Bank Foreclosure - Customer Rights; CMHC Guarantee - Negligence #114

By Gerry Neely
B.A. LL.B

Financial institutions often demonstrate a casual if not contemptuous disregard for requests for pay-out statements or delivery of an executed discharge of a mortgage. While they are quick to demand payment where default occurs, or interest if payment is delayed, they are not as quick to provide statements or discharges. Whether this results from insufficient staff or bureaucratic centralization remote from the customer's community, one judge's decision is a victory for the customer.

A couple with a mortgage against their home in favour of a bank decided to assign it to a trust company, not only to reduce their interest and payments, but because of the treatment they had received from the bank. They advised the bank of this and asked for a pay-out statement. In spite of that, the bank sent what was referred to as a "preliminary extension notice', In addition, it gave erroneous and conflicting pay-out figures, making the actual payment by the trust company to the bank impossible. The bank then commenced a foreclosure action, even though the trust company remained willing to pay the bank the amount owed to it. The judge who looked at these facts dismissed the foreclosure position, gave the mortgagors their costs and directed the bank to assign to the trust company the bank's mortgage, upon payment of the amount owed to the bank.

As the judge said "the Bank has created its own problems. As I say, these could easily have been avoided had the Bank been less arrogant and uncompromising."¹

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A CMHC guarantee of a 95% mortgage helped the borrowers in an unexpected way. A Newfoundland couple offered to purchase a home on Long Pond in Conception Bay South, subject to obtaining a mortgage. The bank manager advised them that the loan could only be made if CMHC agreed that the appraised value was at least equal to the purchase price. They were told as well that CMHC would make a thorough inspection, and if any deficiencies were noted, there would be a holdback of sufficient funds to make any necessary repairs.

CMHC inspected the property and, in a report which CMHC knew would be given to the prospective purchasers, left blank the space in which any items of repair noted by CMHC on its inspection, would have been detailed. On the strength of this, the loan was approved, the purchasers removed the condition and went ahead with the purchase. They entered into contented occupation only to discover a few deficiencies which made continued living in the premises difficult. These deficiencies, which included a malfunctioning sewage system, unfit drinking water, spliced and taped wiring in the attic and a roof which leaked, resulted in an appraiser testifying that at the time of their purchase, the deficiencies reduced the value of the property by $8,000.00.

They sued a number of people, including CMHC, and at the trial level, CMHC was held to be liable in damages. CMHC appealed and argued that it should not be liable because CMHC was only acting for the bank. CMHC was prepared to pay the bank whatever was outstanding under the mortgage, whether or not CMHC was negligent. The borrowers said that they were relying upon the skill of CMHC in not only determining market value, but the amount that might have been required to do necessary repairs. They expected to receive the CMHC report and, had it listed the repairs that were required to be done, they would either have renegotiated the purchase price or not removed the condition as to financing.

In the result, CMHC was held to be liable to the borrowers for the cost of the repairs as a result of its negligent inspection.²

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