Canada Mortgage and Housing Corporation v Pashko, 2012 ABQB 487

Court of Queen ’ s Bench of Alberta Citation: Canada Mortgage and Housing Corporation v Pashko, 2012 ABQB 487 Date: 20120726 Docket: BE03 1228535 Registry: Edmonton In the Matter of The Bankruptcy of Benita Elaine Pashko Between: Canada Mortgage and Housing Corporation Applicant - and - Benita Elaine Pashko Respondent _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice Brian R.

Burrows _______________________________________________________ [ 1 ] CMHC seeks a declaration that a debt owed by Benita Elaine Pashko, the Bankrupt, in the amount of $100,723.57 including costs will survive an order of discharge of the Bankrupt because the debt resulted from obtaining property by false pretences or fraudulent misrepresentation. ( BIA s. 178(1)(e)) [ 2 ] In April 2008 Benita Pashko purchased a house in Edmonton for $550,000. The down payment was $427,500. Ms. Pashko

financed the remainder of the purchase price, $122,500 and the mortgage insurance premium of $34,485 by a loan from Resmor Trust Company. She granted a first mortgage on the property to Resmor to secure the loan, which totalled $558,985. Resmor obtained mortgage insurance from CMHC. By CMHC ’ s rules, the insurance was available only if the mortgagor had no income tax arrears. [ 3 ] Resmor provided a written mortgage commitment dated April 4, 2008 to Ms. Pashko. Ms. Pashko accepted the mortgage on the terms set out in the mortgage commitment on April 8, 2008.

Schedule A to the mortgage commitment was a list of “ Conditions of Approval ” . These included the following: Benita Pashko: Receipt of letter from Remax outlining position, length of employment and confirming 100% of the income is on a commission basis. Confirmation of NO Income Tax arrears by either most recent Revenue Canada Notice of Assessment or Signed Statutory declaration completed by a Solicitor.

All income documentation will be verified by the Lender and must be acceptable to the Lender. “ I Brenda Pashko state that my annual income is $ 200,000 and my current line of business is Real Estate . ” “ I Brenda Pashko confirm that no portion of my Federal and/or Provincial Personal Income Tax is outstanding. ” Brenda Pashko April 8 / 08 Signature Date [ 4 ] The conditions also provided that by signing Ms.

Pashko was consenting to Resmor obtaining her “ personal information from and reporting to agencies that we must deal with in assessing your eligibility for the mortgage . . . ” . [ 5 ] Another condition provided: Alberta Mortgages Only: This mortgage is a high ratio mortgage to which section 43(4.1), 45(4.2) and 44(4.1) of the Law of Property Act apply.

You and anyone who, expressly or impliedly, assumes this mortgage from you could be sued for any obligations under this mortgage if there is a default by you or the person who assumes this mortgage. [ 6 ] The last condition in the document provided: A statutory declaration signed by (client name) stating they have no outstanding Provincial or Federal taxes owing. [ 7 ] Ms. Pashko filed an assignment in bankruptcy on July 3, 2009. [ 8 ] Ms. Pashko defaulted on the mortgage and Resmor took foreclosure proceedings.

On January 13, 2010, by court order in the foreclosure proceedings, title to the property was vested in Resmor. Resmor also recovered personal judgment against Ms. Pashko for the portion of the loan which exceeded the value of the property at the time title was vested in Resmor. Resmor recovered that deficiency from CMHC pursuant to the mortgage insurance and assigned the judgment to CMHC on September 30, 2010. [ 9 ] CMHC alleges that at the time she signed the statement in the mortgage commitment letter, Ms. Pashko had unpaid income tax debt. The statement was therefore not true. CMHC alleges that Ms.

Pashko knew the statement was false or was reckless as to its accuracy.

[10] CMHC says that Resmor relied on the statement in advancing the mortgage loan and that CMHC relied on the statement ininsuring the mortgage. Resmor would not have advanced the mortgage and CMHC would not have issued the insurance, had they knownthe statement was not true. The judgment debt, therefore, resulted from a fraudulent misrepresentation made by Ms. Pashko. Byoperation of BIA s. 178(1)(

e) the judgment debt will therefore not be discharged by Ms. Pashko’s discharge in bankruptcy. [11] In this application CMHC is seeking a

summary determination of the issues. In my view the test to be applied is the same asthe test on a

summary judgment application. I should grant the order sought by CMHC only if it is plain and obvious that the judgmentdebt resulted from a fraudulent misrepresentation by Ms. Pashko, that no defence raised by Ms. Pashko to the allegations can succeed.

Forsyth J. adopted the equivalent of this approach in Re Herdman (1992), (AB KB), 10 C.B.R. (3d) 33 (Alta Q.B.)when he held that in the absence of a previous determination of fraud in some other proceeding, a determination could be madesummarily in a discharge hearing “where the evidence of fraud was clear and unequivocal”. [12] In my view the evidence relating to fraud is not clear and unequivocal in this case. [13] Ms. Pashko has filed an affidavit in which she swears: When I purchased the House in April 2008, I honestly believed that I did not owe any income tax arrears.

In 2006, Revenue Canada had begun garnisheeing my income at ReMax River City. At that time, I had not filed my 2004 to 2006 taxreturns. I subsequently retained an accountant . . .He prepared my personal tax returns for 2004, 2005, 2006 and 2007, which were all completedand, I understand, filed in 2008. At the time I applied for the Mortgage, I had filed the Tax Returns, but I had not yet received my Notices of Assessments. I was receiving Statements of Accounts that would show significant tax arrears from time to time, including around the time I wasapplying for the Mortgage.

I provided these to [my accountant] and asked him if I still owed taxes on a number of occasions, includingaround and before the time I applied for the Mortgage. He told me that the garnishees were taking care of my tax arrears and that I didn’t have to worry about it. More specifically, he advisedme that the Statements of Account were based on notional assessments based on earnings submitted by ReMax and therefore didn’tadequately recognize my business expenses. He also told me that the Statement of Accounts included significant penalties and intereston those wrong notional assessments.

Finally, he told me that he compared the ReMax garnishee records with the CRA Statements andit appeared that a number of the garnishees had not been accounted for by the CRA. [14] In the same affidavit Ms. Pashko also deposes as follows: I provided [my mortgage broker] with the Tax Returns that she requested which had been prepared by [my accountant]. [The mortgagebroker] also requested copies of the Notices of Assessment. I told her that the Tax Returns had been filed but that the Notices ofAssessment had not yet been provided.

I explained to her that CRA was currently garnisheeing my paycheque to take care of income taxes but that I understood that everythingwas up to date – in fact, I was hopeful that I would get a refund considering all of the things that [my accountant] had pointed out to me.[The mortgage broker] told me that if I believed that I would not owe any income taxes after the reassessments, I could just swear astatement to that effect in front of the lawyer when I was applying for the Mortgage.

At the time I applied for the Mortgage, I honestly and completely believed that I did not have any income tax arrears. [ 15 ] Ms. Pashko swears further that she did not discover that she did in fact owe taxes until she received a letter from her accountant dated May 26, 2008 (which is exhibited to her affidavit). The accountant summarized her tax position in the letter. He calculated that she owed about $70,000 taxes.

She deposes that when she asked her accountant to explain why this was the case when he had assured her otherwise, he told her that “ once all of the penalties and interest had been accounted for, it turned out the garnishments didn ’ t cover the tax arrears after all ” . [ 16 ] Ms. Pashko was cross-examined on this affidavit. On cross-examination her evidence did not deviate from that contained in her affidavit. No evidence contradicting Ms. Pashko ’ s evidence as to the state of her belief when she signed the statement has been filed. [ 17 ] In order for BIA s. 178(1)(

e) to apply to the judgment debt, that is, in order to conclude that the judgment debt resulted from obtaining property or services by false pretences or fraudulent misrepresentation, the following would have to be established: a. that Ms. Pashko made a representation b. that the representation was false c. that Ms.

Pashko made the representation knowingly, without belief in its truth or with reckless indifference as to whether it was true or false d. that the creditor relied on the representation in the provision of property or services [ 18 ] In order for the Court to determine that the third element of this test is present it would have to make a credibility finding concerning the evidence of Ms. Pashko. The Court would have to disbelieve the evidence Ms. Pashko has adduced. I am not prepared to do so. In my view it would be improper to make a credibility finding in this case without hearing Ms.

Pashko testify in person before the Court. [ 19 ] There are other issues of fact that are not satisfactorily covered by the evidence presented on this application. First, there is no evidence as to Resmor ’ s reliance on the statement. Indeed the document in which Ms. Pashko ’ s statement was made indicated that Resmor would require the most recent Notice of Assessment or a statutory declaration completed by a solicitor. This suggests that Resmor was not content to rely on Ms. Pashko ’ s statement. That suggestion is strengthened by Ms.

Pashko ’ s evidence that she provided Tax Returns and an explanation for the absence of assessments to the mortgage broker and was told that a statutory declaration would suffice. There is no evidence as to whether a statutory declaration was ever completed. [ 20 ] Second, there is no evidence that Ms. Pashko ’ s statement was ever communicated to CMHC. There is no evidence that the document containing the statement, Resmor ’ s mortgage commitment letter, was ever sent to CMHC. I accept that CMHC would not have insured the mortgage had it known that there were tax arrears.

It does not follow from that certainty, however, that CMHC understood there were no tax arrears because of Ms. Pashko ’ s statement. Absent positive evidence that Ms. Pashko ’ s statement was provided to CMHC there can be no finding of a representation by Ms. Pashko to CMHC. [ 21 ] For these reasons I am not able to grant the declaration sought in this

summary proceeding. I direct that there be a trial of the issues raised in this application if CMHC wishes to pursue the matter further. If counsel require more specific direction as to the steps to be taken to bring the matter on for trial, they may arrange a case conference under Rule 4.10. Heard on the 22 nd day of June 2012.

Dated at the City of Edmonton, Alberta this 26 th day of July 2012. Brian R. Burrows J.C.Q.B.A. Appearances: Jeffrey L. Oliver for the Applicant Stephanie A. Wanke for the Respondent