When can a sale under a Power of Sale fail? This was the central issue that the Court of Appeal addressed in the 1173928 Ontario Inc. v. 1463096 Ontario Inc decision.
A Power of Sale is a standard clause in a mortgage agreement that allows a lender to sell the mortgaged property when the borrower defaults. Legally, prior to selling the property, the lender is obliged to give notice to the borrower in the form of a Notice of Sale, a document that specifies the amount of the mortgage debt the borrower needs to pay the lender to bring the mortgage back into good standing. If the lender does not provide a proper Notice of Sale, the lender cannot sell the property.
If the borrower makes additional mortgage payments after the Notice of Sale is issued but wants to know the outstanding mortgage debt amount, the borrower can ask the lender for a Mortgage Statement. The lender is legally obliged to provide one within 15 days. If not, the lender cannot sell the property until a Mortgage Statement is provided. Moreover, any sale or attempts to sell the property prior to the Mortgage Statement being provided will be ineffective.
While the facts of the 1173928 Ontario Inc. v. 1463096 Ontario Inc. are highly unusual and masterful, it provides great insight into when a lender can force a sale under a Power of Sale.
In this case, 1173928 Ontario Inc. (referred to hereafter as “Van Alphen”) operated a business that leased property from 1463096 Ontario Inc. (referred to hereafter as “the Ramsdens”). The Ramsdens had a mortgage with Bayview Financial. The Ramsdens defaulted on their mortgage. Van Alphen got wind of the Ramsdens’ financial trouble so he stopped making his lease payments. This, no doubt, added to the Ramsdens’ financial woes as it was further unable to make its mortgage payments, prompting Bayview Financial to issue a Notice of Sale. Soon thereafter, Van Alphen bought the mortgage from Bayview Financial and became the Ramsdens’ new lender (while at the same time being their delinquent tenant).
As the new lender, Van Alphen tried to sell the property several times under Power of Sale, using the original Notice of Sale issued by Bayview Financial. The Ramsdens wanted to redeem their property and requested Mortgage Statements from Van Alphen on multiple occasions. When he was unable to find an arm’s-length buyer, Van Alphen incorporated another entity and conveyed the property to that new entity.
Van Alphen’s new entity sued the Ramsdens for payment under the mortgage and possession of the property. Van Alphen lost at trial. He appealed. On appeal, Van Alphen argued that the Notice of Sale and Mortgage Statements were proper and since they were proper, his sale of property was effective.
Notice of Sale
The Court of Appeal disagreed with the trial judge’s conclusion that the Notice of Sale was improper because it had incorrect amounts. While serious errors will void a Notice of Sale, minor irregularities will not, as long as the Notice of Sale allows the borrower to intelligently assess their position concerning the redemption of the mortgage. The Court of Appeal found that the Ramsdens were able to determine what their position was regarding the redemption of the mortgage because they knew what the errors in the Notice of Sale were. In fact, the Ramsdens were the ones who brought the errors to Bayview Financial’s attention. Therefore, the errors in the Notice of Sale did not make it invalid.
The Court of Appeal also disagreed with the trial judge’s conclusion that Van Alphen had to provide the Ramsdens with a fresh Notice of Sale because the mortgage debt had fluctuated over time since the Notice of Sale was originally issued. The Court of Appeal found that if the Ramsdens wanted to know the amount of the outstanding mortgage debt, they had the option of requesting a new Mortgage Statement, which is precisely what they did.
The Court of Appeal found that Van Alphen’s Mortgage Statement was significantly incorrect and he knew it. After all, a judge, in a related proceeding, had pointed the inaccuracies in the Mortgage Statement to him. Since the Mortgage Statement was incorrect, Van Alphen could not rely on it to force a sale.
The Ramsdens continued to have a legal right to a Mortgage Statement even after Van Alphen sold the property. Since the Ramsdens had never received a proper Mortgage Statement, Van Alphen’s attempts to sell the property were ineffective. The Court of Appeal ultimately held that the property was deemed not to have been sold by Van Alphen and his appeal was dismissed because he had not provided the Ramsdens with a proper Mortgage Statement.
In sum, a borrower whose property is under imminent threat of sale should look out for serious errors in the Notice of Sale. Such errors are those that prevent the borrower from determining the amount required to redeem the mortgage. If the Notice of Sale has such errors, any sale of the property might be ineffective. However, where there are no errors or where the errors are minor, a lender is not required to issue a fresh Notice of Sale just because the mortgage debt has fluctuated since the Notice of Sale was originally issued.
Upon the borrower’s request, a lender is required to provide a proper Mortgage Statement. If not, any sale of the mortgaged property might fail even if an Agreement of Purchase and Sale has already been signed by the lender.
Eugenia Bashura recently joined Boghosian + Allen as an articling student. Eugenia obtained her law degree from the University of Windsor.