CONTESTING MORTGAGE FORECLOSURE PROCEEDINGS (TAKING IN PAYMENT)

In a recent case, the Court had to decide whether a borrower raised valid grounds to contest the foreclosure proceedings brought by a private lender (Prêts Relais Capital Inc. v. Pierre Bonneau et al., 2020 QCCS 4055).

 

The borrower's grounds of contestation consisted essentially that the interest charged and the fees for opening and analysing the loan application were exaggerated and illegally claimed. The lender claimed the aggregate amount of $360,563.12 including principal, interest, penalties and costs. The borrower acknowledged owing $236,961.

 

In addition to the principal amount of the loan, the lender claimed the following:

·      interest at 12% per annum, plus Interest on any unpaid interest at the annual rate of 32%.

·      collection costs including the lender's legal fees.

·      liquidated damages in the event of default in the amount of 10% of the amount in default.

·      late payment and file closing fees

 

The borrower did not dispute that he was in default, only the total amount of the claim. Although the law provides that the default may be cured at any time before judgment is rendered, the borrower did not attempt to do so, nor did he deposit any amount with the Court, even the amount that he acknowledged owing.

 

Article 2332 of the Quebec Civil Code grants authority to the Court to reduce the obligations of the borrower in a contract of loan taking into account the circumstances, when there is a significant difference in the bargaining power of the parties which leads to exploitation. The Court may also reduce a penalty clause which it considers to be abusive.

 

In the present case, the Court considered the claim for legal fees to be contrary to Article 2762 CCQ and therefore illegal. It considered that there was insufficient evidence that the interest rate and costs to open the file and review the loan application were usurious.  To succeed, the borrower would have had to produce an analysis by an actuary or accountant to establish the real underlying interest rate, which he did not do.

 

The Court did consider the 10% penalty, 32% interest rate on unpaid interest and the fees for reimbursement after default and for closing the file to be exaggerated and would have reduced them. However, no useful purpose would have been served by reducing the amount of the lender's claim since, by choosing the "taking in payment" recourse instead of proceeding by judicial sale, the lender took title to the mortgaged property in complete payment of the debt, whatever the correct amount, without further recourse against the borrower.

SHORTFALL OF LIVING SPACE IN NEW CONDO

What are the rights of a purchaser when the living area of the condo delivered by a promoter is considerably smaller than advertised? This issue was discussed in Duval v. Habitats District Griffin Îlot 10 Inc., 2018 QCCS 4703 (confirmed by the Court of Appeal 2020 QCCA 1614).

 

Jean was living in the suburbs in the family home encompassing  2000 sq. ft. of habitable space, excluding the basement. He wanted to move closer to downtown and estimated that he would require  a condo with @ 1400-1500 sq. ft. He signed a preliminary contract with Habitats to purchase a new condo advertised as comprising 1321 sq. ft. plus a loggia for a total of 1408 sq. ft.

 

The preliminary contract included a note that the dimensions were approximate and subject to modification without prior notice. The note also stated that the gross square footage was calculated by including 1/2 of the interior walls as well as the exterior and corridor walls.

 

Shortly before the closing, the certificate of location was delivered to Jean showing a living area of only 1174 sq. ft. namely, 12% less than what he expected. According to Jean, his options are very limited since the preliminary contract did not allow him to withhold any amount from the purchase price. Moreover, he had already advanced between $50,000 to $60,000 for high end materials so that the interior finishing of the new condo would meet his expectations of superior quality. In the circumstances, he proceeded with the closing and took possession of his condo.

 

Jean claimed a reduction in the purchase price to reflect the reduction in the living space of the condo compared to what he expected and declared that he was promised. Habitats argued that by closing without reserving his rights, Jean implicitly renounced any claim that he may have had. Subsidiarily, Habitats states that the dimensions of the condo were gross and only approximate and that it never made any representations or promises regarding the dimension of the livable area.

 

The Court found that according to the evidence, Habitats led Jean to believe that the livable area of the condo would be 1318 sq. ft. and that it was an important consideration for Jean when he agreed to purchase the condo. This constituted a false representation which was actionable both pursuant to Articles 1401 and ff. of the Quebec Civil Code as well as Articles 216 and ff. of the Consumer Protection Act.

 

The Court also found that Jean never renounced his rights by closing without reserve since the cancellation of the contract was not a viable option for the reasons hereinabove mentioned. In the circumstances, the Court granted Jean a reduction of the purchase price in the amount of $73,000.

 

Article 1720 of the Quebec Civil Code requires the seller to deliver the area or quantity specified in the contract unless it is obvious that the property was sold without regard to such factors. In this case, the Court concluded that the size of the habitable space was an important consideration for Jean. 

 

The restriction in the contract regarding the dimensions of the property did not prevail based upon the specific facts of this case namely, that according to the Court, Habitats provoked Jean into error by confusing gross area with net living space. Habitats would have been better served to consider the adage: the primary objective of good communication is not to be understood, but rather to avoid being misunderstood.