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Does a mortgagor’s right of redemption trump a Receiver’s ability to close an already-contracted deal for the sale of the mortgagor’s property? This was the key question in a recent Ontario court decision.

The debtors had taken out an $8 million mortgage in the course of buying two properties. The mortgage went into default, and the mortgagee agreed to briefly defer the appointment of a Receiver, to give the debtors a chance to redeem. Unfortunately, they did not have the funds to do so.

A Receiver was then appointed, and managed to secure a favourable offer. This was after the Receiver engaged appraisers, listed the property through real estate agents, vetted inquiries from 128 interested parties, etc. The Receiver asked the court to endorse the sale and upcoming closing, by way of an Approval and Vesting Order.

The debtors objected. They complained about the Receiver’s sale process, and asked the court for the chance to redeem the mortgage, despite the imminent closing.

The court refused. It acknowledged that any court-ordered sale process was subject to the debtors being first allowed to pay off their secured creditors.  Their legal right to redeem their interest in the properties was important, and “should not be set aside lightly”. However, that right is not “sacrosanct”, as the debtors insisted.  In this scenario it did not necessarily prevail over the Receiver’s right to sell, especially since the debtors were still not positioned to redeem at the relevant time, despite having many months to assemble the needed funds. In fact at the time of the hearing, they were still only “very close” to having a viable redemption plan, but it was one that would still leave a shortfall and was still subject to various conditions around re-financing.

Moreover, there was nothing to impugn the efforts made by the Receiver to secure a buyer, as the debtors claimed. To the contrary, the Receiver had conducted a “robust” and “thoroughgoing” marketing and sales process, which was designed to – and did in fact – obtain the best price for the properties based on current market conditions. Plus, while doing so the Receiver had appropriately considered the interests of all impacted parties.

With that said, the court noted the Receiver’s communication with the debtors during the process was neither ideal, nor fully responsive. Still, the evidence showed the debtors were generally aware of the Receiver’s ongoing efforts to sell, which spanned several months. They knew the “clock was ticking” on any potential redemption, yet still did not come to court with a comprehensive and complete financing package. In the court’s words, they were “the proverbial day late and dollar short, notwithstanding that they have had months to redeem.” They should not now be allowed to “sideswipe” the pending closing that the Receiver had reasonably arranged.

With these conclusions in hand, the court was still left to decide whether to approve the property sale as proposed by the Receiver, using the traditional legal tests. These involved assessing the Receiver’s efforts to get the best price, and the way it balanced the parties’ interests. The court also looked at the fairness, integrity and efficacy of the process for soliciting offers.

In this case, all these tests had been met; the court was accordingly satisfied it should grant the Receiver’s request for an Approval and Vesting Order. See Vector Financial Services v. 33 Hawarden Crescent, 2024 ONSC 1635.