Recently, we blogged about a application for injunction brought by a third mortgagee attempting to prevent the sale of the property under power of sale. The details of what led to the power of sale are outlined in detail in that post where we also discussed the right of redemption in the context of such sales. This week we explore injunctions.
The Law on Injunctions
In support of its request for injunctive relief, the third mortgagee relied on the three-part test for an interim injunction established by the Supreme Court:
- There is a serious issue to be tried;
- The party seeking the injunction will suffer irreparable harm if the injunction is not granted;
- The balance of convenience favours granting the injunctive relief sought.
The Court’s Decision
The court concluded that the third mortgagee failed to satisfy this three-part test for entitlement to an interlocutory injunction.
SERIOUS ISSUE TO BE TRIED
The third mortgagee submitted that it had raised a serious issue to be tried with respect to the alleged bad faith by the credit union. The indicators of bad faith were:
- Failure by the credit union to engage with the third mortgagee during the redemption process;
- The absence of a redemption clause based on OREA standard wording for such a clause.
The court noted that the third mortgagee’s argument with respect to the absence of the redemption clause overlooked the basic principles applicable to the redemption of a mortgage previously set out in caselaw, namely:
- A redemption clause, even if included in an agreement of purchase and sale, creates no rights and does not give rise to any foundation upon which a mortgagor may prevent the completion of the sale of the property. The mortgagor, who is not a party to the agreement of purchase and sale, has no right to enforce a redemption clause
- A redemption clause, even if included in an agreement of purchase and sale, does not give a mortgagor the right to redeem the mortgage beyond the time permitted by s. 22(1)(a) of the Act
- The inclusion of a redemption clause in an agreement of purchase and sale does not render the agreement a conditional one.
The court concluded, that for the above reasons, the absence of a redemption clause in the Purchase and Sale Agreement was not evidence of bad faith on the credit union’s part.
The court also found that evidence did not support bad faith conduct in any of the other allegations that the third mortgagee had made and that “the allegations made by the Applicant that Duca acted in bad faith do not raise a serious issue to be tried.”
The court concluded that the third mortgagee failed to satisfy the first part of the three-part test for interlocutory injunction.
The third mortgagee submitted that the sale price in the Purchase and Sale Agreement was much lower than the potential sale price for the property, particularly if consideration was given to the value of the property if it were leased to a tenant. The third mortgagee further submitted that if it was not given the opportunity to redeem the mortgage, it would lose the opportunity to hold on to the property and sell it at a much higher purchase price.
In support of its position, the third mortgagee relied on a report prepared in 2014 which described the property as a “multi-tenant warehouse” and expressed the opinion that the appraised value of the property was $18.6 million.
The court found that the third mortgagee’s reliance on the 2014 report as evidence of the potential sale value was misplaced:
- The stated purpose of the 2014 report was to “provide an estimate of ‘market value’ for internal company asset valuation”. The company the report was prepared for was the former owner of the property, whose mortgage went into default two years prior to the injunction motion. The court found that the 2014 report was not provided for the purpose of assisting the former owner of the property to determine a fair market value in the context of a potential sale of the property;
- The contents of the 2014 report were “based on market conditions existing as of the effective date of the appraisal, May 7, 2014”. The court noted that even if the market value of the property set out in the report was for the purpose of a potential sale of the property, the assessment in the report was more than four years prior to the injunction motion. The third mortgagee had provided no evidence as to the extent to which market conditions have changed in four years or the impact such changes would have on the potential fair market value for the sale of the property;
In addition, the court noted that the third mortgagee had focused on harm that was quantifiable in monetary terms. The irreparable harm required to established entitlement to an injunction is harm that cannot be quantified in monetary terms. The court found:
[The third mortgagee] has not established that it will suffer irreparable harm by reason of the existence of a realistic opportunity to sell the Property, in its current state, at a price significantly higher, if higher at all, than $4.8M. In addition, the [third mortgagee] has failed to establish that it will suffer irreparable harm by reason of the loss of an opportunity to redeem the Mortgage, hold on to the Property, and sell it in the future once the Property is tenanted.
In the event the [third mortgagee] suffers financial harm as a result of the sale of the Property on June 11, 2018, then it is open to the [third mortgagee] to pursue [the credit union] on the basis of a claim of improvident sale.
THE BALANCE OF CONVENIENCE
The third mortgagee relied on the termination clause in the Purchase and Sale Agreement in support of its argument that the credit union will not be inconvenienced in any way if the third mortgage was permitted to redeem the mortgage and the Purchase and Sale Agreement was terminated.
The court noted that this position overlooked:
- The opportunities the credit union provided for the mortgage default to be remedied;
- The communication from the credit union to the third mortgagee to remedy the default;
- The credit union’s right to proceed and sell the property;
- The purchaser’s reliance on the Purchase and Sale Agreement.
The court concluded that the balance of convenience weighed heavily in favour of the credit union and the purchaser.
How Can a Lawyer Help?
If you are involved in a mortgage dispute, would like to commence mortgage enforcement proceedings, or mortgage enforcement proceedings have been commenced against you, contact the Toronto real estate lawyer Eli Karp at Financial Litigation immediately.
We rely on our in-depth knowledge in real estate, breach of contract, and collection actions to provide strategic advice and solutions. Our responsiveness is unparalleled, we are available seven days a week, and offer prompt, effective legal guidance and crisis management no matter when an issue may arise.
Respond to your mortgage crisis with Financial Litigation and let our unique experience guide you through your dispute. Schedule your consultation online, or by calling us at 416 769 4107 x1.