Thursday May 12, 2022

New Brunswick Court of Appeal Clarifies Mortgage Sales and Deficiencies

Authored by: Joshua J. Santimaw Posted in: Loan and Mortgage Enforcement

On April 14, 2022, the New Brunswick Court of Appeal released its decision Royal Bank of Canada v. Allan Marshall & Associates Inc., as trustee in bankruptcy for the Estate of Susan Lynn Williams, 2022 NBCA 10. This decision builds upon the principles regarding mortgage sales and mortgage deficiencies that were set out in the New Brunswick Court of Appeal’s seminal decision Keough v. Sandfire Capital Partnership, 2016 NBCA 50.

In Keough, the New Brunswick Court of Appeal held that a proper exercise of power of sale does not depend on a determination that the mortgage sale realized the market value of the property. However, where the power of sale was exercised improperly, the mortgagee must account for its disposition of the property by properly crediting the secured debt with the market value of the property at the date of the mortgage sale.

What is a proper exercise of power of sale? The scheme for power of sale is set out in sections 44- 47 of the Property Act. In short, a power of sale means a mortgagee must (1) provide the notice of mortgage sale by registered mail to the mortgagor, subsequent encumbrancer and guarantor and upon the expiry of twenty-eight (28) days from the date of mailing; (2) advertise the notice of mortgage sale on two consecutive occasions, one week apart; (3) bid at the mortgage sale.

This bid at the mortgage sale must not be nominal. Meaning, the mortgagee must obtain an appraisal (drive-by or full are sufficient) from a duly qualified appraiser, and bid the appraised forced sale value for the property. This was found in Keough, to not be a nominal bid and would insulate a mortgagee from a finding that the power of sale was improper.

Despite that finding, the trial court in Williams found that the mortgage sale was not conducted improperly but, nonetheless, held that it must make a determination of the market value of the property in calculating the deficiency judgment. RBC appealed this finding.

In Williams, the New Brunswick Court of Appeal held that the trial court was incorrect. The power of sale was conducted properly and in accord with sections 44-47 of the Property Act. Thus, the Trial Court should not have substituted the market value for the appraised forced sale value bid at the mortgage sale. A substitution should only occur if the Trial Court makes a finding that the power of sale was exercised improperly.

This decision demonstrates that importance of a mortgagee obtaining an appraisal (drive-by or full) from a duly qualified appraiser prior to the mortgage sale that contains a forced sale value and ensuring that it bids that amount at the mortgage sale.

BOYNECLARKE’s Joshua J. Santimaw acted as counsel for Royal Bank of Canada in Williams. Reach our to him or John S. Fitzpatrick, Q.C. to discuss Williams and/or the exercise of power of sale. Our Loan & Mortgage Enforcement team is ready with answers.

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