No Collusion Or Bad Faith By Private Mortgagee And Co-owner (1000249084 Ontario Inc. v. Andazesgishahr)

• Jurisdiction: Canada
• Law Firm: Gardiner Roberts LLP
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Real Estate and Construction, Charges, Mortgages, Indemnities, Financial Services, Trials & Appeals & Compensation, Real Estate
• Author: Mr James R.G. Cook
• Published date: 27 October 2023

When a property is purchased by co-owners for development and sale, they may set out their respective obligations in a written agreement that addresses the ongoing costs and the eventual sale of the property. If their relationship deteriorates or the property needs to be sold before they originally contemplated, they may have to determine how to deal with payment of the outstanding mortgages. Rights between co-owners of a property and their lenders are generally subject to the contracts they have made.

In1000249084 Ontario Inc. v. Andazesgishahr,2023 ONSC 5447 (CanLII), the Ontario Superior Court of Justice dealt with a dispute between one co-owner and a mortgage lender owned by the son of the other co-owner over the sale of a property.

The property was purchased by Payam and his friend and business partner, Mansour. They entered into a written co-tenancy and trust agreement under which they agreed that neither of them could compel a sale of the property without the other's consent. They agreed to share liability under a first mortgage, with Payam taking on sole responsibility for any further mortgages. Payam was also responsible for payment of the realty taxes, home insurance, utilities and maintenance. Payam lived in the property with his wife and child.

A second and third mortgage were registered on title for renovation purposes. By June 2022, all three mortgages were in default. Payam wanted to sell the property but Mansour disagreed.

In July 2022, Mansour's son incorporated a numbered company and paid $509,940.10 for an assignment of the second mortgage. The numbered company then sued Payam for judgment under the second mortgage and sought a court-ordered sale of the property.

In response, Payam took the position that the numbered company was actually controlled by his partner, Mansour, and that the attempt to sell the property contravened their agreement. Payam argued that the plaintiff company and Mansour colluded for the purchase of the second mortgage in order to give Mansour unfair leverage in the dispute over the sale of the property. Payam claimed that the plaintiff mortgagee was exercising its rights in bad faith and for improper purposes. Since Mansour had refused to consent to the sale of the property, Payam argued that the plaintiff should not be allowed to recover additional interest and fees made payable under the second mortgage.

On a motion for summary judgment brought by the plaintiff mortgagee, the motion judge rejected Payam's...