May 2, 2022
On April 14, 2022, the New Brunswick Court of Appeal released its decision in Royal Bank of Canada v. Estate of Susan Lynn Williams, revisiting and building upon the principles regarding mortgage sales and mortgage deficiency actions in New Brunswick it developed in its 2016 decision in Keough v. Sandfire Capital Limited Partnership. The Keough decision led to some confusion about the role of “market value” in the context of mortgage deficiency actions. The Williams decision clears much of that confusion up:
Here’s a look at mortgagees’ power of sale and mortgage deficiency actions in New Brunswick, and the Court of Appeal’s decision in Royal Bank of Canada v. Estate of Susan Lynn Williams.
The N.B. Power of Sale. The rights and powers of mortgagees to the real property if the borrower defaults on a mortgage over real property in New Brunswick have been described as unmatched in the rest of the Canada – and unfriendly to mortgagors. In New Brunswick, one of these powers is the power of sale. Provided for under the N.B. Property Act, the power of sale arises upon the default of a mortgage and permits the mortgagee to do all of:
The mortgagee is only responsible for voluntary losses arising from an unauthorized, irregular or improper exercise of the power of sale. For example, if the mortgagee buys the property for a nominal sum, like $1,000.00, there has been an improper exercise of the power of sale and the mortgagee is answerable in damages for all consequential losses.
Mortgage Deficiency Action. Often after a mortgage sale, there will be a mortgage deficiency action where the mortgagee sues the mortgagor for damages it alleges it suffered because of the default, the loss on the purchase and sale of the property, and some of the costs and expenses associated with this process. The mortgagee must prove the money received from the sale was the product of a proper exercise of the power of sale. However, as the decision in Williams makes clear, the N.B. Property Act and a proper exercise of the power of sale doesn’t require the mortgagee to recover or realize the property’s market value from a mortgage sale.
The Williams Case. The Williams mortgaged their home with the bank. The mortgage went into arrears and the bank demanded the Williams pay the outstanding debts or it would commence power of sale proceedings and sell the home. The bank’s residential drive-by assessment of the home estimated its value in the range of $120,000 to $135,000, with a forced sale value (an estimate of the value of the property where it’s sold through a liquidation or distressed sale process) in the range of $96,000 to $108,000. The bank bought the home at the mortgage sale for $96,000. The home was subsequently appraised at $138,500 with a forced sale value of $110,800. The bank eventually sold the home for $126,000, and commenced a mortgage deficiency action against the Williams to recover a judgment for the deficiency due after applying the $96,000 recovered from the mortgage sale.
Please contact your McInnes Cooper lawyer or any member of our Banking & Financial Services Team @ McInnes Cooper to talk about how to exercise the power of sale.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
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