April 3, 2010
Lender didn't have right to add credit card balance to mortgage
Does a mortgage lender have the right to add the outstanding balance on
your Visa card to the amount outstanding on your mortgage?
That was the issue in a 2009 court case involving Toronto law firm Dale &
Lessmann LLP and the Royal Bank of Canada.
When Dick Soong defaulted on the Royal Bank first mortgage on his house in
2007, the bank sold it under power of sale and applied the proceeds to pay off
Soong’s $180,000 Homeline Mortgage and his $60,000 line of credit.
The law which applies to power of sale proceedings requires that surplus
funds be used to pay off debts subsequent to the first mortgage in the order of
their priority.
In this case, there were two other mortgages on title. One was to ensure that
the fees of Soong’s trustee in bankruptcy got paid, and the other was for
Soong’s legal fees. After the power of sale proceedings, the Royal Bank applied
about $30,000 in surplus funds to pay off Soong’s RBC Visa card debt instead of
paying it to the second and third mortgage lenders.
Last year, the law firm asked the Ontario Superior Court to determine who had
priority over the leftover money — the Royal Bank for its Visa card debt, or the
second and third mortgage lenders.
In 2005, Soong signed a Homeline Agreement with Royal Bank. Under this
agreement, Soong placed an RBC mortgage on his house. The mortgage secured a
conventional mortgage plus a variable rate line of credit. No reference was made
in the contract or the mortgage of a Visa card agreement which had been signed
11 years earlier.
In August last year, the dispute came before Justice Harvey Spiegel, who had
to decide whether the bank’s Homeline Agreement entitled it to lump the Visa
card debt into the mortgage or whether the subsequent mortgage lenders had a
prior claim to the money.
The judge carefully reviewed the terms of the Homeline plan agreement and
ruled that the Visa debt was not secured by the RBC mortgage and that the
subsequent mortgagees were entitled to the surplus funds. The judge also ordered
the Royal Bank to pay costs of $4,000 to the law firm.
Geoffrey Stratton argued the case for Dale & Lessmann. He typically advises
his clients to move any debt that might be secured by a mortgage and is not
benefiting from a preferred rate to another financial institution. He also tells
his clients to negotiate a better rate for any existing or future debts or lines
of credit if they are going to be secured by the mortgage on their home.
In my own law practice, I find that homeowners are rarely aware of which
debts are included in their mortgages and which are not. Banks often tack a
secured line of credit on to the principal amount of the mortgage whether or not
the consumer asks for it, and often, whether or not they are aware of it.
The problem with this practice is that when borrowers want a line of credit
at a later date, they are unable to shop around for the best rates and terms
because a line of credit is already registered on title.
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.
COURT FILE
NO.: CV-09-380969
DATE:
20090909
SUPERIOR COURT OF JUSTICE -
ONTARIO
RE:
DALE & LESSMANN LLP, Applicant
- and -
ROYAL BANK OF CANADA, Respondent
BEFORE: Justice H. Spiegel
COUNSEL: Geoffrey B. Stratton, for the Applicant
Leigh Ann Sheather, for the Respondent
HEARD: August 26, 2009
E N D O R S E M E N T
[1]
It is not disputed
that pursuant to the RBC Homeline Plan Agreement (the HPA) Mr. Soong
granted the respondent a first Charge on his property to secure the
repayment of the conventional mortgage loan and the variable rate line of
credit provided for in the HPA.
[2]
The issue is
whether the Charge also secured the repayment of the Visa credit card debt
owing by Mr. Soong. The respondent says it does. The applicant says it
doesn’t
[3]
The respondent
relies on paragraph 2 of the Standard Charge terms which provides as
follows:
The Chargor has at
the request of the Chargee agreed to give the Charge as a continuing
collateral security for payment and satisfaction to the Chargee of all
obligations, debts and liabilities, present or future, direct or indirect,
absolute or continued, matured or not, extended or renewed, at any time
owing by the Chargor to the Chargee incurred or arising either before or
after the delivery for registration of the Charge.
[4]
The respondent
also relies on the definition of “mortgage” in the HPA which reads as
follows:
“Mortgage” means
the collateral first mortgage on the Property described on Schedule A of
this Homeline Plan Agreement, securing all borrowings made under this
Homeline Plan Agreement and all present and future amounts at any time
owing by you as described in the Mortgage.
[5]
The respondent
therefore submits that a plain reading of these two provisions leads to
the conclusion that the parties intended the Charge to secure not only the
debts enumerated in the HPA but also all debts owing by Soong to the
respondent at the time of registration of the Charge along with any debts
he might owe in the future which includes the Visa credit card debt.
[6]
The applicant
refers to Schedule A of the HPA, the relevant portion of which reads as
follows:
The following
Property is to be charged by way of a First Mortgage in favour of Royal
Bank of Canada as security for the Total Debt; ……
The HPA defines “Total
Debt” as follows:
“Total Debt” means
the total amount you owe to us from time to time under this Homeline Plan
Agreement and all Homeline Plan Allocation Agreements. It is made up of
the (i) the principal amount outstanding from time to time of each
Mortgage Loan, plus interest at the applicable Mortgage Rate, (ii) the
amount, on any day, of the principal balance outstanding under the RCL
Credit Line, plus interest at the RCL Interest Rate (also known as the RCL
Debt); and (iii) all insurance premiums, services fees and other fees and
charges owing to us from time to time as described in the Homeline Plan
Agreement or any Homeline Plan Allocation Agreement.
[7]
The HPA provides
the following with respect to applying moneys obtained from enforcing the
Mortgage:
“Applying moneys”
means any money we obtain from enforcing our rights under the Mortgage
shall be used first to pay any amounts owing under any existing Mortgage
Loan(s), then to amounts owing under the RCL Credit Line. You waive any
right of set-off or deduction you may have under any loans described under
this Homeline Plan Agreement.
[8]
There is n0
specific reference to the Credit Card Debt in the HPA. Nor do the
provisions of the Credit Card Agreement make any reference to a mortgage,
charge or any other security for the repayment of the Credit Card Debt.
[9]
In my view, a
reading all of the relevant provisions of the HPA as whole does not lead
to the conclusion urged by respondent Indeed the provisions cited above
are capable of supporting a contrary conclusion. Schedule A to the HPA
clearly states that the charge is security for the Total Debt .If the
respondent intended the charge to be security for the Visa Credit Card
Debt as well it could have easily include language in the definition of
“Total Debt” that would have expressed that intention,
[10]
I find that the words
“and all present and future amounts at any time owing by you as described
in the Mortgage” in the definition of “mortgage” under the HPA read
together with paragraph 2 of the standard charge terms are at best
ambiguous.
[11]
To the extent that
there is ambiguity the court is also entitled to consider the subsequent
conduct of the parties as evidence of their intention at the time the
contract was executed: Canadian National Railway v. Canadian Pacific
Ltd (1978),
reflex, [1979] 1 W.W.R. 358 (B.C. C.A.) at para. 48 aff’d 105 DLR (3d)
170 (S.C.C.)
[12]
I note that the
respondent’s monthly statements to Mr. Soong setting out the indebtedness
secured by the Homeline Mortgage never included or referred to the Credit
Card Debt.
[13]
Furthermore on March
15, 2007 the respondent commenced an action claiming inter alia
possession of the Property as a result of default pursuant to the charge.
Paragraph 5 of the Statement of Claim alleged that there was due under the
Charge for principal and interest the sum of $180,643.19. Paragraph 9
alleged default in the Credit Line which amounted to $59,917.27 for
principal and interest. Paragraph 11 alleged “all of the above
indebtedness was secured by the mortgage”. In my view a fair reading of
the Statement of Claim leads to the conclusion that the words “above
indebtedness” in paragraph 11 refers to the principal and interest due
under the mortgage loan and the credit line but not the Visa Credit Card
Debt.
[14]
I therefore find on a
proper interpretation of the terms of term of the HPA and the Charge that
the Visa Credit Card Debt is not secured by the Charge.
[15]
The applicant is
entitled to the relief claimed in paragraph 1(a) and (b) of the Notice of
Application.
[16]
The applicant is
entitled to the costs of this application which I fix in the sum of $4,000
inclusive of disbursements and G.S.T.
___________________________
H. Spiegel J.
DATE:
September 9, 2009
**********************************************
Court File No.
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
DALE
& LESSMANN LLP
Applicant
-and-
ROYAL BANK OF CANADA
Respondent
Application under Rules 14.05(3)(d), (e), and (h)
of the Rules of Civil Procedure
NOTICE OF APPLICATION
TO THE RESPONDENT
A LEGAL PROCEEDING HAS BEEN COMMENCED by the
applicants. The claim made by the applicants appears on the following page.
THIS APPLICATION will come on for a hearing
on day, the
day of
, 2009, at 393 University Avenue, Toronto, Ontario.
IF YOU WISH TO OPPOSE THIS APPLICATION, to
receive notice of any step in the application or to be served with any documents
in the application, you or an Ontario lawyer acting for you must forthwith
prepare a notice of appearance in Form 38A prescribed by the Rules of Civil
Procedure, serve it on the applicant’s lawyer or, where the applicant does not
have a lawyer, serve it on the applicant, and file it, with proof of service, in
this court office, and you or your lawyer must appear at the hearing.
IF YOU WISH TO PRESENT AFFIDAVIT OR OTHER
DOCUMENTARY EVIDENCE TO THE COURT OR TO EXAMINE OR CROSS-EXAMINE WITNESSES ON
THE APPLICATION, you or your lawyer must, in addition to serving your notice of
appearance, serve a copy of the evidence on the applicants’ lawyer or, where the
applicants do not have a lawyer, serve it on the applicants, and file it, with
proof of service, in the court office where the application is to be heard as
soon as possible, but at least two days before the hearing.
IF YOU FAIL TO APPEAR AT THE HEARING,
JUDGMENT MAY BE GIVEN IN YOUR ABSENCE AND WITHOUT FURTHER NOTICE TO YOU. IF YOU
WISH TO OPPOSE THIS APPLICATION BUT ARE UNABLE TO PAY LEGAL FEES, LEGAL AID MAY
BE AVAILABLE TO YOU BY CONTACTING A LOCAL LEGAL AID OFFICE.
Date............................................ Issued by Local
registrar:_____________________
Address of court office: 393 University Avenue
10th Floor
Toronto, Ontario
M5G 1E6
TO: Royal Bank of Canada
Personal Services Centre
4th Floor, 180 Wellington Street West
Toronto, Ontario
M5J 1J1
AND TO: A. Farber & Partners Inc.
Suite 1600
150 York Street
Toronto, Ontario
M5H 3S5
APPLICATION
1.
The Applicant makes application for:
(a)
a declaration that the indebtedness (the “Credit Card Debt”) under the
Visa credit card issued by the Respondent in the names of Dick Soong and Tian
Hong Liu, bearing Account Number 4515 xxxx xxxx 0011, is not secured by
the mortgage receipted as Instrument No. AT94555 in the Registry Office for the
Land Titles Division of Toronto (No. 80) on May 4, 2005 (the “Homeline
Mortgage”);
(b)
an Order that the Respondent provide a full accounting to the Applicant
and to A. Farber & Partners Inc. of the proceeds the Respondent realized (the “Sale
Proceeds”) from the exercise of its power of sale contained in the Homeline
Mortgage of the lands and premises municipally known as 34 Sandyhook Square,
Toronto (the “Property”);
(c)
a declaration that the mortgage in favour of A. Farber & Partners Inc.,
receipted as Instrument No. AT1279106 in the Registry Office for the Land Titles
Division of Toronto (No. 80) on October 12, 2006,
represents a mortgage and charge on the Sale Proceeds ranking in priority to the
Credit Card Debt, and that A. Farber & Partners Inc.
is therefore entitled to monies from the Sale Proceeds before repayment of the
Credit Card Debt;
(d)
a declaration that the mortgage in favour of the Applicant, receipted as
Instrument No. AT1279111 in the Registry Office for the Land Titles Division of
Toronto (No. 80) on October 12, 2006, represents a mortgage and charge on the
Sale Proceeds ranking in priority to the Credit Card Debt, that the Credit Card
Debt is not a debt secured by the property or the Sale Proceeds, and that the
Applicant is therefore entitled to monies from the Sale
Proceeds before repayment of the Credit Card Debt;
(e)
in the alternative, an Order for rectification of the Homeline Mortgage
so as to carry out the common intention of the parties and reflect their true
agreement;
(f)
an Order that the Respondent pay all Sale Proceeds not secured by the
Homeline Mortgage firstly to A. Farber & Partners Inc. and then secondly to the
Applicant as subsequent encumbrancers under s. 27 of the Mortgages Act,
R.S.O. 1990, c. M. 40;
(g)
costs of this application on a substantial indemnity basis together with
applicable Goods and Services Tax thereon in accordance with the Excise Tax Act,
R.S.C. 1985, c. E-15, as amended; and
(h)
such further and other relief as counsel may advise and this Honourable
Court may permit.
2.
The grounds for the application are:
(a)
A. Farber & Partners Inc. and the Applicant
each hold a mortgage registered on title to the Property subsequent to the
Homeline Mortgage;
(b)
on June 15, 2007, the Respondent sold the Property under its power of
sale provision contained in the Homeline Mortgage;
(c)
the Respondent retained monies representing from the Sale Proceeds and
applied them to the Credit Card Debt, although the Credit Card Debt is not
secured by the Homeline Mortgage and it was never the
intention of the parties to do so;
(d)
The Respondent erroneously claims that the Credit Card Debt is secured by
the Homeline Mortgage and as a result the Respondent
claims there are no surplus proceeds available for distribution to A. Farber &
Partners Inc. or to the Applicant.
(e)
In fact the Credit Card Debt is not secured by the Homeline Mortgage and
the sales proceeds exceed the total indebtedness secured by the Homeline
Mortgage, thereby leaving surplus proceeds available for distribution to A.
Farber & Partners Inc. and to the Applicant under their subsequent mortgages.
(f)
The Respondent failed to make disclosures to the borrower in accordance
with the Bank Act, S.C. 1991, c.46, and its associated Regulation,
Cost of Borrowing (Banks) Regulations, S.O.R./2001-101;
(g)
The Respondent made false, misleading, or deceptive representations to
the Applicant in violation of the Consumer Protection Act, 2002, S.O.
2002, c. 30, Sch. A.
(h)
The Respondent failed to apply the Sale Proceeds in accordance with s. 27
of the Mortgages Act, R.S.O. 1990, c. M.40;
(i)
ss. 11, 17, 24, 66, 70, 80, 81, and 83 of the Consumer Protection Act,
2002, S.O. 2002, c. 30, Sch. A.
(j)
ss. 452(1)(d) and 452(2)(b) and (d) of the Bank Act, S.C. 1991,
c.46;
(k)
ss. 1, 6(4), 10(h), 12(1), 12(3), 13(1), and 23 of Cost of Borrowing
(Banks) Regulations, S.O.R./2001-101;
(l)
rule 14.05(3)(d), (e), and (h) of the Rules of Civil Procedure;
and
(m)
such further and other grounds as counsel may advise and this Honourable
Court may permit.
3.
The following documentary evidence will be used at the hearing of the
application:
(a)
the Affidavit of Christina J. Wallis, sworn June 15,
2009; and
(b)
such further and other evidence as counsel may advise and this Honourable
Court may permit.
Date of issue: June
15, 2009.
DALE & LESSMANN LLP
Barristers & Solicitors
181 University Avenue, Suite 2100
Toronto, ON M5H 3M7
Geoffrey B. Stratton (55388D)
Tel: (416) 863-1010
Fax: (416) 863-1009
Lawyers for the Applicant.
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reflex — [1979] 1 W.W.R. 358