Capital Direct Lending v Falcone, 2021 ABQB 770

Court of Queen’s Bench of Alberta Citation: Capital Direct Lending v Falcone, 2021 ABQB 770 Date: 20210923 Docket: 2101 04001 Registry: Calgary Between: Capital Direct Lending Corp Plaintiff/Respondent - and - Susan Falcone Defendant/Appellant _______________________________________________________ Endorsement of the Honourable Mr.

Justice JT Eamon _______________________________________________________ Introduction [ 1 ] On August 24, 2021 Master Farrington granted an order for sale in this foreclosure action, that approved the sale of the defendant/appellant’s home to a third party purchaser (JB and EB), directed the closing be on October 4, 2021 and directed the defendant and occupiers vacate the property by October 1, 2021. [ 2 ] The defendant/appellant promptly appealed the order. [ 3 ] The matter came before me in morning judge’s chambers on 15 September 2021. Usually we will not hear appeals from Master’s Orders in morning chambers.

There is insufficient time and opportunity to give respectful consideration to the Master’s decision or to review the usually voluminous materials. The parties asked me to resolve the appeal without a special chambers application, if I could reasonably do so, because it is urgent. If not, then the appellant asked for a stay. It was apparent a stay would effectively end the appeal because the purchaser needed an answer very soon, well before any appeal could be heard. I agreed to reserve and deliver a decision as quickly as I could.

Facts [ 4 ] The home is encumbered by two mortgages, both granted to the plaintiff/respondent. The plaintiff commenced foreclosure proceedings on the second mortgage on 19 March 2021. The plaintiff noted the defendant in default on May 13, 2021. No proceedings were brought on the first mortgage. [ 5 ] Master Prowse QC heard the application for redemption order on July 14, 2021, after the plaintiff served the defendant with the necessary application, affidavit of default and affidavit of value. The defendant had ample notice of the application and the plaintiff’s evidence.

These documents were both mailed and sent by express post to her home on June 4, 2021. The defendant’s husband appeared on the application. The defendant did not file evidence of value in response to the plaintiff’s evidence. [ 6 ] Master Prowse QC granted a redemption order on July 14, 2021. [ 7 ] Para 3 of the redemption order declared the sum of $36,272.22 due at July 9, 2021 consisting of principal and interest plus costs and “other amounts chargeable under the mortgage”. The redemption order refers to this aggregate as the “Indebtedness”.

The order has a statement of indebtedness attached, that states the total due to the plaintiff at the date the order was granted was $36,272.22 plus costs. [ 8 ] Para 4 of the redemption order gave the defendant one month to apply to vary the amount declared owing pursuant to para 3 with respect to any amounts not set out in the affidavit of default. [ 9 ] Para 5 allowed the defendant one day, until July 15, 2021, to repay the Indebtedness failing which the lands would be offered for sale in an online classified advertising site known as Kijiji.

Advertising to be a minimum of 5 days, tenders to close no earlier than 7 days following the final publication of the notice. [ 10 ] Para 6 recognized the defendant’s right to pay the Indebtedness before the lands were sold and end the proceedings. [ 11 ] The redemption order scheduled the next court date for August 20, 2021. [ 12 ] The defendant did not appeal the redemption order. [ 13 ] The court file indicates that Master Prowse QC also approved the listing terms including the asking price for the property, on July 14, 2021.

The asking price was the fair market value in the plaintiff’s affidavit of value. [ 14 ] The next court hearing was August 20, 2021. The purpose of this hearing was to consider any tenders received on the property. The listing resulted in one offer, from the third party purchaser JB and EB. The offer was slightly more than the appraised fair market value. There would be no commissions incurred because no realtor was involved. The plaintiff wanted the offer approved. Again, the defendant’s husband appeared in Court. He told Master Farrington they had arranged new financing.

Master Farrington adjourned the application to August 24, 2021 to allow him to provide proof of financing. [ 15 ] The matter again came before Master Farrington on August 24, 2021. The defendant’s husband said he obtained an appraisal the preceding week, but did not provide evidence to Master Farrington impugning the plaintiff’s evidence of value. The defendant did not have a commitment for refinancing. An offer that was $15,000 higher than the offer from JB and EB had been submitted late, after tenders closed.

The plaintiff again sought approval of the offer from JB and EB. [ 16 ] Master Farrington approved the offer from JB and EB. He rejected the late offer because accepting it would undermine the integrity of the tender process. He found that the mortgagor had sufficient time to refinance but had not obtained a refinancing commitment. New evidence on appeal [ 17 ] On the appeal, the defendant/appellant submitted an affidavit. This is the first time the defendant has provided evidence in the foreclosure action. Romaine J directed the plaintiff/respondent could file a reply affidavit on short notice.

The respondent did not file reply evidence. [ 18 ] The appellant’s evidence addresses two points. [ 19 ] First, value of the property. The appellant claims the plaintiff’s appraiser grossly undervalued the actual market value of the property.

To demonstrate her point, she presented an appraisal dated August 16, 2021, along with her most recent property tax assessment, and recounted a conversation with a realtor recommending listing and sale prices. [ 20 ] The appellant also argued that the offer from JB and EB indicated the asking price in the Kijiji listing must have been significantly below the true market value of the property.

She speculated in her affidavit that the property was listed for sale at the same amount as the offer and argued the fact the listing generated an offer equal to the asking price shows the property was listed for undervalue. [ 21 ] Second, the appellant says that she would have redeemed the second mortgage by paying the amount if she had not been misled by the plaintiff about the amount required to terminate the foreclosure process. [ 22 ] She explained in her affidavit that on August 5, 2021, the plaintiff sent the defendant a payout statement.

This statement recites that it was in response to a request from the defendant. The appellant did not describe the nature of the request, in her affidavit. The statement represented that the balance outstanding to August 18, 2021 would be $604,988.80 which included the balance on the first

mortgage on July 30, 2021. [23] The appellant says, under oath, that this statement misled her and her husband into believing that they had to pay $604,988 tostop the foreclosure. She says she did not understand the redemption order and did not know she could have actually stopped theforeclosure by paying about $36,000. [24] The respondent did not cross-examine or otherwise challenge this evidence.

Standard of review [25] It is well established that an appeal hearing in Queen’s Bench from a Master’s decision is de novo, and that additionalevidence may be filed without meeting the stringent due diligence standard for providing new evidence on an appeal on the record (onthese points, see the extensive discussion in Bahcheli v Yorkton Securities Inc, 2012 ABCA 166 at paras 3-30). [26] Nevertheless, new evidence must be relevant and material (Rule 6.14(3)).

This requirement is particularly important inforeclosure matters, because the Court will not entertain evidence or argument of matters that would subvert the integrity of the judicialsale process. Examples include attempts to re-open an approved sale because a re-financing was later arranged or a higher offer wastendered late (Morguard Mortgage Investments Limited v Faro Development Corporation Ltd, (ABCA) at pp 431 -432; Drisdelle v Able Holdings Ltd, 1981 ABCA 4 at para 11; Lee v London Life Insurance Company, 1986 ABCA 227 at para 9;Dickey v Pep Homes Ltd, 2006 ABCA 402 at paras 15, 26-27).

Arguments about value [27] Master Farrington rejected the late offer because entertaining it would undermine the integrity of the bidding process. He haddiscretion to reject that offer, and correctly exercised it on the evidence before him. The late offer was only 2.5% higher than the offerfrom JB and EB. Both offers were slightly above fair market value. Rejecting the offers and engaging the parties in a bidding war mightresult in a higher offer, but might not.

On the appraisal evidence before Master Farrington, the potential for higher offers wasn’tparticularly apparent. [28] Master Farrington may have come to a different conclusion if the defendant had submitted appraisal evidence. The appellanthad ample time to obtain and submit evidence of value and actually had evidence, but did not provide it to Master Farrington. [29] I agree with the respondent that allowing the new evidence of value after the hearing before Master Farrington and after anoffer was accepted would undermine the integrity of the foreclosure process.

It would create excessive uncertainty and unpredictability inthe foreclosure bidding process and subvert the objective of obtaining the best value for the interested parties. Mortgagors are amplyprotected by their right to redeem right up until sale to a third party and their rights to provide evidence and submissions at theredemption order and sale approval applications. [30] There is not a special set of rules for self-represented persons, and the mortgagee and purchaser should not bear the burden ofthe defendant’s omission. I do not rely on this evidence.

Arguments about redemption [31] It is well established that the mortgagor may redeem up until the time the property has been sold to a third party, and uponapproval of a sale to a third party the mortgagor’s equity of redemption is terminated (Price and Trussler, Mortgage Actions in Alberta(Carswell, 1985) at pp 193, 221-222). Master Farrington obviously acted on this principle by adjourning the August 20, 2020 applicationto permit the mortgagor time to show she had the means to refinance the property. [32] The Court on appeal must be careful not to undermine the judicial sale process.

Nevertheless, the Court hears the appeal denovo and may exercise its discretion on appeal for other reasons. In Drisdelle, the Court stated: [16] ... Until the sale order is made, however, it is a foreseeable risk of bidding for land on a judicial sale that the sale may not beconfirmed. That will usually happen because the Mortgagor or some other person entitled to do so tenders the sum in default. It isnevertheless not entirely unforeseeable that some defect in earlier proceedings or an entirely different reason may induce the Court eitherto delay or negate the judicial sale.

Bidders must be aware and take into account in determining the sum to bid that until the sale order isfinal and beyond the reach of appeal, they cannot be assured that the sale will be completed. In this case the sale order itself isimpeached. [33] Many of the appellant’s arguments have no merit.

She says she did not understand the process, the redemption order, and theuse of the plaintiff’s affidavit of value, would have objected to the value proposed by the plaintiff had she understood the use of theevidence, and would have appealed the redemption order if she had taken legal advice. [34] There is not a set of rules for represented litigants and a different set for self-represented litigants. If she knew that she did notunderstand, she also knew or ought to have known she should ask for help.

She is responsible for the consequences of her choice inresponding to the litigation, not the plaintiff and certainly not JB and EB. [35] However, she also provided evidence, that was not before Master Farrington, that she was acting under the mistaken beliefthat she had to pay out both the first and second mortgages in order to terminate the foreclosure action and save her home and that thisbelief was induced by the mortgagee’s pay out statement. Further, she had the resources available to pay the Indebtedness. I infer the

appellant and her husband worked toward refinancing the entire property rather than taking the obvious course of redeeming the relatively small second mortgage and associated costs because they did not understand. [ 36 ] If their misunderstanding was the product of their choices in representing themselves, I would dismiss the appeal. In contrast, if the mortgagee partly induced the erroneous belief, then in fairness a Court would likely permit the appellant a last opportunity to redeem. To do so would not subvert the foreclosure bidding process.

The mistake existed during the proceedings and affected the fairness of the proceedings and arose from the mortgagee’s communication. [ 37 ] I am somewhat skeptical of the appellant’s position because they did not produce the request to the law firm that resulted in the pay out statement. Regardless, their evidence is unchallenged and there is enough to show an arguable appeal and significant harm to the appellant and her husband who have lived in the home for so many years. I would at least grant a stay, recognizing that it would result in significant delay and loss of the current sale.

The parties asked me to resolve the appeal if I could. Absent any challenge or expressed intention to challenge the evidence, I will resolve the appeal on the basis the appellant’s error in failing to redeem was partly induced by the mortgage payout statement that jointly addressed both the mortgage in default and the mortgage that was not the subject of the foreclosure action. [ 38 ] I recognize that JB and EB had no notice of any defects in the process, and acted diligently and in complete good faith. While I am sympathetic to their situation, sale orders are subject to appeal on the correctness standard.

In my view, the error under which the appellant acted in responding to the sale process must be considered on a de novo appeal. Conclusion [ 39 ] The appellant should have a final chance to redeem, but not to re-open the redemption order or sale terms. [ 40 ] The respondent provided a statement in response to the Court’s inquiry of the amount to pay out the second mortgage.

From that statement I calculate the estimated amount as follows: Statement amounts $ Balance on second mortgage at 24 Sept 2021 36,556.14 Estimated inspection fees 1,500.00 Legal fees to redemption order, sale applications and associated matters 12,942.59 Total 50,998.73 [ 41 ] I would add a $1500 contingency to the above to cover unanticipated costs or charges. [ 42 ] The sale order is varied as follows: (

a) The appellant may redeem by paying, from an Alberta solicitor’s trust account, into Court to the credit of this action or to the mortgagee’s legal counsel, the sum of $52,500 no later than 3 pm, Friday September 24, 2021 . These funds are subject to a first charge in favour of the respondent and shall be released to the respondent in such amount as necessary to redeem the mortgage as agreed by the parties or directed by the Court on application. (

b) In the event the funds are paid in strict compliance with sub-para (a), the sale order is terminated and the holder of the deposit funds of JB and EB shall immediately pay the funds out to them without deduction. [ 43 ] The parties may speak to costs. Mr Llewellyn might take into account the principle in Rudichuk v Genesis Land Development Corp , 2019 ABQB 133 at paras 54 – 57 , endorsed by the Alberta Court of Appeal in Rudichuk , 2020 ABCA 42 at para 36 . Heard on the 15 th day of September, 2021. Dated at Calgary, Alberta this 23 rd day of September, 2021. JT Eamon J.C.Q.B.A. Appearances:

C Llewellyn for the appellant J Blanchard for the respondent