The usual way that a judgment creditor can sell a debtor’s interest in real property (i.e. land, house, etc.) is to obtain and file a writ of seizure and sale with the sheriff of the judicial district in which the property is situate and direct the sheriff to sell the debtor’s interest in the property at a public auction. There are a number of practical problems with this process. Some of them were outlined in Canaccede International Acquisitions Ltd. v. Abdullah, a 2015 Ontario Superior Court of Justice decision.
If the judgment debtor owns the property as a tenant in common or a joint tenant with another person, then the sheriff can only sell the debtor’s interest in the property.
In this scenario, a prospective purchaser will lowball the purchase price, knowing that the purchaser is only buying an interest in property that the purchaser must share with another joint owner. However, the lowball offer can generally not be less that the sheriff’s reserve price, which is set at about 60% – 70% of the fair market value of the debtor’s interest in the property.
What does the purchaser get out of this process? As an owner of an interest in property, the purchaser has the right to bring an application for partition and sale of the property. The purchaser may or may not be successful in this application. If the purchaser is successful, the court will order that the property be sold and the net proceeds be divided according to the parties’ proportionate interests in the property. If the purchaser is not successful, the purchaser will have an interest in the property that will only be saleable in the future when circumstances change. Not a great scenario. No wonder a purchaser tries to snap up the debtor’s interest at a very low price. The purchase involves real risk.
As part of the sale process, the sheriff insists on receiving a mortgage statement from any encumbrancer. What may actually be owed on a mortgage could be significantly higher or lower than the principal amount of the mortgage registered on title to the property.
But how does this the creditor obtain this mortgage statement? The creditor cannot simply ask the mortgagee for the statement. The courts have interpreted the Personal Information Protection and Electronic Documents Act (PIPEDA) as barring mortgagees from supplying this information; it is contrary to the privacy rights of the debtor and other owners of the property. Although we are not enamoured with the courts’ interpretation, that interpretation is now law.
A creditor can obtain the debtor’s consent to the mortgagee delivering the required statement, but good luck with that. Alternatively, the creditor can arrange for a judgment debtor examination and, at that examination, demand that the debtor either supply the statement or consent to the creditor obtaining it. That sounds easy – if the debtor shows up at a judgment debtor examination, without being ordered to do so after the creditor is forced to bring a couple of motions, and then co-operates on a timely basis with the creditor’s demand. If the debtor does not co-operate, then the creditor can bring a separate application against the mortgagee to compel the mortgagee to provide the information. The entire process is incredibly expensive and much of the resulting costs can never be recovered.
There has to be a better way and it seems that now there is.
The creditor had recovered five judgments in Small Claims Courts in four different jurisdictions against five different sets of debtors for amounts ranging from $11,000 to $27,000, which, after post-judgment interest, had increased to amounts between $18,000 and $39,000. The creditor, recognising the futility of individual sheriff sales, tried something different. It brought five applications, each one against a different judgment debtor and any person registered as a co-owner of the debtor’s property as shown on the property parcel register. It brought all applications in the same jurisdiction, served all respondents, and brought the applications for hearing before one judge. The creditor thereby achieved some economies of scale.
The creditor proposed a two-step solution. First, obtain “an order on each application pursuant to rule 54.02(2)(b) of the Rules of Civil Procedure directing a reference to inquire into and determine all issues relating to the conduct of the sale of the property of each respondent, as described in the respective application record in each file, as a prerequisite to seeking an order for sale. …the reference hearing (would) perform the following functions:
- determine what property or interest in the lands is liable to be sold under the judgment;
- determine who has interests in the lands;
- define those interests and determine their priority;
- determine how the proceeds of a sale should be distributed; and
- allow an opportunity for the respondent or any interested party in each case to show cause why it would be unjust or inequitable to require the sale of the respondent’s property or interest in the lands.”
Then, once the reference hearing is completed, assuming that “the referee determines that the respondents have interests in the lands that may be sold to satisfy the judgment debt against them, the applicant will return to the court with the referee’s report and move for an order for sale by private contract pursuant to rule 55.06(1).”
The judge viewed the creditor’s request as a request for equitable relief, akin to the appointment of an equitable receiver, and guided himself by the following principles established in a British Columbia case:
… [First, the asset must be of a kind that is exigible by a common law or legal process; second, there must be some impediment to employment of a legal process; third, there must be some benefit to be obtained by the appointing of an equitable receiver and the appointment must be just and convenient; but fourth, special circumstances established by the judgment creditor may permit the court to disregard the second rule.
The judge considered the creditor’s request by analysing it according to the principles. He noted that the first three rules were satisfied and that the fourth was therefore unnecessary: (i) the asset was exigible by a common law process (i.e. a sheriff’s sale); (ii) the creditor was unable to obtain a mortgage statement without significant effort and cost due to the courts’ interpretation of PIPEDA; and (iii) it was just and convenient because anyone with an interest in the property had a right to be heard.
As an aside, the judge noted that none of the respondents in the applications had appeared to oppose the applications.
The judge granted the creditor’s request. In doing so, he quoted the Ontario Court of Appeal as follows: “the common law has long prided itself in its capacity to evolve and improve with the times.” This decision is one such improvement. We would like to tell you how the new procedure will play out, but we have just brought our first application requesting this relief and are operating in a brave new world.
Image courtesy of DodgertonSkillhause
Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.