Marriage breakdown and your mortgage
Author: Jennifer Blanchard
Posted: February 12, 2018
A recent Court of Queen’s Bench decision offers some insight into the when limitations begin to run for alternative claims made after a debtor’s main security has failed. Currie v. Craig (2018 ABQB 46), a decision of Justice Hunt McDonald, is a rare limitations decision in the foreclosure context.
The case has unusual facts. The matter began as a routine mortgage loan of $220,000 also secured by a promissory note. The borrowers proposed to refinance this loan in 2011. Acting without instructions from the lender, and apparently fraudulently, a mortgage broker made an agreement with borrowers that the mortgage could be discharged for a partial payment of $75,000 and signing a new promissory note in the amount of $160,000, which represented the remaining balance owing plus accrued interest.
The lender, meanwhile, anticipating receiving full payment on his mortgage and when he did not, commenced foreclosure proceedings. The lender only learned of the agreement to discharge the mortgage for the $75,000 partial payment when the borrowers raised it in defense to the foreclosure.
Before the Master, the lender was successful, in January 2016, with the Master holding that the lender had a valid mortgage. However, on appeal, that decision was reversed, and Justice Sulyma granted an order discharging the mortgage. That decision was upheld by the Court of Appeal in February 2017.
The day before the Court of Appeal hearing, the borrower filed an application to amend his claim to seek recovery on the new $160,000 promissory note. Master Robertson granted the application to amend the claim. The borrowers appealed, arguing that the application sought an amendment outside the relevant limitation period.
The borrowers argued that the two-year limitation period began on the new promissory note as soon as the lender became aware of it, which occurred in 2013. The lender argued that, although he was aware of the promissory note, he also had a registered mortgage and no reason to believe that he would need to make any claim against that note, until Justice Sulyma reversed the Master’s decision in the foreclosure. That decision had occurred within the two years prior to the application to amend the action to claim on the promissory note.
On appeal, Justice Hunt McDonald upheld Master Robertson. She noted that there had been only one advance of funds, so the new promissory note was new security for the same debt. This made an action on the note “related to the conduct, transaction or events” of the original foreclosure action, for the purposes of the Limitation Act. She further held that the claim on the note was not warranted until Justice Sulyma’s order discharging the mortgage.
Although the facts leading to this decision are unusual, it is not uncommon for lenders to have alternative security, but to prefer to proceed on their strongest security (usually a mortgage). While we would always recommend that lenders plead all possible remedies at the outset of their actions, or amend at the earliest possible stage to avoid limitations issues, the holding that the action on alternative security was not warranted until a court decision made proceeding on the primary security impossible, may be a useful one for lenders faced with an adverse court decision on their security.
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