Royal Bank of Canada v. Kirkpatrick, 2022 BCSC 811

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Royal Bank of Canada v. Kirkpatrick, 2022 BCSC 811 Date: 20220419 Docket: H38546 Registry: Chilliwack Between: Royal Bank of Canada Petitioner And Stuart Kirkpatrick, Canadian Western Trust Company, 4337 Investments Ltd. and Her Majesty the Queen in Right of the Province of British Columbia Respondents Before: Master Robertson Oral Reasons for Ruling Re Application for an Order Approving a Sale in Foreclosure Proceedings In Chambers Counsel for the Petitioner (by video): C.E. Ewasiuk Counsel for the Respondent Stuart Kirkpatrick (by video): D.A.T.

Moseley Counsel for the Insurer, as referred to in the pleadings, appearing as an observer (by telephone): S.D. Wallace Appearing as Agent for 4337 Investments Ltd. (by telephone): J.D. James Place and Date of Hearing: Chilliwack, B.C. April 19, 2022 Place and Date of Ruling: Chilliwack, B.C. April 19, 2022 [ 1 ] THE COURT: These are my reasons for judgment. This is an application in foreclosure proceedings for an order approving a sale of vacant land in Chilliwack. The property did have a single-family home on it. However, that was destroyed by a fire resulting in a total loss of the structure.

The fire occurred in August of 2020, well before these foreclosure proceedings commenced. [ 2 ] Currently there are four mortgages on title: the mortgage of the petitioner, Royal Bank of Canada (“RBC”), which is in first position; Canadian Western Trust, which is in second and third position; and then 4337 Investments Ltd. (“433”), which is in fourth position. The total amounts of the mortgages including commission and some unpaid property taxes is approximately $880,000. [ 3 ] In opposing the order approving sale today, the registered owner, Mr.

Kirkpatrick, opposes it on the basis that the property has not been fully and adequately marketed to support the sale being approved today.

In addition, by way of a cross-application, he seeks to have the foreclosure proceedings stayed, an order that the matter be converted to a trial, although he is not pursuing that one given that order nisi has already been pronounced, i.e., a final order already made, so it is a bit late in the date to seek such an application, and that the redemption period be extended on the basis that he says there is a reasonable prospect of repayment and sufficient equity in the property to secure the petitioner's position. [ 4 ] RBC and 4337 both oppose the stay application. 4337 does, however, also oppose the sale going ahead today, aligning itself with Mr.

Kirkpatrick's position that the property has now been fully and adequately exposed to the market. [ 5 ] I am not sure that there is a best way to address the main application and the cross application. So, I will deal firstly with the cross-application for the stay of proceedings and extension of the redemption period, then, if necessary, the approval of sale. Extension of the Redemption Period [ 6 ] The parties are in agreement on the law that applies to an extension of the redemption period, which has been confirmed in a couple of cases, one of the more recent ones being Nord Real Estate Developments Ltd. v.

Suncoast Projects

(2004) Ltd. , 2008 BCSC 879 , where the test for extension of a redemption period has been set out at para. 3 and paras. 27 to 29:

3 The necessary and sufficient condition for an order extending a redemption period, was confirmed in Regional Trust Company v.Palmer et al (1984), (BC CA), 57 B.C.L.R. 143 (B.C.C.A.), at page 144, namely: … there must be a reasonable prospect of payment, and that the property must have sufficient value by way of security for the amountoutstanding. … 27 The tests in Regional Trust Company, referred to above, are mandatory.

There "must" be a reasonable prospect of payment, and, theproperty "must" have sufficient value by way of security for the amount outstanding. 28 The onus is on the applicant to satisfy those tests. 29 In the circumstances of this case, a "reasonable prospect of payment" connotes, on a continuum, a "probable" prospect of payment,not a "possible" prospect of payment. [7] In order to satisfy the court that the redemption period ought to be extended, the respondent has to satisfy that both tests havebeen met.

In this case, I do not dispute that there appears to be sufficient security to ensure that the petitioner will be paid out at the endof the day. However, the second test is more problematic. [8] The evidence in support of there being a "reasonable prospect of payment" is really the litigation that is recently underwaybetween the respondent owner and his insurer, Aviva Insurance Company. I believe the notice of civil claim was filed March 29, 2022. [9] In short, the claim under the insurance on the property was triggered as a result of the fire was denied by the insurers on thebasis of arson.

There was a mortgage enforcement clause by which RBC, and only RBC and none of the other mortgagees, were noted tobe first-loss payee. Notwithstanding that clause and based on their own

interpretation of the policy, the insurers offered to pay outapproximately $254,000 to RBC, which was not sufficient to discharge RBC’s mortgage or to fully satisfy the obligations under themortgage. Although, I note that even if there had been a payment, then under the subrogation rights under the insurance policy, theinsurers would have stepped into the shoes of RBC and taken an assignment of the mortgage. In other words, the insurers would be heretoday instead of RBC, and the financial circumstances of the property would be the same, notwithstanding a full pay-out.

On a partialpayout, as the insurers say the policy would have provided, RBC would have a complicated role, being required to assign a portion of itsmortgage, but having some amount still owing to it. [10] One of the reasons that there would have been only a partial payout is that the offer made by the insurance company to RBC wasvalued on an adjusted cost basis instead of a replacement basis, meaning that, as I said, the amount was insufficient to satisfy RBC'smortgage and as such, they refused to accept it or made the decision, which they are fully free to do, to not accept it because it did nothave any practical effect on the foreclosure proceedings.

RBC would have still had a shortfall and would have had to proceed todayanyways to realize on its mortgage. [11] The action against the insurers that has now been brought by the respondent owner is on the basis of his insurance claim beingdenied for arson, and also on the basis of the valuation or insurance coverage, namely if it is replacement costs, as he argues, rather thanan adjusted-cost basis.

The difference in that means that if it was a replacement value, then RBC would be paid out in full under theirmortgage subject to the subrogation, as I previously mentioned. [12] As such, the registered owner argues that the fact that there is this cause of action and claim outstanding against the insurers,which he says is supported by an email from an RCMP officer which references that it will be useful to see the police files, is sufficientto satisfy this court that there is a reasonable prospect of repayment.

I am not satisfied that that test has been met. [13] In particular, as noted by the court in the Nord case and as well Imor Capital Corp. v. Bullet Enterprises Ltd., 2014 BCSC 2540,it has to be a reasonable prospect for repayment, which connotes a probability, not just a possibility of payment. [14] In this case, litigation is probably one of the more uncertain things in terms of trying to judge probability of an outcome. Litigation may or may not resolve itself soon or within two years given that the notice of civil claim has just been filed and no trial dateset yet.

There is no way to judge at this point the likely outcome. The email from the RCMP does not assist in that respect. I cannot findthat the outcome of litigation constitutes a reasonable probability of payment. As such, I am not prepared to extend the redemptionperiod. Stay of Proceedings [15] Turning, then, to the stay of proceeding. Counsel for the registered owner has brought to the court's attention a couple of casesthat go to this issue, namely Pawliuk v. Mandate National Mortgage Corp., 47 S.C.W.S. (3d) 1082, and Fahey v.

Hayashi, , where foreclosure proceedings were stayed because there was an intermingling of issues with the foreclosing mortgagee. [16] That is a distinction with what is before the court today, namely the issues in those cases involved other claims involving thesame parties.

As those claims were unsettled at the time of the applications and given that they involved the same parties, the court feltit was appropriate in the one case, in the Fahey case, to stay a foreclosure proceeding that had not yet been commenced and in the othercase, Pawliuk, to stay foreclosure proceedings that had been commenced, because there was an equitable setoff. [17] In this case, clearly the parties are not the same. There are multiple contracts at play here. There is the mortgage contractbetween RBC and the registered owner.

There is the insurance contract between the registered owner and the insurer, and then there is asubcontract within that, the mortgage enforcement clause, which creates a contractual relationship between the insurer and RBC.

[ 18 ] In seeking to apply these cases, the registered owner is seeking to essentially combine those various contracts and to frame the obligation between the bank and himself under the mortgage, to be one that extends to the mortgage enforcement clause in the insurance contract, which is between RBC and the insurer. And that is simply not evident before the court that the contracts are to be read as one contract involving all the parties. It is not evident, and I do not accept that the bank has any obligation to wait until insurance claims are resolved before they are entitled to pursue their default remedies.

RBC is under no obligation to pursue the mortgage enforcement clause before it can commence realization proceedings. It has the option to do that but is not obligated to make the claim. And as such, I am not satisfied that there is enough of a connection or an intermingling between those issues to justify a stay these proceedings until the insurance litigation is commenced. There is also nothing which supports that these issues are the sole reason for the default, which in this case is lack of payment of the monthly payments. [ 19 ] To the extent that Mr.

Kirkpatrick has a claim under the insurance policy as against the insurer, then he can be properly compensated in that claim by way of damages. The argument in terms of prejudice, as made by the registered owner, is that he will potentially face another defence, namely whether or not the policy pay-out should be based on the adjusted cost value or the replacement cost because as it is now, if the property is sold in the foreclosure proceedings, he will lose his ability to argue that a replacement cost is the basis on which his claim should be quantified. I do not find that persuasive.

There is a claim for damages in the claim he has advanced against the insurer, and if he is entitled to that, then that would form the basis for a damages claim against the insurer. [ 20 ] There is also nothing before the court to suggest this property is a special character that damages are not appropriate as a remedy. So, I am not going to order a stay of proceedings.

Approval of Sale [ 21 ] Turning finally, then, to the application for approval of sale, the evidence in this respect is, I will say it outright, it is troubling in terms of what the bank's realtor has put together in terms of evidence of their own marketing efforts.

As such, RBC will have to satisfy the court that there is other sufficient evidence to establish that marketing has achieved the required goal: to obtain an offer that represents the most a willing purchaser will pay after a full and proper exposure to the market. [ 22 ] In terms of RBC’s realtor’s marketing of the property, the precise date of the MLS listing seems to be a little bit in flux. It was either March 2 or March 10. At best, it was approximately a week of marketing before the offer that is before the court today was accepted.

At worst, it was a day. [ 23 ] The realtor seems to have relied heavily on the fact that there was previous listing efforts, and I will say numerous listing efforts, by the registered owner in accepting the offer that was accepted. That is the evidence that RBC relies upon to satisfy that the offer before the court today is a provident one. [ 24 ] The offer before the court today is for $845,000.

The offer was initially made in the amount of $830,000, countered at $895,000 by RBC and then accepted at the counter back at $845,000. [ 25 ] These offerors had, in fact, previously made an offer for $875,000 directly to the registered owner prior to this listing coming into place. I believe that offer was made in December of 2021. But it was not accepted by the owner. That is one of the reasons for the opposition today, namely that these parties were willing to pay a higher price at an earlier time.

I can guess, and this is only a guess, that one of the reasons why they came in lower in this foreclosure proceeding is that they wanted to keep some funds in their back pocket should a competitive bidding process unfold as one would be prepared for in a foreclosure sale. It is not entirely unusual for an offeror who expressed interest to the owner prior to foreclosure to come in at a lower number if that offer is not accepted and they then participate in the foreclosure itself.

I also note that RBC did counter at $895,000, so did attempt to have the proposed purchasers increase their bid, and successfully did so to some extent, just not to the same amount they had previously offered. [ 26 ] The appraised value, based on an appraisal conducted on March 3, 2022, is $900,000. [ 27 ] There are no competing bids before the court today. [ 28 ] The listing history, when the registered owner had the listing, is set out by the listing realtor as follows:

a) It was listed from February 17, 2021, to September 2021, at $799,999. I am advised that the registered owner did receive and accept an offer at $800,000 approximately a year ago. However, the conditions were ultimately not removed.

b) It was then listed November 8, 2021, to November 24, 2021, at $949,999;

c) then from November 25, 2021, to December 9, 2021, at $925,000; and

d) then from December 10, 2021, to March 9, 2022, at $899,999. [ 29 ] When the realtor retained by RBC was engaged, she increased the list price when that listing went live on March 10, 2022, to $901,900, with that price continuing to today’s application. In other words, the realtor tested the market at a value that was higher than that being tested by the registered owner. [ 30 ] The registered owner and Mr.

James both argue that the marketing has not been adequate or appropriate. [ 31 ] In terms of adequacy, counsel for the registered owner argues that this is where the timing of the acceptance of the offer comes into play, in particular that the offer was accepted, it appears, as I said, at worst the day of the listing, at best a couple of days afterwards. [ 32 ] I too am troubled about the time that this this offer was accepted. There is nothing in the materials and in the affidavit of the

realtor, that she has sworn affidavits in support of today's offer, to suggest that there was some sort of strategy in accepting a quick offer, such as that they decided to operate with a bid deadline date given to all the interested parties in the hope that there would be multiple and a competitive bid process at the outset. It was just the property was listed, and it appears that the first offer made was accepted.

And as I said, that is troubling. [ 33 ] However, the factor that ameliorates that is the extent of which the property was marketed before RBC’s realtor took the listing, that being for over a year, which would be and was well within her knowledge at the time. The realtor was entitled to rely on that marketing history. I will leave that element for a moment. [ 34 ] The second element, which is whether or not the property has been appropriately marketed is also of concern on the evidence. In this respect the MLS listing is very sparse in terms of the “marketing” that was done, and language used for that marketing.

In particular, the MLS listing advertises the property as follows: As is/where is over 14,000 square foot residential lot in Sardis Park. Check with the City as to what you can build/erect to he embrace the gorgeous mountain views. [ 35 ] That is the extent of it. [ 36 ] In the appraisal which was before the court today, which counsel for the registered owner points to as an example of what sort of comments could have been made are illustrative in that respect.

For example, the appraiser in describing the property says: Placed in the Sardis Park vicinity, a family-oriented neighbourhood established in the mid 70s with standard custom detached dwellings are crescent-type roadways. The past several years has witnessed considerable redevelopment of adjacent farms lands to modern residential use with a strong market acceptance following, good planning, proximity to schools, regional services and arterial traffic routes continues to sustain value in this popular area.

This portion of Griffin Drive shows custom homes with pride in ownership evident with this considered one of the most desirable areas in Sardis. [ 37 ] Further, the appraiser goes on to say: This is a premium lot in a desired location with approximately 90 feet of frontage. This property would allow the possibility to split into two lots. However, to realize this, the property would require rezoning. City approval, paid development fees, frontage improvement, favourable engineering studies regarding rear creek setbacks and servicing and marketing of the lots.

Currently the 30-metre setback from the creek would considerably limit the subdivision potential. However, these can be lessened through favourable engineering reports. [ 38 ] In addition, the appraiser comments that an appropriate listing period would be between 30 and 60 days. [ 39 ] As to the time on the market, I should add that the realtor deposed in her affidavit that she has continuously exposed the property to the market since this offer was accepted on March 10, and in particular I should note that this matter came on for hearing a week ago and was adjourned over to today.

There are two affidavits sworn by RBC’s realtor in that respect and before the court today.

The affidavits confirmed that the property had been marketed, and the parties that had expressed any interest were contacted and told of the offer that is before the court today so that they could compete, and then were contacted again after the adjournment and advised that they could have another kick at the can if they wished to compete. [ 40 ] In the more recent realtor's affidavit as to the adjourned period, there are emails of three different interested parties who have all confirmed that the reason that they are not competing with the offer before the court today is because of their concern with respect to the developable area of the property, which goes to an issue of whether or not there is a required riparian setback, something that the registered owner has minimized as a problem, and it appears that the petitioners, and these interested parties, i.e. the market, appear to see as a problem in terms of something that will negatively affect the value.

Regardless, it is clear that the parties that had expressed any interest in this property were given the opportunity to come and compete today, against a price of $845,000, and are not here. [ 41 ] Notwithstanding that the offer was accepted very quickly, in either a one-day or one-week period, it has now been on the market by RBC for some 40 days, if my math is right, maybe 39 days, i.e. within the suggested marketing period of the realtor, and nobody else is here to compete. [ 42 ] The fact that no one is here to compete is usually the best indication of value.

The only thing that would detract from that would be if I were able to find, as the registered owner requests me to do so, that it was not appropriately marketed given the scarcity in the marketing MLS listings. [ 43 ] I do have some sympathy for the position of the fourth mortgagee and the registered owner in terms of the manner in which this was marketed.

RBC’s realtor could have put more effort in the marketing in terms of language and description in her MLS listing, similar to that in the appraisal report. [ 44 ] I also share their concern with the very quick time period in which an offer was accepted. [ 45 ] Nonetheless, I am satisfied on the whole of the evidence of the full marketing history, that the market had full awareness of this property and the potential positive, and negative, features, such that the offer before the court today does represent a provident sale, it being the most willing offer an offeror is willing to pay after it has ultimately been adequately and appropriately marketed.

Again, I am guided by the full context of marketing including that which was undertaken when the registered owner was controlling the process [ 46 ] The previous marketing listing, which resulted in one offer a year ago at $800,000 and then this offer coming in from someone who participated in that previous marketing process supports that this has ultimately been properly exposed to the market and that there has been a sufficient history of marketing that the market participants having any interest in this property has been properly tapped, and was made aware of this new process so that they could compete if they wished to do so.

That is evidenced by the emails of the three

other interested parties who were not willing to be here and offer more than the offer before the court. [ 47 ] So, I am making the order as sought approving the sale in the amount of $845,000 to Leslie Adrin Lindhout and Tanny Sara Lindhout, that sale is approved. [ 48 ] Costs of today's application will be at Scale B. I will dispense with approval as to form of Mr. James' signature on behalf of 4337, which he agrees to. “Master Robertson”