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Is Mortgage Assignment Valid if it is Not in Writing?

The Allens lived in a home situated on land with great development potential. They were having trouble servicing their mortgage, so in 2012 they borrowed $200,000 from a neighbor, Jass. The short-term loan was secured by a second mortgage.
 
When the Allens immediately fell into default on payment, Jass agreed to extend the loan for 14 months, in return for $1,000 cheque as an extension fee. That cheque was returned NSF, as were all the larger monthly cheques purporting to make up for past defaults. In the end, the Allens did not make even a single payment under the second mortgage over a two-year period, nor did they comply with a court judgment directing them to pay. Jass had a Notice of Sale issued, to trigger his rights under the Mortgages Act.
 
Rather than sell the property himself, Jass assigned the second mortgage to a man named Wilson, in exchange for $300,000. The idea was that Wilson would find a buyer, and would use the proceeds to pay off the second mortgage with Jass, as well as the first mortgage. Wilson quickly found such a buyer to whom he agreed to sell the property for $850,000. This was arguably on the low end of the scale considering the land’s development potential.
 
The Allens objected, challenging both the sale by Wilson, and the assignment from Jass on which it was predicated. The assignment was not in writing, they said, and was made without giving them proper notice. This, they claimed, invalidated the sale to the home buyer, which they said was a sham transaction in the first place, designed to foil their right to redeem the mortgage. They noted the sale agreement was reached immediately after the alleged assignment, on the first day the property was listed, and for a price far below market value.
 
The court considered whether Wilson’s sale to the new buyer for $850,000 should be confirmed, or whether the Allens were entitled to redeem the mortgage and bring it into good standing.
 
Wilson claimed the assignment from Jass, which was registered on title, was equitable in nature. It gave him the right to sell the property to the new buyer, subject only to the provisions of the Mortgages Act and any prior encumbrances. The agreement to sell was also legitimate, and it foreclosed the Allens from trying to redeem the mortgage after-the-fact.
 
The court agreed with Wilson. There had been an equitable assignment of the second mortgage by Jass to Wilson. There was no requirement for it to be in writing, nor was there a particular form of transfer that was needed to make it valid. The parties needed only to show intent. Here, Wilson had paid out the second mortgage to Jass in full, and had also paid out the bank’s first mortgage. This demonstrated that he was acting in good faith as the transferee of the second mortgage. The Allen’s complaints over the lack of notice also had no merit.
 
Once Wilson accepted the offer to purchase, there was a “sale” for the purposes of the Mortgages Act, and it extinguished the Allens’ right as second mortgagors to redeem. The court found no evidence that the quick re-sale by Wilson was suspicious, nor improvident. Although the Allens did tender evidence showing that offers of up to $1.5 million might have been elicited, Wilson had investigated the property’s market value to the court’s satisfaction, and in light of its poor condition, had acted reasonably in accepting the price he was offered. Even if the price was disadvantageous to the Allens, the court would only interfere if it was so low as to suggest fraud, which was not the case here. If the Allens felt the sale was improvident, they could sue Wilson separately for damages.
 
Once the transfer of the second mortgage to Wilson had been duly registered, his rights were solidified in law. The court found the equitable assignment was valid; the sale to the home buyer was allowed to proceed. See Wilson v. Gooden-Allen, 2017 ONSC 3197 (CanLII).