CIBC MORTGAGES INC. PLAINTIFF - v. -, 2023 SKKB 277

KING’S BENCH FOR SASKATCHEWAN Citation: 2023 SKKB 277 Date: 2023 12 19 Docket: QBG-PA-00068-2022 Judicial Centre: Prince Albert BETWEEN: CIBC MORTGAGES INC. PLAINTIFF - and - JOHN A. GABRYSH AS THE ADMINISTRATOR AD LITEM FOR THE ESTATE OF GORDON WADE REMY AND ROYAL BANK OF CANADA DEFENDANT Counsel: Ljiljana Zerajic for the plaintiff No one appearing for the defendant ___________________________________________________________________________ FIAT GERECKE J.

December 19, 2023 ___________________________________________________________________________ [ 1 ] The plaintiff applies for an order nisi for sale by real estate listing. There is one significant deficiency in the application. For the following reasons, the plaintiff’s application is dismissed with leave to refile on appropriate materials. [ 2 ] Valuation evidence is critical for almost every application in a mortgage enforcement matter. It is important for leave applications, as the court needs to assess whether there is likely to be equity in the property.

That informs decisions, which usually need to be made in the moment, about whether to adjourn the leave application, or to grant leave. Mortgagors who have equity are more likely to get multiple adjournments to allow some breathing room to seek refinancing or to sell their home. [ 3 ] On the initial service of a leave application on a mortgagor and the Provincial Mediation Board, The Land Contracts (Actions) Act, 2018, SS 2018, c L-3.001 , requires at s. 6 that the plaintiff serve “reasonable evidence of the value of the land”. In the contexts of leave applications and actions, respectively, ss. 8(1) (

a) and 10(1) (

a) of The Land Contracts (Actions) Act, 2018 , provide that a judge may require a plaintiff serve all information for a leave application that in the judge’s opinion may be relevant, including “an appraisal of the land that includes the appraised value”. [ 4 ] I have observed a disturbing trend in the quality of valuation evidence filed with the court on applications for leave, and on applications for orders nisi . This application represents an acute example. [ 5 ] In this application, the plaintiff asks that the upset price on the subject property be set at $144,000.

That is based on a property value suggested by a realtor’s report filed by the plaintiff. I have several concerns regarding the report and the

plaintiff’s reliance on it. [ 6 ] The plaintiff chose to file valuation evidence concerning the subject property twice in 2023. The property is a single-family residence located in Prince Albert, Saskatchewan. The first instance was a formal appraisal [appraisal] as of February 25, 2022. It was filed in support of the plaintiff’s application for leave under The Land Contracts (Actions) Act, 2018 . Leave was granted on May 16, 2023. The appraisal, prepared by an appraiser with the CRA P.App designation, valued the property at $145,000.

Although the appraisal is unremarkable, I will discuss it further to illustrate the contrast with the second piece of valuation evidence. [ 7 ] After setting out the three comparables relied on by the appraiser, the appraisal stated: The adjusted sales data has concluded a value range of: $130,000 to $154,500. The comparable sales utilized are considered to be the most recent and relevant sales available in comparison to the subject property. These and other sales and listings lend strong support near the mid point of the adjusted value range which has been reconciled at $145,000.

ESTIMATED VALUE BY THE DIRECT COMPARISON APPROACH (rounded): $145,000 The appraisal states that the sales used in its analysis occurred in September 2021, December 2021 and January 2022. [ 8 ] The appraisal contains a listing of spaces in the home, descriptions of floorings and other materials, brief discussion of the neighbourhood, and a discussion of highest and best use of the property. For each of the three comparables, the information included a photo; sale and listing information; age of the property; days on market; square footage, design style (i.e., bi- level), and a

summary of rooms; basement construction; driveway and any garage and extras such as air conditioning and site improvements (such as a patio or deck). In addition, the appraisal set out a valuation under the cost approach to value. It explains that the cost approach was done as a cross-check, as appraisal principles consider it unlikely that an arms-length purchaser would pay more to purchase a property than it would cost to construct it.

The estimated value under the cost approach was $178,200. [ 9 ] The second item of evidence takes the form of a comparative market analysis [CMA] prepared by a realtor. [ 10 ] The CMA values the property at $180,000. It was attached to an affidavit of the same bank officer who swore the affidavit referencing the appraisal. The bank officer avers that her opinion of value has changed to $180,000 based on the CMA. The CMA refers to three “comparable” listings. Two were located on the same street as the subject.

The third is stated to be in the same Prince Albert neighbourhood. [ 11 ] The CMA and reliance on it are what I find unsatisfactory. Following are the most disturbing aspects. [ 12 ] First, and most troubling, the CMA refers to no recent comparable sales. The two from the same street were sales that occurred in 2013 and 2016. The third was listed in August 2023 but no sale has closed. The CMA sets out the list price and that there is a conditional sale, but not a sale price.

How is the court to rely on sales from 2013 and 2016, and a conditional sale for an unknown price, to better understand the subject property’s value in 2023? [ 13 ] Second, though on several pages the CMA has a line for adjustments, it neither applies nor even calculates adjustments to other properties. [ 14 ] Third, the CMA provides a

summary of the listings (price, number of bedrooms and the range of square footage). There are charts and graphs suggestive that some useful analysis may have been done (which at least goes further than some such reports) but nothing that feeds into any actual analysis. How could it, when no adjustments are made? [ 15 ] Fourth, the CMA contains no actual opinion of value. It recommends a list price of $199,900 to reflect “its unique features and market trends”, though no market trends are set out that appear to speak to the Prince Albert housing market in any way.

The realtor goes on to suggest that the list price of $199,900 would ensure a successful sale, and that he “would expect a sale price of 180,000$ within 90 days with a 90% likelihood of sale”. It is not the least robust opinion seen by the court this year, but it falls well short of expression of an opinion. [ 16 ] The court’s experience with valuation evidence is that it generally is possible to find far more current comparable sales for residences in communities much smaller than Prince Albert.

There is no reason to use sales from so many years ago, unless the realtor holds the view that a 10 year old sale from the same neighbourhood speaks to current value better than a current sale of a similar home from somewhere in Prince Albert. If that is the realtor’s view, it needed to be explained and supported. [ 17 ] Valuation evidence is expert evidence. If it does not meet the threshold of admissibility as expert evidence, it likely is no more than inadmissible hearsay. If it is supported by nothing of relevance, then it is mere speculation.

The court’s current practice is to relax admissibility requirements for valuation evidence from what would be ideal, for practical reasons of cost and efficiency. We do not require qualification as an expert. We do not necessarily require a statement of qualifications. Frequently the court does not require the expert providing the valuation evidence to swear his or her own affidavit, accepting such reports when attached to the affidavit of an officer of the mortgagee. [ 18 ] A judge sitting in chambers might hear up to a dozen foreclosure-related applications on a given day.

Usually there are a half-dozen or fewer, but those are mixed in with other applications of greater complexity. I expect that every judge reviews the valuation evidence, but solely to confirm what value has been estimated for the property. It is unusual for the court to evaluate the quality of the valuation evidence and whether it should even be accepted. [ 19 ] Mortgagors are usually in no position to bring informed scrutiny to valuation evidence, except in cases where they have a well-formed sense of the value of their home.

Most applications in foreclosure matters are brought by highly experienced counsel, representing highly experienced and sophisticated lenders. Mortgagors are usually unrepresented. They frequently do not appear at any stage of the proceedings.

[ 20 ] Here, the mortgagor is deceased. His estate is represented by an administrator ad litem with no interest in the property and no specified duties. The source of authority for such appointments, now s. 6 - 7 of The King’s Bench Act , SS 2023, c 28 , does not outline a representative’s duties. The administrator ad litem chose not to appear. His presence on the file appears to have contributed nothing except to facilitate service, i.e. to advance the lender’s interests. [ 21 ] I do not seek to criticize the bailiff who was appointed as the estate’s representative.

Rather, I offer these observations to emphasize the importance of the roles of the bank’s legal counsel (and to a lesser extent the bank’s officer). Counsel prepared the materials. They probably have commissioned the valuation report. In most cases, they do this work every day, and are in easily the best position to evaluate whether to put a particular report before the court. Most defendants are poorly equipped to carry out that evaluation. If counsel do not ensure the application of appropriate standards of evidence filed with the court, that leaves only the judge in most foreclosure matters.

In my view, lawyers are subject to a duty to do more than routinely file, as evidence in a court matter, materials that do not approach an acceptable standard. I refer to Rule 5.1-1 of the Code of Professional Conduct (Regina: Law Society of Saskatchewan, April 2023) [ Code ], and paragraphs [1] and [2] of the related commentary. Lawyers are obliged to “treat the tribunal with candour, fairness, courtesy and respect and in a way that promotes the parties’ right to a fair hearing in which justice can be done”. [ 22 ] Beyond that, counsel are officers of the court.

And, as noted by Danyliuk J. in Canadian Imperial Bank of Commerce v Knight , 2023 SKKB 220 [ Knight ], the Code contains further particularized duties at Rule 5.1-1 where opposing parties are unrepresented. See Knight at para. 32 . It is not only the court who has duties to ensure that fair and objective evidence is admitted – counsel are subject to obligations to ensure that they do not file evidence that could mislead the court. [ 23 ] None of this is to suggest that counsel’s actions here have been sinister.

In chambers I asked why the bank did not obtain an update to the appraisal or get a fresh one, rather than turn to a realtor at this stage. Counsel advised that they had noticed that realtors sometimes have a better sense of the market than appraisers. That is not necessarily an unreasonable response but clearly the execution of that approach was lacking. [ 24 ] The bank properly recognized that it should not rely on a nearly two year old appraisal, which I presume is why it sought the CMA. The CMA led to a higher proposed upset price than would have stemmed from the appraisal.

Even still, although the bank offers evidence of a higher value, that does not mean that the bank’s proposed upset price is at the right level. The court simply cannot know where to set the upset price because the appraisal evidence is inherently unreliable and potentially lacking in relevance to the subject property. Counsel should have recognized and addressed this deficiency before filing the application. [ 25 ] I considered an award of costs against the bank, similar to what Danyliuk J. ordered in Knight .

But for the bank’s apparent recognition that it was necessary to present valuation evidence more recent than the appraisal, I probably would have ordered costs. Filing the CMA as purportedly reliable evidence was a significant breach of the court’s expectations. In my view, there is little doubt that what was filed was non-compliant with the rules of evidence and the ethical duties of counsel as members of the legal profession.

Changes to the rules should not be needed to prevent recurrences, though perhaps that will need to be considered if the trends continue regarding the concerning quality of valuation evidence. [ 26 ] Accordingly, the plaintiff’s application is dismissed, with leave to re-apply on appropriate materials. There shall be no costs. The plaintiff is directed not to pass along to the defendant any costs or expenses of any kind relating to this application. J. D.G. GERECKE