MCAP Service Corporation v Filewich, 2016 ABQB 663

Court of Queen’s Bench of Alberta Citation: MCAP Service Corporation v Filewich, 2016 ABQB 663 Date: 20161123 Docket: 1414 00222 Registry: St. Paul Between: MCAP Service Corporation Plaintiff - and - Vicki Marie Filewich Defendant _______________________________________________________ Memorandum of Decision of L.A. Smart , a Master of the Court of Queen’s Bench of Alberta _______________________________________________________ Background [ 1 ] This is a foreclosure action on a mobile home located in Lloydminster, Alberta.

The Plaintiff MCAP Service Corporation (MCAP) fax filed its Statement of Claim October 10, 2014. The mortgage was for the original principal amount of $122,015.63 with interest at 3.09% per annum. The amount owing at September 16, 2014 was alleged to be $116,219.60. Service of the Statement of Claim by email was validated by Order effective October 23, 2014 with 30 days to defend. The Defendant did not defend and was noted in default. [ 2 ] MCAP set down an application for a Redemption Order – Listing returnable February 23 rd , 2015.

In support it filed an Affidavit of Value prepared and sworn by Shelby Boomhower of MIT Appraisals Ltd. (the first appraisal) on January 14, 2015. MCAP’s expert provided her opinion that the market value was $165,000, forced sale for terms value - $149,000 and forced sale for cash - $140,000. The interior and exterior of the property was visually inspected. It was observed that the home “is in good to very good condition”. An Affidavit of Default was sworn by an authorized representative of MCAP setting out an indebtedness of $111,084.59.

Based on MCAP’s evidence on February 23, 2015 a Redemption Order – Listing was granted setting a six-month redemption period to be followed by a 90 day listing at the market value of $165,000 and declaring a balance owing of $111,525.23. [ 3 ] As there was no redemption, the property was marketed as required by the Order with no offers received. On November 23, 2015, MCAP made an application to reduce the list price to $130,000 and extend the listing for 90 days.

In support of the application an employee of the law firm attached as exhibits to her affidavit the previous listing agreement, an updated (second) Appraisal Report and a comparative market analysis (CMA) prepared by the listing Realtor The Appraisal Report appears to be missing the first two pages. It was prepared by Ben Berg of Nationwide Appraisals Services Inc. with an effective date of September 2, 2015. He expressed his opinion that the market value was $125,000 and forced sale for cash value at $106,000.

Two of the three comparables in the Direct Comparison Approach are the same as in the first appraisal but their adjusted values declined $30,500 and $46,500, respectively. No explanation was

given for the reductions. There is no indication that this appraiser was aware that there had been an earlier opinion obtained by MCAP. Although there is no narrative with respect to the condition of the property under the description of the “Subject” it is indicated that it was “Avg (-)” condition as opposed to “G – VG” in the first appraisal. The listing Realtor’s CMA updated at October 23, 2015 suggested a list price of $130,000 with an expected sale price of $125,000.

It also indicated that during the first listing there had been one showing with a comment from that perspective buyer and her realtor that it was “listed to (sic) high”. By application on November 23, 2015, the list price was reduced to $135,000 and the listing was extended 90 days. [ 4 ] On February 29, 2016, counsel for MCAP appeared before me in Edmonton. The Defendant had vacated the property at the end of the Redemption Period and was now located in Edmonton. Attempts had been made to contact her by telephone and email although no response had been received.

At the application, I was informed erroneously that the property had been appraised in October 2015 at a market value of $135,000. The property had been listed at $135,000 and no offers had been received. Counsel applied for an Order for Sale to the Plaintiff (Rice Order) at $105,000 based on a more recent CMA completed by the listing Realtor. The indebtedness was then approximately $122,500 and deficiency judgment of $17,500 plus costs would result. Having received acknowledgment from counsel that the Realtor was not qualified as an expert, I declined to accept MCAP’s proposal to purchase the property.

Based on the representation that the accredited appraisal provided a market value of $135,000 and it being the best evidence before me, I set the fair value of the property at $135,000 in accordance with the principles set out by the Alberta Court of Appeal in Yorkshire Trust v Armwest , 1985 ABCA 225 . It was also indicated that if the fair price was not one that MCAP wished to accept, I would be prepared to grant a Final Order for Foreclosure. Counsel was of the view that the price would be unacceptable and suggested that the property be relisted.

I gave leave to apply on notice for that application in Edmonton. [ 5 ] On May 16, 2016, MCAP applied before Justice Yungwirth in St. Paul for an Order relisting the property for 90 days “reducing” the price to $135,000 with the price to drop after 30 days to $125,000 and then to $115,000 after a further 30 days. An Order was given extending the listing for 90 days at a list price of $135,000 with a reduction to $130,000 after 30 days. I.

August 25, 2016 Application [ 6 ] On August 25, 2016, another counsel from the same firm representing MCAP appeared before me in Edmonton to make an application for a Rice Order. I was informed that the Defendant had been contacted and informally advised that the application would be proceeding in Edmonton on that date albeit the application would be on short notice. There was no expectation that the Defendant would appear on the application. MCAP was relying on a third Appraisal Report that set the fair market value at $115,000 effective July 26, 2016.

The indebtedness was then $130,758. [ 7 ] After some discussion with this counsel, it was apparent that I had dealt with the property in this foreclosure proceeding on February 29, 2016 although the precise nature of the Order I had granted was unclear. As a consequence, I reserved my decision and requested the complete court file from the St. Paul clerk’s office. [ 8 ] Absent from the court file is the CMA referred to at the February 29, 2016 application and the Order setting the fair value that had been made.

An affidavit sworn by an employee of the law firm was filed on August 26, 2016 attaching the third Appraisal Report and a current Statement of Account for the mortgage as exhibits. The Appraisal Report is prepared by Wendy Sydoruk of Nationwide Appraisal Services Inc. Again, there is no reference to the earlier opinions as to value but it does note that it is a point in time appraisal. It contains observations with respect to the drop in oil prices having a negative effect on the market and that until the demand meets supply for oil prices that real estate prices would continue to decline.

Under the description of the Subject the condition is indicated as “Avg +”. [ 9 ] The Sales History of the property oddly is described in this appraisal report as follows: SALES HISTORY – ANALYSIS OF KNOWN CURRENT AGREEMENTS FOR SALE, PRIOR SALES, OPTIONS, LISTINGS OR MARKETING OF THE SUBJECT (minimum of 3 years). The subject property is actively listed on the MLS since May 20/16 for $135,000. With a reduction in price to $130,000 on June 20/16. Previously the property was listed on February 9, 2015 for $169,900 with reductions down to $155,900 and that listing was expired on July 6/15.

It was listed again on Aug 16, 2015 for $150,000 and that listing was canceled on Sept 3/15. The property was listed again Sep 2/15 for $174,900 reduced to $165,000on Dec 1/15. Then listed again on Dec 1/15 for $144,900, reduced to $135,000 & expired Feb 29/16. II. Discussion [ 10 ] As an introduction to this discussion I set out the substantive paragraphs from Yorkshire Trust: [2] The first ground of appeal is that the learned chambers judge had no jurisdiction, on a motion before him to approve a proposed sale for $850,000.00, to order that the mortgagee buy the property at $1,065,000.00.

The appellant is, of course, technically correct. There will be an appropriate amendment to the order to provide that such a sale will not take place unless the mortgagee agrees. [3] This situation produces a problem for the practice, and we are asked to give some direction. In King Art , we said that it is the duty of the judge who makes a Rice order to fix a fair value of the land because it is not an arm’s length transaction.

In so stating, we did not contemplate that a mortgagee could seek approval for sale to itself at first one price and then another and so on until finally its offer and the market price are in accord. It would be an abuse of process so to “ride the market”. We think that a mortgagee, in the absence of special circumstances, should only apply once for a Rice order.

If that application is not in the form of an application for the approval of a sale for a price “to be fixed by the Court”, then, if the Court does not approve the proposed sale price, the Court should nevertheless fix the fair value. [4] That value would then be res judicata as between the mortgagee and the mortgagor. We make such an order here.

[5] The next question which arises is this: when a judge makes a valuation for the purposes of a Rice order in the face of a fluctuating market, at what point in time should the valuation be fixed? We think that the just answer is to say that the valuation should be that on the day when the mortgagee was first entitled to apply for such an order, or the day when such an order is indeed obtained, whichever is the higher. It is common ground here that the mortgagee was first entitled to apply in early 1983.

The valuation day is then, and not at the time of the application for the Order Nisi as found by the learned chambers judge. [6] Another question remains. The learned chambers judge accepted the forced sale value rather than the market value. The appraiser makes it clear in his report that he has taken all market factors into consideration in establishing the market value, including the bear market in real property in Edmonton today.

He makes it equally clear that he discounts this value to create a “forced sale value” because, and only because, the process of judicial sale limits the ability to get the market price. The duty of the Court is to fix a fair value. As between the mortgagee and the mortgagor, the fair value is the market value unless there are special considerations. Once the mortgagee acquires title, the problems attendant upon a judicial sale are removed and the discount mentioned by the appraiser no longer applies.

For this reason, the market value and not the forced sale value is the appropriate figure for the purposes of a Rice order in this case. [ 11 ] The Court Of Appeal made it clear that a mortgagee should only apply once for a Rice Order and to seek repeated approval for sale to itself until its offer and the market price are in accord so as to “ride the market” constitutes an abuse of process. As noted above based on the direction from the Court of Appeal, I proceeded to set the fair value at $135,000 (albeit made on a mistaken representation by counsel) on February 29, 2016.

Having made that determination the value was res judicata as between the mortgagee and mortgagor. [ 12 ] In arriving at the fair value in what was clearly a fluctuating (declining) market I concluded in this context that the valuation should be made on the day the mortgagee was first entitled to apply for the order. The subject mortgage is a high ratio mortgage given to secure a loan under the National Housing Act (Canada). Pursuant to s 43 (4.1) of the Law of Property Act , RSA 2000 c L-7(the Act ), s.41 Redemption time does not apply.

Under such a mortgage arguably it would be open for MCAP to apply for a Rice Order immediately after the issuance of the statement of claim for foreclosure. However, the right of redemption apart from the Act has long been an equitable remedy subject to the rules of equity. It is an absolute right out of which one cannot contract (1985, Mortgage Actions in Alberta , Price and Trussler, Carswell, c.12, p.183) and it has long been the practice of Alberta courts to set redemption periods for residential mortgages notwithstanding statutory redemption periods do not apply.

Furthermore, as a practical matter in this case the evidence of MCAP established a value of $165,000 as against $116,219.60 of debt and, absent consent, save in very exceptional circumstances, the court, as it did here, would set a six-month redemption period to be followed by a judicial sale listing. [ 13 ] Following the unsuccessful attempt at judicial sale MCAP obtained another appraisal. It concluded the value had declined some $40,000 or almost 25% during that nine-month timeframe. The appraisal provides no insight into why there was such a dramatic reduction in value.

One might conclude that the Lloydminster market was already significantly influenced by worldwide oil prices or perhaps noting the significant decline in value that the original opinion was simply wrong or, in my view, probably some of both. Without assistance from the mortgagee’s experts in reconciling the different conclusions of value, the Court is left with conflicting evidence which we must and do resolve summarily as a matter of practice. [ 14 ] Regardless, it was open for MCAP following the attempt at judicial sale to apply for a Rice Order.

At the February 2016 application, counsel for MCAP protested the setting of the fair value as established by appraisal evidence before the Court. I agree that it is not a particularly satisfactory remedy in these circumstances as the effect of the Rice Order would result in the mortgagee having to pay the mortgagor for the equity in the property over its indebtedness. Counsel argued that a mortgagee is not in a position to apply for a Rice Order until the value is lower than what is the then due under the mortgage.

To accept this argument made on behalf of MCAP would be to permit the very abuse of process and the riding of the market that the Court of Appeal clearly identified as improper. III. Conclusion [ 15 ] The fair value was set at the February 29, 2016 application at $135,000. The Order has not been filed and as a consequence I am in a position to correct the error arising from the misinformation. I amend the fair value to $125,000 to reflect the market value in the second appraisal. Counsel will prepare the February Order dismissing the application to purchase and the declaration of the fair value.

The application before me on August 25, 2016 is dismissed. There will be no costs to MCAP for either of the applications. As is no doubt apparent there are a number of issues to be addressed as to the conduct of this matter including proper introduction of evidence, notice of applications, and the actual marketing of the property. I reserve the possibility of imposition of penalty costs, disallowance of costs or other sanctions including disallowance of interest. When Counsel prepares the August Order it should include a direction that this file be permanently transferred from St.

Paul to Edmonton and take the necessary steps for that to occur. [ 16 ] All future applications in this matter shall be made before me. Dated at the City of Edmonton, Alberta this 23 rd day of November, 2016. L.A. Smart M.C.C.Q.B.A.

Appearances: Bishop and McKenzie LLP for the Plaintiff