The title of today's Brandon's blog is The Savvy First Mortgagee:
Sometimes You Can't Always Get What You Want.
The title of that 1969 hit song by the Rolling Stones is very appropriate
for this Brandon's Blog, which is about a recent decision
of the Court of Appeal for Ontario based on appeal from a lower court
decision. It is about the rights of a first mortgagee,
and can the first mortgagee always claim everything it thinks it is owed?
The Court of Appeal for Ontario said you have to look at the entirety
of the mortgage contract in order to make that determination.
My name is Ira Smith.
President of Ira Smith Trustee & Receiver Inc.
Both Brandon Smith and myself are available at any time to answer any
of your questions, either about this Brandon's Blog or anything else at all.
So shoot us a message, give us a phone call.
We would love to speak with you.
I hope you can watch until the end of this
video because I know you will get value from it.
Brandon first goes through some basics. What is the definition of a mortgagee?
What is the definition of first mortgagee?
What is an institutional first mortgagee definition?
Is it possible to have more than one mortgage at the same time?
Brandon answers all of these questions as an introduction to the case.
The case itself is First National Financial versus Golden Dragon.
And what it is about is two related companies
that owned two residential apartment buildings next to each other in Ottawa.
Golden Dragon the mortgagor defaulted on a second mortgage.
The second mortgagee was not able to collect.
That breach under the second mortgage
also caused a breach under First Financial's two first mortgages
and their second mortgage on the other building that ranked parri passu
with their own first mortgage.
First National applied to the Court to have an interim receiver appointed.
The interim receiver went in,
improved the property and raised the revenue.
Then First National asked the court
to expand the interim rerever's role to also market and sell the properties.
The court granted that permission.
The interim receiver sold the properties.
And then First National Financial claimed, amongst other things,
all of its accelerated interest under the mortgages because their
mortgages were closed and the term had yet to expire.
The second mortgagee and Golden Dragon
opposed this because it was an insolvency situation.
The First National clauses in their
mortgages read when the borrower is not in default and they wish to terminate
the mortgages prior to their normal maturity dates,
then an accelerated interest payment clause kicked in.
The judge in the lower court essentially
ignored that this was an insolvency, that Golden Dragon was in default
and it was the interim receiver that sold the properties.
The lower court nevertheless gave First National everything they asked for.
So the second mortgagee and Golden Dragon appealed.
And the Court of Appeal for Ontario
saw the distinction that this was an insolvency case,
that Golden Dragon was in default,
and therefore that clause could not kick in.
The Court of Appeal for Ontario said under the insolvency circumstances,
you have to read the mortgage contracts in their entirety.
First National bargained, what it bargained for, and got it.
And there was not an allowance
for charging accelerated interest payments when the borrower was in default.
The mortgage documents never contemplated what happens on an insolvency.
So the Court of Appeal for Ontario overturned the lower court decision.
So I invite you to read the entire
Brandon's Blog below, because I know you will find it very informative.
Again, both Brandon Smith and myself are available to answer any questions you
may have either about this Brandon's blog or anything else at all.
So shoot us a message, give us a phone call.
We would love to speak with you.