Bob Aaron bob@aaron.ca

August 30, 2008

Foreclosure tale is coyote ugly

Ronald and Ann Bonnar owned a house in Cape Breton, N.S. The house had two mortgages registered against it – a first to Royal Bank of Canada, and a second in favour of Canada Trust Company as trustees for the owners of various registered retirement savings plans.

The Bonnars fell into arrears on their mortgages, and the Royal Bank sued them for foreclosure and possession of the property. Last October, the Supreme Court of Nova Scotia calculated the mortgage debt at just under $125,000 and ordered the local sheriff to conduct an auction sale of the house on Oct. 31 at 11 a.m.

Counsel for the Royal Bank in Dartmouth hired Elliott Fraser, a local lawyer in Baddeck, to attend at the sheriff's sale and buy the house back for the bank, so it could resell it and recover its debt.

Fraser was instructed to be at the sheriff's sale and bid up to $135,000 on the house.

On the morning of the auction sale, no one showed up representing the Royal Bank. The sheriff tried to reach the Royal Bank's lawyer in Dartmouth to say that the bank would be unrepresented at the sale, but ended up with the lawyer's voice mail.

The reason no one showed up to bid on behalf of the Royal Bank became clear in a later court hearing. It turned out that Fraser saw a coyote inside his backyard shortly after 11 a.m. on the morning of the sale. He was quite concerned because he has small children and pets and the coyote was inside the fenced-off area.

Fraser contacted the Department of Natural Resources and waited for two of their representatives to arrive and investigate how the coyote got into that restricted area. Shortly before noon, Fraser returned to the office portion of his residence and received a phone call from the sheriff advising him that the house had been sold without anyone being present to represent the Royal Bank.

At the sale, a representative of the Canada Trust RRSP holders bought the house for what appears to have been a bargain price of $70,000.

Not to be muzzled, the Royal Bank was back in court three weeks later asking to have the foreclosure sale set aside. The bank set the fur flying when it argued that the court should not put the bite on the bank just because its lawyer was held up by a coyote.

It said the sale price was too low, the sheriff knew the bank had hired a lawyer to be at the sale and Fraser's failure to attend was reasonable and understandable. The bank also argued that the successful bidder would make an unconscionable profit at the expense of the bank and the borrowers.

In December, Nova Scotia Chief Justice Joseph Kennedy decided that Royal Bank's arguments were toothless. He could find no fault with the actions of the sheriff. It was not unreasonable, he reasoned, for the sheriff to proceed with the sale.

In his ruling, the judge hinted that the former owners would probably not be required to pay for the bank's losses on the mortgage. The implication is that because of his failure to attend the auction, Fraser's insurers might make good the shortfall on the Royal Bank's mortgage.

In Ontario, foreclosures and judicial sales are rarely used. They can be cumbersome, expensive and time-consuming.

The preferred method for handling mortgage defaults here is a power of sale, where the lender sends out notices of sale by registered mail, evicts the occupants and sells the property through a regular real estate listing. Without coyotes.

Bob Aaron is a Toronto real estate lawyer. He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818. Visit the column archives at http://aaron.ca/columns/toronto-star-index.htm for articles on this and other topics.