After Falling Behind On Mortgage Payments, Attempt To Catch Up Still Results In Foreclosure feature image

After Falling Behind On Mortgage Payments, Attempt To Catch Up Still Results In Foreclosure

When people mix business and family, they should do so with the understanding that if things go sideways, it might adversely impact other family members.  When assets like property are involved, misunderstandings by one or multiple family members and third parties involved can lead to significant financial consequences or loss of property. 

In a recent decision from the Court of Appeal of Alberta, we learn about two brothers who co-owned a home that eventually fell behind on mortgage payments. When one of the brothers attempted to make good on the mortgage, a misunderstanding between him and the lender resulted in a foreclosure. Here is the court’s analysis of the brother’s application to allow his appeal. 

One brother goes bankrupt and mortgage payments on property are missed

The applicant in the case was one of two brothers who owned a home as a joint tenant along with his brother. The brother lived in the home, but the applicant did not. When the brother became ill in the summer of 2020, he could not make mortgage payments on the house. He arranged to defer mortgage payments for six months, with a plan to resume payments in February 20201. The applicant wanted to ensure he and his brother could keep the home and began communicating with the respondent financial institution (“the lender”) to make payments. 

The applicant had made seven mortgage payments totalling over $9,000 by May 17, 2021. It was only after the payments were made that he realized they had all been applied only to the interest on the loan instead of the principal. He was concerned about this and communicated his concerns to the lender’s complaints department. He also stopped making payments at this time. 

The applicant entered what he told the court he believed to be settlement negotiations with the lender. This applicant understood that negotiations would address how much of his payments would be applied towards the principal of the loan and details concerning a buyout of the mortgage, with the applicant intending to transfer the mortgage to another lender via a buyout. 

At about the same time, the lender gave instructions to its counsel to proceed with an application for the sale of the property and to apply for a judgment in the amount of the deficiency owing (the house was mortgaged for $532,000 but was only assessed at $520,000). The brother was bankrupt, so the deficiency was to be registered solely against the applicant.

Lender changes application to focus on foreclosure

At the hearing, the lender informed the court that it was no longer seeking to reclaim the deficiency (a new assessment had valued the home at more than the mortgage). However, the matter was not resolved, with the lender instead applying for a foreclosure order. 

Through his lawyer, the applicant consented to the foreclosure order. The applicant believed this would allow him to continue negotiations with the lender. But he would soon learn that they had other plans. 

In December 2021, the applicant contacted the Alberta Ombudsperson’s office to complain about his mortgage payments being applied only to interest owing. The Ombudsperson told the applicant that the lender advised them it was working to address his concerns, and so it closed the file. 

It was only then that the applicant learned his consent to the foreclosure order had the effect of stopping negotiations with the lender. He applied for a stay of enforcement of the order, which would have prevented the lender from taking possession of and selling the house. 

Applicant has been unsuccessful in two appearances

The matter first made its way before a Master for a hearing on the stay of enforcement. The Master’s decision found that the consent to the foreclosure order allowed the lender to act on the foreclosure, despite the applicant’s claim that he only consented based on the fraudulent misrepresentations by the lender (being that he could continue to negotiate following the consent). The applicant appealed unsuccessfully before a lower court.

As a result, the applicant sought permission to appeal to the Court of Appeal of Alberta. He told the court there were a series of fraudulent misrepresentations made to him by the lender, including:

  • The lender led the applicant to believe he was “purchasing” the property when making mortgage payments
  • The lender indicated the mortgage payments would be applied to both interest and principal
  • The lender’s complaint department led him to believe that negotiations would continue after the consent to foreclosure was made. 

The court stated that one recognized ground for setting aside a consent order is when the order was obtained by fraud or duress. However, the court said that in addition to a finding of fraud or duress, the court would also have to be satisfied that the appeal has a reasonable prospect of success. 

It is at this stage that the court found the application would fail. The court referred to the documentation provided by the lender, which stated, “Payments will be applied first towards accrued interest and then towards outstanding principal.” There could not have been a fraudulent misrepresentation if the document had clearly stated how payments would be applied. The other grounds that the applicant relied on can also be attributed to the applicant’s understanding, or more specifically, misunderstanding of what consent to foreclosure is and how the complaint process with the lender worked.

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