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The borrower purchased a gas station for $5.4 million, and financed it with a $3.79 million mortgage. After the lender made a demand under the mortgage, the borrower entered into a highly-conditional agreement to re-sell the property for $8.7 million, with a February 2021 closing.  It did so without telling the lender. 

Soon after, the lender delivered a Notice of Sale, and started private power of sale proceedings. The 35-day statutory standstill of proceedings expired on January 13, 2021. A day later, the lender first learned that the property was already sold by the borrower, who was now asking for a discharge statement. The lender didn’t provide one at that point or at any time after, having (incorrectly) concluded that since the Notice of Sale period ended, the borrower’s equity of redemption period had already expired.  The lender listed the property for sale the next day.

Ultimately, this resulted in two conflicting, tandem sales of the same property to third parties: One by the borrower (for $5.4 million); and one by the lender (for $4.9 million, and heavily financed).   The court was asked to decide which of the two putative sales was valid. 

The court began by saying that “there is nothing untoward about the mortgagees listing the property for sale under their power of sale while the owner is trying to sell it and vice versa.”  Any lawful sale by the lender would preclude the borrower from interfering, and from redeeming the mortgage. Conversely, the borrower might sell before the lender does, in which case it can pay the mortgage in full, obtain a discharge, and provide clear title. 

However, the lender was not entitled to opine on the “legitimacy” of the borrower’s intended sale; it is simply required under s. 22(2) of the Mortgages Act (“Act”) to provide the borrower with a discharge statement – which the lender in this case did not do.  That failure engaged the provisions of s. 22(3) of the Act, which states that the lender’s right to enforce the mortgage “shall be suspended” until it complies with its obligations under s. 22(2). Otherwise, a lender could essentially thwart the borrower’s right to cure its default, by hiding the information the borrower needs.

Section 22 of the Act operates to protect the borrower’s equity of redemption; it is not foreclosed by the expiry of the 35-day standstill period.  That right to redeem lasts until the lender sells or agrees to sell the property, and enables the borrower to cure defaults despite anything in the mortgage to the contrary, or pay out the mortgage and keep the property. It is unaffected by the fact that power of sale proceedings are underway, or that Notice of Sale has been given.

Here, the lender had no objectively reasonable excuse not to deliver the discharge statement, despite its concerns over the borrower’s relatively high sale price and conditional sale arrangements.  The lender would be paid out in full regardless, and the borrower had the right to know how much it had to pay to redeem at any time prior to the lender selling. 

The lender ignored the borrower’s good faith request for the discharge statement at its own risk.  Under the Act, its right to enforce the mortgage under the private power of sale had been suspended at the time of its sale to the third party, which meant the transaction was void. See: 2544176 Ontario Inc. v. 2394762 Ontario Inc., 2021 ONSC 3067 (CanLII).