Scotia Mortgage Corporation v. Gutierrez, 2012 ABQB 683

Court of Queen ’ s Bench of Alberta Citation: Scotia Mortgage Corporation v. Gutierrez, 2012 ABQB 683 Date: 20121101 Docket: 1201 09396 Registry: Calgary Between: Scotia Mortgage Corporation Plaintiff - and - Sagrario Francis Gutierrez and Roberto Carlos Gutierrez Defendants _______________________________________________________ Memorandum of Decision of K.R. Laycock, Master in Chambers _______________________________________________________ Background [ 1 ] On July 24, 2012 the plaintiff commenced a foreclosure proceeding and filed a Certificate of Lis Pendants with respect to property owned by the defendants.

The plaintiff alleges that the defendants granted it a mortgage, pursuant to the National Housing Act (Canada) and the Insurance Act (Alberta), on April 23, 2010. The plaintiff further alleges that the defendants have defaulted in their monthly mortgage payments and claim the balance outstanding is $371,132.82 as of July 23, 2012.

[2] From the affidavits filed by the plaintiff, it is apparent that the mortgage is a “High-Ratio” mortgage as defined in the Law ofProperty Regulations and insured by Genworth Financial Mortgage Insurance Company Canada. The Law of Property Act section43(4.1) states that the protections afforded by

section 40 and 41 do not apply. Similarly, the protections afforded by the act subsections43(2) and (5) do not apply. The result is that the plaintiff may sue on the personal covenant to pay contained in the mortgage. They arenot restricted to remedies against the land only. An action on the covenant to pay may be made against the original mortgagors. By virtueof the Land Titles Act R.S.A. 2000 Ch.

L-4 57, an action on the personal covenant to pay may also be pursued against all subsequentpurchasers of the property. [3] On October 11, 2012 the plaintiff applied for an order fixing the fair market value of the property at $360,000.00, for leaveto purchase the property at that value and for judgment against the defendants for any deficiency arising from the sale. In Albertaforeclosure practice this is known as an application for a Rice Order.

On October 3, 2012 the land was transferred by the defendants to1158997 Alberta Inc. (hereinafter “115"). [4] The affidavit of value shows the property to be a well-maintained two-story residential home located in Chestermere,Alberta. The affidavit of default confirmed the outstanding balance on the mortgage as of August 20, 2012 was $372,097.70. Themortgage required monthly payments of $1511.84. The affidavit of default and supplemental affidavit confirmed that the mortgage was a“High Ratio” mortgage insured by Genworth Financial Mortgage Insurance Company Canada.

The Application [5] Counsel for the plaintiff advised that the application documents had been served upon the defendants and 115. He advisedthat he did not wish to adjourn to amend his pleadings to claim any In Personam remedies against the purchaser 115. [6] The male defendant provided information to me on a prior application, heard October 2, 2012, as to why the mortgage wasin foreclosure. He had indicated that his wife became ill and was no longer able to work. As a result of losing her income, they could nolonger afford to make mortgage payments.

He confirmed that they had no ability to raise other funds to pay up the arrears and legal costs.He confirmed that they could not obtain alternative financing to pay out the plaintiff’s mortgage. He and wife desperately wanted tomaintain the residence for their children. [7] On October 11, 2012, Mr. Gutierrez confirmed that they had transferred title to 115. They received no money from 115.They were to remain in the property as renters paying $1400.00 per month. He stated that at the end of two years, he and his wife hadthe option to repurchase the house for the same price that he sold it to 115.

He wished to have the matter adjourned to allow 115 to paythe “purchase price”of $365,000.00. The “purchase price” was to be paid to the bank. The most recent certificate of title shows that therewas nominal consideration paid and that someone, on behalf of 115, swore that the property had a value of $350,000.00. [8] None of this make sense. The defendants would be paying less that the regular monthly mortgage payments. I am expectedto believe that 115 will make up the difference plus pay the property taxes and then after 2 year of losing money, transfer the propertyback to the defendants.

The math and economics do not work. [9] Derek Johnson was in court as the principal shareholder and director of 115. I declined to let Mr. Johnson address the courtfor the reasons that follow. [10] In 786372 Alberta Ltd. v. Mohawk (Canada) Ltd. 2002 ABQB 785 , 2002, 3 Alta. L.R. (4th) 380, Master Brietkreuzreviewed a number of Alberta decisions and concluded that the court had a discretion to allow a corporation to be represented by one ofits officers or directors.

In considering the circumstances when a court would allow a non-lawyer to appear in court to make argumentfor a corporation he concluded that the court must consider a number of factors: 1. The potential for unnecessary costs and delay; 2. The lack of legal training or general ability to speak to the matter; 3. Past unethical conduct of the non-lawyer;

4. Any past problems (including delay) in the proceedings due to the inexperience of the non-lawyer; 5. The size and complexity of the case; 6. Expediency; and 7. Economic hardship. [ 11 ] In Drucker v. K.P. Manufacturers (Calgary) Ltd. , 2006 ABQB 644 , 399 A.R. 398, the court struck pleadings on the ground that the Rules of Court and the Legal Professions Act R.S.A. 2000, c. L-8 permit pleadings to be filed on behalf of the corporation only by a lawyer. [ 12 ] In Beacon Hill Service

(2000) Limited v. Esso Petroleum Canada 2011 ABQB 138 , Justice MacLeod stated at paragraph 12: It is a fundamental tenent of company law that a corporation has an identity separate from its principals. [ 13 ] More recently, the Alberta Court of Appeal in Lameman v. Alberta 2012 ABCA 59 refused to allow British barristers to act on behalf of the plaintiffs because they were not members of the Alberta Law Society. The Legal Professions Act s.106(1)©) states in part:

(1) No person shall, unless the person is an active member of the society,.... ©) commence, carry on or defend any action or proceeding before a court or judge on behalf of any other person.... [ 14 ] The Court of Appeal determined that this

section covered either a single transaction or a single lawsuit. It is an offense to disobey s. 106. There is no rule or inherent power of the court to sanction committing an offense. The court referred to R. v. Stagg 2011 MBQB 294 as support for this proposition. Accordingly, the British barristers were prohibited from acting for the plaintiffs. [ 15 ] The underlying reason for requiring a lawyer to appear for another is captured in the comments of Lord Denning of the English Court of Appeal in Rondel v. Worsley , [1966] 3 All E.R. 657 at 665 : He has a duty to the court which is paramount.

It is a mistake to suggest that he is the mouthpiece of his client to say what he wants: or his tool to do as he directs. He is none of these things. He owes allegiance to a higher cause. It is the cause of truth and justice. He must not consciously mis-state the facts. He must not knowingly conceal the truth..... He must produce all the relevant authorities, even those that are against him. He must see that his clients discloses, if ordered, the relevant documents, even those that are fatal to his case. He must disregard the most specific instructions of his client, if they conflict with his duty to the court.

The code which requires a barrister to do all this is not a code of law. It is a code of honour. If he breaks it, he is offending against the rules of the profession and is subject to its discipline. [ 16 ] It may be argued that the recent Alberta decisions prevent a non-lawyer, including a shareholder or director, from appearing in court to advocate on behalf of the corporation. If the court does still retain a discretion to allow a non-lawyer to appear on behalf of a corporation, it was my decision that Mr.

Johnson or any of his agents may not make representations on behalf of 115. [ 17 ] In the exercise of my discretion I have considered past representations made by Mr. Johnson. He has appeared and argued on behalf of homeowners such as Mr. and Mrs. Gutierrez. He has appeared on behalf of 115. Invariably his goal is to delay the proceedings. He has argued that 115, on acquiring title to foreclose property, is entitled to review the original signed mortgage to verify its authenticity. His company will not pay up the arrears until he has verified the mortgage.

Ostensibly this is to see if the plaintiff is the proper party to enforce the mortgage. The absurdity of the argument is that the original mortgagee is most often the plaintiff. In addition, there is no legal basis for providing the original, which is registered at Land Titles and available for anyone to request a copy, on payment of a modest fee.

[ 18 ] If the plaintiff were not the original mortgagee, the Land Titles Act s. 110 has the effect of making the transferee subject to and liable for all the requirements and liabilities of the original mortgagee. Therefore the transferee is on the hook for all the duties of the original mortgagee and can enforce all the covenants of the mortgagor. [ 19 ] To further answer Mr. Johnson’s need to follow the trail of mortgagees, there is the fundamental principles of the Torrens System for land registration in Alberta. Registration of ownership and claims against title are necessary.

A third party is entitled to rely on the state of the registrations disclosed on title. A certified copy of title can be relieved upon as evidence of the everything shown thereon. Who owns the property and who has claims against the property is all on the document. [ 20 ] Mr. Johnson has argued that he has attempted to complete the purchase of these properties but the mortgage company has prevented it. This is a ridiculous assertion. The property transfer has been completed to 115. If the statement was meant to say that he has been prevented from paying the arrears on the mortgage, this is also ridiculous.

On numerous occasions in the past, matters were adjourned and payout statements sent to Mr. Johnson, yet the mortgages were never redeemed. After numerous incidents such as this, it became clear that Mr. Johnson was merely stalling the process. When it was discovered that 115 was collecting rent from the homeowners, his motive became clear. [ 21 ] In the 1970s, the Calgary real estate market boomed. In the early 1980s, the economy was hit with a recession and the real estate market crashed. Homeowners defaulted on their mortgages and walked away from their properties.

This resulted in a tremendous increase in foreclosure actions. It became the era of the “Dollar Dealers”. Unscrupulous individuals, through numbered Alberta corporations, convinced desperate homeowners, who were fleeing their houses, to transfer their properties to them for a dollar. The Dollar Dealers would then rent the property and collect rents without making any payments on the mortgage debt.

The foreclosure process was a slow process and the Dollar Dealers profited. [ 22 ] The Alberta government, in reaction to this practice, amended the Law of Property Act to allow for a speedier foreclosure proceeding where property was transferred or sold while the mortgage was in default or within four months before the mortgage went into default. Eventually the Alberta economy recovered and the Dollar Dealer became a relic of the past. [ 23 ] We now find that history repeats itself. The Calgary real estate market boomed again until the recession in 2008.

Homeowners began defaulting on their mortgages and walking away from their properties. Some desperate homeowners sought help to maintain their properties. A new type of Dollar Dealer has emerged on the scene to take advantage of the unwary and desperate homeowner. This scheme involved a homeowner transferring title to a numbered Alberta corporation with the promise that the property would be reconveyed at some future time. The transferee corporation was to bring the mortgage into good standing. The homeowner was to pay rent.

The advantage of this new scheme was that the scoundrel didn’t have to go to the trouble of locating a tenant. [ 24 ] The new scoundrel, while collecting rent would appear in court and make outlandish statements to obfuscate and delay the proceedings. The scoundrel obtained a substantial cash flow from numerous desperate homeowners. While the homeowner was able to remain in the residence, the mortgage debts and legal costs increased substantially because of the activity of the scoundrel.

Eventually the mortgage company would obtain title to the property and, in many cases, obtain a deficiency judgment against the homeowner. [ 25 ] In many of these foreclosures, the mortgage company would also obtain judgment against the numbered Alberta corporation. It is clear that Mr. Johnson is a scoundrel for holding out hope to desperate homeowners in order to enrich himself. 115 has in many cases been added as a defendant and several judgments has been obtained against 115.

A search at the Personal Property Registry reveals that eight judgments have been assigned by the mortgage company to Canada Mortgage and Housing Corporation in the total amount of $624,655. Another insurer, Genworth Financial Mortgage Insurance Company has six judgments assigned to it in the total amount of $729,920. Two other lenders have judgments against 115 totalling $157,083. [ 26 ] When Mr.

Johnson advises the court that he has years of experience in the Calgary real estate market and that the Court has not kept up with and does not understand the current real estate practices, he makes a vexatious argument. My grandfather’s generation would describe him as a snake oil salesman. There is no merit to any of his arguments. His appearances cause unnecessary costs and delay. He shows a lack of understanding of basic real estate and mortgage practice and procedures. His arguments have been rejected repeatedly by both Masters and Justices on appeal.

[ 27 ] 115 has been declared a vexatious litigant at least twice because of arguments made by Mr. Johnson when he appears in court on behalf of the company. Justice Wilson declared 115 to be a vexatious litigant on December 3, 2010 in Exceed Mortgage Corporation and Exceed Funding Corp v. 1158997 Ltd. Action No. 1001-08610. In the same action, on a later appeal by 115 of a Master’s order, Justice Kenny dismissed the appeal on February 17, 2011 and ordered solicitor/client costs of $4,895.47 against Mr. Johnson personally. [ 28 ] On February 9, 2011 in HSBC Finance Mortgages Inc. v.

Strand Action No. 1001-14143, Justice Strekaf declared the company a vexatious litigant and barred the company from making further applications in the action. The application was an appeal a Masters order that required the defendants to co-operate with the listing and sale of the residence. The appeal was dismissed. [ 29 ] In dismissing the appeal, Justice Strekaf strongly urged the defendants to talk to someone else to get advice because the position taken by Mr. Johnson was not helpful to them. [ 30 ] In his recent judgment Meads v. Meads, 2012 ABQB 571 , Associate Chief Justice J.D.

Rooke describes people like Mr. Johnson as Organized Pseudolegal Commercial Argument litigants (OPCA). He notes that one characteristic is the belief that ordinary persons are being unfairly cheated, or deceived. At paragraph 71 he states: OPCA strategies as brought before this Court have proven disruptive, inflict unnecessary expenses on other parties, and are ultimately harmful to the persons who appear in court and attempt to invoke these vexatious strategies. Because of the nonsense they argue, OPCA litigants are invariably unsuccessful and their positions dismissed, typically without written reasons.

Nevertheless, their litigation and abuse continues. The growing volume of this kind of vexatious litigation is a reason why these Reasons suggest a strong response to curb this misconduct. [ 31 ] At paragraph 75 he further states in part: ... A judge who encounters and reviews OPCA concepts will find their errors are obvious and manifest, once one strips away the layers of peculiar language, irrelevant references, and deciphers the often bizarre documentation which accompanies an OPCA scheme. When reduced to their conceptual core, most OPCA concepts are contemptibly stupid. [ 32 ] Associate Chief Justice J.D.

Rooke observes that the OPCA concepts are often taken from the Internet and spread through Internet websites. What matters to them is the establishment of a following. People who want to believe there is a legitimate solution and seek out this help. [ 33 ] Mr. Johnson has been allowed an audience in the past to address these foreclosure issues but has repeatedly and consistently argued the same nonsense to the detriment of his victims. These defendants have been victimized by him and 115.

He may even have committed fraud in obtaining title to their residences. [ 34 ] For all of these reasons, I declined to allow Mr. Johnson or any of his employees or agents to appear in court on behalf of 115. 115 and Mr. Johnson’s related companies including Partners in Success Mortgage Inc. may only be represented in the future by a lawyer authorized to practice pursuant to the Alberta Legal Professions Act . [ 35 ] I declined to grant Mr. Gutierrez’s application for an adjournment “so that money can come through” because there is no evidence that there is any money being paid by 115 to the plaintiff.

To my knowledge 115 has never paid money in the past to either the homeowners or secured lenders and there is little prospect they will pay in the future, especially with $1.5 million in judgments registered against it.

Any further delay in proceedings will only increase the deficiency judgment that the plaintiff is entitled to obtain against the defendants. [ 36 ] At the conclusion of the hearing, I granted the plaintiff’s application for an order selling the property to the plaintiff for $360,000.00 and entering a judgment against the defendants in the amount of $2,373.76, the deficiency after the application of the sale proceeds. Although the order provided for possession 30 days after service of the order upon the defendants, counsel for the plaintiff

undertook not to enforce the possession order until November 30, 2012. Heard on the 11 th day of October, 2012. Dated at the City of Calgary, Alberta this 1 st day of November, 2012. K.R. Laycock M.C.C.Q.B.A. Appearances: D. Michael Ellery Leon Beckman Brener for the Plaintiff Sagrario Francis Gutierrez for the Defendants