Sale of mortgaged property lacks badges of fraud: Ontario Court of Appeal

Mortgagor alleged improvidence and conspiracy to defraud by mortgagee and those involved in sale

Sale of mortgaged property lacks badges of fraud: Ontario Court of Appeal

The Ontario Court of Appeal has dismissed the appeal of a mortgagor whose property was transferred under power of sale because she produced no evidence of fraud, conspiracy, an agreement to injure her, or damages suffered.

In Sheth v. Randhawa, 2022 ONCA 707, the appellant had three mortgages on a property bought in 2017. Bindaas Capital, Sujoy Pal, and Dr. Mangesh Inamdar Medicine Professional Corporation were the mortgagees of the first. Bindaas was also the mortgagee of the second, while Park Lane was the mortgagee of the third.

The appellant defaulted on the first and second mortgages by 2018. The first mortgagees issued a notice of sale with a demand for payment in July 2018, then another demand for repayment by April 2019. The first mortgage was transferred to Bindaas and Brinder Nagra, called the Bindaas group.

The appellant sued Bindaas and the Bindaas group relating to the defaults. Karanpaul Randhawa represented the Bindaas group. In 2019, the parties entered into a settlement agreement under which the appellant would pay $893,000 within seven days, but she failed to pay on time.

In January 2020, Randhawa advised that Bindaas would provide an indulgence for payment until January 10. When the funds were still unpaid, the Bindaas group brought an ex parte motion for enforcement of the settlement in line with the settlement agreement. Justice Michael Emery ordered the appellant to pay $927,465 to the Bindaas group.

Meanwhile, the parties were independently trying to sell the property without the other’s knowledge. The Bindaas group accepted an offer from 11035738 Canada Inc. for $970,000 on an “as is” basis, while the appellant accepted Bobby Abraham’s offer for $1,000,000, which included a collateral agreement allowing her to stay on the property.

On March 9,  the deal between Bindaas and 11035738 Canada Inc. closed. By power of sale, the property was transferred to 11035738 Canada Inc. under the first mortgage. Thus, the second mortgage was discharged and the third was extinguished.

The appellant, whom Bindaas or Randhawa did not immediately advise about the sale, filed an emergency motion. On March 16, Justice Ivan Bloom ordered the appellant to pay $929,498 into court, after which the mortgages would be discharged.

The appellant did not attempt to register the order discharging the mortgages until May 7. She continued occupying the property and paid no rent to 11035738 Canada Inc., which had been paying the property’s carrying costs since the sale’s closure.

On May 12, 11035738 Canada Inc. issued a notice requiring the appellant to vacate by May 17. On May 13, the appellant brought a suit alleging that the sale was a product of fraud and conspiracy and asking the court to set aside the conveyance to 11035738 Canada Inc.

The motion judge rejected all the appellant’s claims except the one seeking an accounting by Bindaas. She made the following findings based on the evidence:

  • there was no direct evidence of fraud
  • the transfer documents contained no false statements
  • the traditional “badges of fraud” were absent
  • the appellant’s history of default and delay provided an explanation for the only two badges of fraud potentially present – namely the secrecy in the manner of conveyance and the rushed closing of the sale

Appellant not entitled to rehearing

The Ontario Court of Appeal dismissed the appeal. The appellate court saw no reason to interfere with the motion judge’s findings and thorough analysis. The appellant was framing her arguments as a request for a rehearing of her motion, the appellate court noted.

First, the appellant contended that the motion judge erred when she generally addressed the traditional badges of fraud without considering the appellant’s circumstances. The Court of Appeal disagreed and found that the judge was aware of the badges of fraud on which the appellant relied.

The appellate court noted that the respondents had a reason to be concerned that the appellant would try to frustrate the sale and would continue delaying the enforcement proceedings. Further, the short closing was not unusual or suspicious since Bindaas already gave the appellant ample time to pay the money owed and was understandably eager to close the deal so that it could finally collect the funds to which it was entitled, the appellate court said.

Second, the appellant asserted that the sale was improvident. The Court of Appeal disagreed and held that the motion judge was entitled to decide that the sale was not improvident.

According to the appellate court, 11035738 Canada Inc. was an arm’s length purchaser, and the sale to it was more beneficial than the purported arrangement with Abraham. The sale to 11035738 Canada Inc. was for $970,000 “as is,” meaning that the seller did not have to pay arrears in property taxes and real estate fees, the appellate court concluded.

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