of trial there is nothing to obligate the respondents to offer to redeem. There is nothing to assure that the market conditions would not be the same at the end of the trial as at the time of default. In my opinion there must be a connection between the fraud and the loss of the respondents' rights. In my opinion there is none in the present case.

[42] As pointed out by Mr. Fischhoff the applicant in the case at bar has not redeemed the mortgage and has not offered to do so, and he argues that, since there is no connection between the fraud alleged by her and any loss of her right to redeem, the applicant is not entitled to a CPL.

[43] It is noted that none of the cited cases touching on the question of whether a mortgagor may prevent the enforcement of a mortgage based on an allegation of fraud, involved allegations that the granting of the mortgage itself was induced by fraud on the part of the mortgagee and was therefore invalid and unenforceable.

[44] In Duffin there was no evidence of fraud (see para. 9) and in Canadian Western the plaintiffs failed to plead or adduce evidence of fraud (see para.37).

[45] In Muhammad the plaintiffs alleged that the sale of the subject property by power of sale was improvident (para. 24). There was no allegation that the mortgages themselves were not valid or enforceable or had been induced by fraud.

[46] In Maletta the plaintiff mortgagors brought an action seeking to set aside a sale of the mortgaged property by power of sale on the basis of improvident sale and fraud and obtained a CPL on the mortgaged property (see paras. 2-3). The plaintiffs made no claim that the mortgage was invalid or unenforceable or had been induced by fraud. The allegation of fraud appeared to relate to a claim that the mortgagee improperly refused to grant the mortgagors partial discharges after default.

[47] In Lawrence Avenue Group Ltd. v. Innocan Realty Inc., 1999 14793 (ON SC), [1999] O.J. No. 1213 (Gen. Div.) the plaintiff/mortgagors brought an action against the mortgagees for damages and the discharge of the subject mortgages. There was no claim that the mortgages were invalid nor any evidence that the plaintiffs ever called into question their validity (see para. 8). Lax, J. followed Maletta in observing at para. 9 that “in the absence of fraud, a mortgagor may not obtain a certificate of pending litigation to stop power of sale proceedings without having offered to redeem the mortgage” and noted that. on appeal to the Divisional Court in Maletta, the order granting the CPL was set aside because there was no connection between the alleged fraud and the loss of the plaintiffs’ rights to redeem.

[48] The foregoing review of the jurisprudence establishes that, in the absence of fraud, a mortgagor may not restrain a mortgagee, by the grant of a CPL or an injunction, from exercising power of sale without redeeming the mortgage or paying the amount owing on the mortgage into court (see Arnold). It also establishes that, where fraud not going to the granting of the mortgage itself or its enforceability is alleged, a CPL may only be granted where the mortgagor is able to show a connection between the alleged fraud in the loss of its right to redeem.

[49] No authority has been cited in which it was held that a mortgagor seeking a CPL to restrain a mortgage sale on the basis of fraud going to the formation of the mortgage itself must demonstrate a connection between the alleged fraud and the loss of its right to redeem. For the reasons that follow there is no reason in principle for this rigid requirement to apply in such a case.

[50] Where no fraud is alleged respecting the formation and enforceability of the mortgage, it would work an injustice to the mortgagee to restrain its right to sell under power of sale without requiring the mortgagor to redeem or pay the mortgage amount into court, given the strong public interest in allowing mortgagees to enforce their contractual rights.

[51] Conversely, it may work an injustice to the mortgagor to require it to redeem the mortgage or be able to demonstrate a connection between the alleged fraud and the loss of its right to redeem as a precondition to a CPL in a case where the mortgagor alleges fraud going to the grant of the mortgage itself. As noted in Maletta such a connection does not exist simply by showing an inability to pay the mortgage amount, due to market conditions, hardship or impecuniosity. The public interest in allowing mortgages to enforce their contractual rights does not apply with the same vigour in cases where the validity of the mortgage itself is called into serious question on the basis of fraud.

[52] I find that, where a mortgagor alleges fraud going to the grant of the mortgage, there is no rigid rule requiring it to redeem the mortgage or show a connection between the alleged fraud and the loss of its right to redeem as a precondition to the granting of a CPL. In such a case, the question of whether a CPL should issue is best addressed by a consideration of the equities between the parties as laid down in Perruzza. This would include a consideration of the strength of the mortgagor’s claim of fraud.

Application of the principles governing the issuance of a CPL

[53] The parties do not dispute that an interest in land is in question, being the validity and enforceability of the mortgage held by the Malcas. There is likewise no dispute that the applicant has an interest in the land as the registered owner.

[54] The court’s task therefore is to exercise its discretion in equity and look at all relevant matters between the parties in determining whether a CPL should be granted.

[55] In examining the equities, the following factors are noted:

(a) there is no evidence that the applicant ever made a request for goods and services from CHC prior to presentation of the documents to her for execution;

(b) there is no evidence that, prior to the arrival of an uninvited and unidentified male individual at her doorstep, the applicant ever requested any financing from Flex Loans;

(c) the approach by the unidentified male individual was unsolicited by the applicant;

(d) there is evidence of only one attendance at the applicant’s residence by the unidentified male individual and the applicant’s execution of the documents was procured on his first and only attendance. The individual did not leave the documents with the applicant to review on her own time prior to their execution;

(e) it may be inferred that the unidentified male individual, in procuring the applicant’s signature on various documents, was acting on behalf of not only CHC, but also Flex Loans, as he procured a direction from the applicant authorizing Flex Loans to cause the mortgage to be registered against the property;

(f) the male individual who procured the applicant’s signature on the documents provided no affidavit evidence, notwithstanding that he acted on behalf of Flex Loans in procuring the applicants’ signature on the documents;

(g) the applicant’s evidence respecting the verbal statements and representations made by the male individual on his attendance at her residence is uncontradicted and she was not cross-examined on her affidavit;

(h) the applicant’s evidence that she did not read the documents prior to their execution is unchallenged, as is her evidence that her cognition was impaired by alcohol and her vision was also impaired;

(i) the applicant’s evidence that she was not provided with copies of the documents that she signed is unchallenged by any non-hearsay evidence other than the acknowledgment in the documents themselves which the applicant did not read;

(j) the applicant’s evidence that she was not advised verbally by the unidentified male individual to obtain independent legal advice prior to execution of the documents is unchallenged by any non-hearsay evidence;

(k) there is no non-hearsay evidence that the applicant ever received the goods and services set forth in CHC’s invoice apart from a surge protector on her electrical box and a small amount of insulation blown into her attic, both of which took only 1.5 hours to install;

(l) the property is important and unique to the applicant as it is her intention to live there indefinitely until the point at which she would need to move into long-term care or other form of seniors’ living, in which case she would live off the sale proceeds from the property if and when she sells it. There is no evidence that there are other similar residential properties on the street or in the vicinity which would be available and affordable to the applicant;

(m) the applicant’s evidence that she lives on limited means and is a recipient of Worker’s Compensation benefits, that the property is her primary asset and that, if the property is sold under power of sale she would have nowhere to live is unchallenged, and as noted, she was not cross-examined on her affidavit;

(n) the applicant has advanced no alternate claim for damages apart from a claim for sufficient funds to discharge the mortgage;

(o) Shalom Malca deposed to having no knowledge of the particulars of the loan, nor of CHC or Singh;

(p) if the power of sale proceedings are permitted to proceed prior to a determination of the issues on their merits, there is a real risk that the applicant would, on her uncontradicted evidence, become homeless. It may be inferred that, in that event, the applicant’s ability to prosecute the proceeding would be significantly impaired or eliminated.

(q) should the issuance of a CPL be ordered, the interest, if any, of the Malcas in the property would be preserved pending determination of the issues on their merits by means of the continued registration of the mortgage on the title. The responding parties led no evidence that the Malcas’ security on the property represented by the mortgage would be at any risk pending the determination of the issues on their merits.

[56] I find that the latter two factors have particular significance to the balancing of the equities between the parties.

[57] I find that the equities favour the issuance of a CPL to the applicant.

Disposition

[58] For the foregoing reasons it is ordered as follows:

(a) the applicant is granted leave to obtain and register a Certificate of Pending Litigation against the lands described at paragraph 1 (a) of the Notice of Application.

Costs

[59] The parties are strongly encouraged to agree on the costs of the claim in the application for leave to issue a CPL If the parties are able to settle the issue of costs, they shall advise the court accordingly.

[60] To assist the parties in reaching a settlement of the costs issue and without having the benefit of submissions, it may be observed that, in comparing the applicant’s Bill of Costs and the responding parties’ Costs Outline, the amount claimed by the applicant was likely well within the responding parties’ reasonable expectations.

[61] If the parties cannot agree on costs, the applicant may make written submissions as to costs within 21 days of the release of this Endorsement. The responding parties have 14 days after receipt of the applicant’s submissions to respond. All such written submissions are to be forwarded to me by e-mail to the Trial Coordinator at Brantford at the same email address utilized for the release of this Endorsement.

[62] The submissions of each side shall not exceed three (3) double-spaced pages, exclusive of offers to settle, Bills of Costs or Costs Outlines.

[63] There shall be no right to deliver Reply submissions without leave.

[64] If no submissions are received within the timeframe set forth above, the parties shall be deemed to have settled the issue of costs as between themselves.

[65] If either party does not intend to file costs submissions, that party is requested to advise the court accordingly.

Balance of the Proceeding

[66] The parties are at liberty to bring a motion or motions for directions with respect to the prosecution of the balance of the relief claimed in the Notice of Application.

D.A. Broad, J.

Date: November 14, 2022