Mortgage Broker

Fall 2014

Mortgage Broker is the magazine of the Canadian Mortgage Brokers Association and showcases the multi-billion dollar mortgage-broking industry to all levels of government, associated organizations and other interested individuals.

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Page 45 of 47

casestudy 46 | fall 2014 MortgageBroker Your client Ima Goode Forrit fell behind on her mortgage payments and property taxes. is is the third time this has happened. On one prior occasion, the lender had begun foreclosure proceedings but reinstated the mortgage when Forrit paid the mortgage arrears and outstanding taxes. e lender has again brought foreclosure proceedings and is not willing to allow the mortgage to be reinstated again. Later this week, the lender will ask the court to approve the offer of purchase received from Wanda Steele. Steele's offered price will not be enough to fully pay the second mortgage registered against title. While the property is worth more than Steele is offering, it is not worth enough to pay out the second mortgage. Your client believes she could sell the property for a lot more than the received offer if she kept the property and sold it without a foreclosure hanging over it. Against all odds, you have found a lender (Sophia Turnbull of Soph T Loans) who is prepared to lend enough money for your client to make an offer just slightly higher than Steele's offer. Soph T Loans is not willing to simply takeover the registered position of the existing first mortgage, it insists on the registration of a new first mortgage using Soph T Loans' own terms. e problem is that the second mortgagee will not cooperate in letting the new lender become a first mortgagee. To overcome this your client would like to make an offer of her own, relying on the new first mortgage, to purchase and in effect keep the property. is will require the court approving an offer from your client, instead of the one from Steele. Will the court even consider an offer in a foreclosure action from an owner of the property being foreclosed? e court has considerable discretion in trying to achieve a result that is fair to all parties. Under the right circumstances, a court will consider an offer put forward by the person who is the subject of the foreclosure. It will certainly take into account that, unlike offers from arm's length third parties, the current owner has an existing agenda. e court will want an explanation as to why the owner is simply not having the mortgage reinstated, and why the owner is not simply using the money from the the new mortgage to pay out the balance owed on the foreclosing lender's mortgage. As well, it will want to consider possible consequences to others. e BC Supreme Court in National Holdings Ltd. v. Vadas 2014 BCSC 1239, the most recent case on this point in B.C., said: e approval of a sale to an owner – particularly when it is not clear that the affected parties have notice of the owner's intended bid – may give rise to a host of unforeseen consequences. If, for example, a wife were nominally liable to debts for which she should be indemnified but the result of the sale was to allocate money that should be attributed to her, personally, to the husband's debts, it would render the sale unjust for reasons that simply do not come into play with third party offers. e court will consider whether there appears to be collusion or an ulterior purpose (e.g., the owner extending or delaying the foreclosure process by having the offer accepted by the court, not completing the transaction, and thereby getting free living quarters for an extended time). As a factor in favour of the owner, the court might consider that the owner in some circumstances may be the person willing to pay the highest price for the property. Being able to satisfy the court as to these concerns will largely determine whether the court will consider an offer from the owner. e National Holdings case succinctly put it as follows: . . . provided there is an evidentiary basis to treat an owner's offer as bona fide, and it is otherwise tendered on the same basis as third party offers, there is no absolute impediment to the reception of a mortgagor's offer. Of course, the fact that the owner (in the right circumstances) is entitled to have an offer to purchase the property considered does not mean the owner's offer will necessarily be the one the court approves. e National Holdings case goes only so far as to say the offer is not disqualified from consideration by virtue of the fact it is being made by the owner. • In the right circumstances, a court will consider a purchase offer put forward by the person who is the subject of the foreclosure All's Fair in Foreclosure By RAY BAsi, director of policy and education

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