Lender Requests Mortgage Status; E-Mail Statement Binds Prior Mortgagee


The central issue in Amendola v. Carelli was whether, because of misrepresentations made in an e-mail, a second mortgagee lost priority over a third mortgagee in connection with certain interest payments owed under the second mortgage.

The facts were these: Frank Carelli (“Frank”) loaned his sister-in-law Anna $240,000, and secured the loan with a second mortgage on her home. The term was for six months, with a 10% interest rate calculated half-yearly. Anna’s property was already subject to a first mortgage with a bank.

In 2010, Anna wanted to borrow another $65,000 from Tony Amendola (“Tony”), who became a third mortgagee.  Prior to advancing the funds, Tony made inquiries as to the status of the first two mortgages:  The bank reported back that the first mortgage was current; and Frank responded with an e-mail which simply said “I’m confirming that the second mortgage is in good standing to-date.”  The e-mail reply went on to invite Tony to call if he had further questions.

Relying on these representations, Tony advanced the funds, assuming that both first and second mortgages were in good standing in respect of all their terms and that Anna was up-to-date on all payments.  Tony received similar assurances from Frank in 2012, when he agreed to lend an additional $100,000 secured by a fifth mortgage.

As it turned out, when Frank had first made inquiries of Tony in 2010, the second mortgage had not been in good standing at all:  Anna had failed to make an interest payment on a certain date in late 2009, as required by the agreement.

Anna eventually defaulted on the third mortgage held by Tony in 2012, and he took steps to enforce his rights under it. This included keeping up the insurance coverage, and making payments to the bank to keep the first mortgage in good standing. He obtained judgment on his third mortgage in 2013, and obtained a writ of possession for the property; it was sold for just under $1 million, with the money put into trust pending resolution of the priority dispute between mortgagees.

Frank then stepped forward to claim the entire $240,000 that he had loaned Anna, plus interest at 10% since 2009 – all purportedly in priority to the interests of Tony as third mortgagee and to those of subsequent mortgagees.  This was despite Frank’s misrepresentations to all of them, to the effect that the second mortgage was in good standing up to the time that those other mortgages were placed.   In explanation of his 2010 e-mail to Tony suggesting otherwise, Frank claimed that by way of a private agreement with Anna, he had agreed to waive or defer that interest-payment requirement, and that Tony should have been able to deduce this was the case. In any event, Frank said, the informality of the e-mail reply made it clear that it was not to be relied upon, unlike a formal mortgage statement would be.  Finally, Frank pointed to the line in his e-mail inviting Tony to call him with any questions, which Tony did not do.

Tony resisted Frank’s claim and the matter went to court for resolution.  The court began by pointing out that a second mortgagee is entitled to rely on the statements of a first mortgagee at the time a subsequent mortgage is placed.  Although it was true that Frank had not provided a formal mortgage statement in this case, his e-mail still amounted to a misrepresentation in law, and Tony’s reliance on it was still reasonable.  As the court said:

“Leaving out a crucial piece of information such as the fact that the mortgage is in “good standing” only because interest payments have been waived, and then providing a phone number for “any further questions”, is either a very naïve or a very clever form of miscommunication.”

Further, any private waiver or deferral agreement between Anna and Frank should have been disclosed to Tony.

Frank’s repeated misrepresentations as to the status of the second mortgage were intended to induce Tony to lend Anna the funds.  This was a situation of equitable estoppel; Frank was not entitled to claim any waived or deferred interest payments in priority to Tony and other subsequent mortgagees, at least for the period prior to the date in 2012 when his last misrepresentation to Tony was made.

The court therefore awarded Tony the principal and interest that was due under the third mortgage, to be paid out of the proceeds of sale being held in trust.   He was also entitled to be repaid for the costs of maintaining and repairing the property, and for the expenses incurred to prepare it for sale. See Amendola v. Carelli, 2014 (ONSC).