Monthly Archives: February 2013

You Owe, You Owe, How Much I’d Like to Know

26 Tuesday Feb 2013

Posted by in Foreclosure

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Francis N.J. Taman and Ksena J. Court

It’s always interesting how basic assumptions are rarely challenged and when they are, it creates no end of difficulty.  For many years, most mortgage lenders would honour a request by a subsequent encumbrancer for a letter outlining the balance owing on their mortgage.  However, the decision of the Ontario Court of Appeal in Citi Cards Canada Inc. v. Pleasance[1] has had a chilling effect on this practice.  Thankfully, a recent decision by Master Schlosser of the Alberta Court of Queen’s Bench, holds that, at least in Alberta, mortgages in second or later position still have access to this information.

In Citi Cards, the Plaintiff, Citi Cards Canada Inc. obtained judgment against the Defendant and sought to sell the Defendant’s house to satisfy that judgment.  There was both a first and a second mortgage on the house.  By law, before the house could be sold, the Sherriff required mortgage discharge statements from the two mortgagees showing the outstanding balances of the mortgages.  The mortgagees refused to provide the discharge statements on the grounds that it might violate the Defendant’s privacy rights under the Personal Information Protection and Electronic Documents Act.[2]  The Plaintiff brought an application to compel the information.

The Justice originally hearing the application held that the disclosure of the mortgage statement was in fact prohibited by PIPEDA and dismissed the application.  He also held that even if that had not been the case, he would not have ordered the production as the Plaintiff could have obtained that information by examining the Defendant or his wife in aid of execution.  The Ontario Court of Appeal upheld the decision.

This decision, not surprisingly, has lead to a great deal of concern by mortgagees.  Privacy issues are taken very seriously by lenders.  At the same time, the outstanding balance of the prior mortgage can be a key piece of evidence in a foreclosure or other enforcement proceeding.  The question was whether other Courts would follow the Ontario Court of Appeal’s decision.

It was not surprising that the next court decision was not long coming.  In November of 2011, the Toronto-Dominion Bank (the “TD Bank”) made an application to compel a prior mortgagee to disclose the balance of its first mortgage as part of a foreclosure proceeding.[3]  The TD Bank was in the process of making an application for a Redemption Order.  As the TD Bank was in second place, in order to establish a reduced redemption period, the TD Bank needed to put into evidence of the amount that was outstanding under the first mortgage.

TD Bank applied, without notice to the first mortgagee, to have the Court compel the first mortgagee to provide a payout figure on its mortgage.  Master Schlosser reviewed the Citi Cards case.  He found that the case was distinguishable in that Citi Cards dealt with a request from a writholder rather than from a subsequent mortgage holder.  Even if it had not been, however, he would have declined to follow it.

He noted that in order for the Court to properly determine the redemption period to be granted in a foreclosure proceeding, the Court needs to know more than the face value of a mortgage as registered against title.  It needed to know the actual amount owing to the prior mortgagee.

He noted, as well, that the “Foundational Rules” under the Alberta Rules of Court require the Court to facilitating actions as quickly as possible at the least expense.  These Rules oblige the Court to  provide effective, efficient and credible remedies.  Since, in Alberta practice, prior encumbrancers are not made parties, some means must be created to allow the plaintiff mortgagee to obtain the information that is required for the Court to grant a proper redemption period.  The alternative is to require prior encumbrancers to become parties and to provide disclosure pursuant to the Rules.  This process would come at a very high cost to the defendant, the person whose rights are being protected.

Master Schlosser noted that it could not be the intention of privacy legislation to sterilize the Defendant’s other rights.  On that basis, he held that it was not inappropriate to require disclosure of the mortgage balance.  He also noted that it was an appropriate circumstance to grant the Order without notice.  If the prior mortgagee objected, they could return to Court to challenge the Order.

As such, he ordered the prior mortgagee to provide the payout figures as requested by The TD Bank.

This is a positive decision for both mortgagors and mortgagees.  Mortgagors benefit from reducing the cost of the foreclosure process and by ensuring that accurate information is brought forward to the Court regarding prior mortgage balances.  Usually, though not always, the mortgage balance is below the face value of the mortgage.  This may mean an increased redemption period.

Mortgagees benefit by maintaining the more streamline process that has become the norm in Alberta.  Prior mortgagees, who will be largely unaffected by the decision, do not have to be made parties to the foreclosure action and served.  At the same time, there is an expedient and cost effective way to get the information that is required to move the foreclosure action forward.

Ksena J. Court and Francis N.J. Taman practice commercial and residential foreclosure, and secured and unsecured debt collection at Bishop & McKenzie LLP in Calgary, Alberta.

[1] 2011 ONCA 3 (CanLII) (“Citi Cards”)

[2] S.C. 2000, c. 5 (“PIPEDA”)

[3] The Toronto-Dominion Bank v. Sawchuk, 2011 ABQB 757 (Master) (“Sawchuk”).  In the interests of full disclosure, it should be noted that the counsel for the TD Bank was our associate Kari Sehr, who practices out of our Edmonton office.

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Not all condo fees are created equally

13 Wednesday Feb 2013

Posted by in Condominium Fees, Foreclosure

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Ksena J. Court and Francis N.J. Taman

Condominium fees are often comprised of more than just the regular monthly assessments or special assessments.  Where there has been a default by the owner in payment, condominium corporations will usually charge the owner fees for NSF charges, writing a demand letter, as well as for the legal and other costs for taking collection steps or registering a caveat against the condominium title.  Typically lenders presumed that the condominium corporation has priority over their registered mortgage for these expenses due to the provisions of the Condominium Property Act.[1]  If the owner was not paying, lenders would often simply make payment of the amount requested by the condominium corporation and add the amount as a claimable expense under the registered mortgage.  A recent decision issued from the Court of Queen’s Bench has made it clear that not all fees or charges rendered by a condominium corporation will be secured against the title to the condominium nor will they take priority over a registered mortgage.

In Condominium Plan No. 0210034 v. King,[2] Master Prowse examined five cases in which the condominium corporation levied charges for items such as collection expenses, unpaid parking fees, and NSF fees, in addition to the regular monthly and special assessments and interest on those overdue assessments.  Generally, there is nothing prohibiting a condominium corporation from enacting bylaws that allow for it to charge these types of expenses and to have those expenses assessed against a particular defaulting owner or the owner’s unit.  After all, the condominium corporation is there to administer the common property and part of this administration is taking steps to collect on those unpaid expenses.  However, whether those expenses have priority over a registered mortgage or whether the condominium corporation is even entitled to a security interest against the condominium unit is a whole other issue.

The Condominium Property Act clearly creates a statutory charge in favour of the condominium corporation for unpaid “assessments”. [3]   It also creates a statutory charge for interest on overdue “assessments”, which has a priority over other registrations on title.[4]  The key is to determine whether those other charges are included in the definition of an “assessment” or deemed to be an “assessment” under the condominium bylaws.

By way of example, below is a portion of two very similar bylaws that were considered by Master Prowse:

Example 1:  “Any infraction or violation of or default under these By-laws on the part of an owner, his servants, agents, licensees, invitees or tenants that has not been corrected, remedied or cured within ten (10) days of having received written notification from the Corporation to do so, may be corrected, remedied or cured by the Corporation and any costs or expenses incurred or expended by the Corporation including costs as between a solicitor and his own client, in correcting, remedying or curing such infraction, violation or default shall be charged to such owner and shall be added to and become part of the assessment of such owner for the month next following the date when such costs or expenses are expended or incurred (but not necessarily paid) by the Corporation and shall become due and payable on the date of payment of such monthly assessment and shall bear interest both before and after judgment at the Interest Rate until paid.”

Example 2:  “The Corporation shall and does have a lien and charge upon and against the estate or interest of the Owner for any unpaid assessment, installment or payment (including interest on arrears) due to the Corporation in respect to his Unit, which lien shall be a first paramount lien against such estate or interest, subject only to the rights of any municipal or local authority in respect of unpaid realty taxes, assessments or levies of any kind against the Unit title or interest of such Owner, but subject also to the provisions of the Act and the Land Titles Act of Alberta…The lien or charge shall be deemed to be an equitable mortgage, payable on demand, and can be enforced either as a debt, or in the same manner as a legal mortgage registered against the Unit.  The Corporation shall be entitled to be paid by the defaulting Owner the costs (including without limitation legal costs on a solicitor and his own client basis) incurred in preparing and registering the caveat and realizing upon and enforcing the charge caveated, recovering the arrears and in discharging the caveat; and shall not be obliged to discharge any caveat until all arrears of the Owner (including interest and all such costs) are fully paid.” 

With respect to the first example, Master Prowse found that the collection costs were included as an “assessment” and therefore took priority over the registered mortgage.  In the second example, Master Prowse came to the opposite conclusion.  The distinguishing factor is what we lawyers like to call “magic words”, namely “shall be added to and become part of the assessment of such owner”.

Expenses that don’t have the magic words attached to them in the bylaws, may still be subject to a contractual security interest agreed to in the bylaws.  This security interest would entitle the condominium corporation to register a caveat against the condominium unit for those charges, but the condominium corporation would rank below any prior registrations against the title.  Absent this security interest, the condominium corporation may still charge the expenses, but it will only be collectable against the owner as an unsecured debt.

The moral of the story is that in instances where the condominium corporation is claiming a charge for anything other than a regular monthly assessment, a special assessment, or interest, the bylaws should be carefully reviewed by lenders to ensure that they are not overpaying the condominium corporation.  We suspect, however, that many condominium corporations will be reviewing their bylaws and amending them so that these other charges are included as an “assessment” and their super priority maintained.

Ksena J. Court and Francis N.J. Taman practice commercial and residential foreclosure, and secured and unsecured debt collection at Bishop & McKenzie LLP in Calgary, Alberta.

[2] 2012 ABQB 127 (Alta. Master).

[3] Supra note 1 at s. 39(8).

[4] Supra note 1 at s. 41.