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.
I believe the "One form of action" rule in California and our anti deficiency laws accomplish the same thing.
ReplyDeleteA lender can file suit for the entire amount of the debt or he can foreclose using either a judicial or non judicial foreclosure, but he has to make a choice and he can't do both. Most foreclosures are non-judicial as they are far quicker. less expensive and can be done without an attorney. Once he has foreclosed he has elected his remedy and the one form of action rule and the anti deficiency rule precludes any attempt to file suit for the difference between the auction proceeds and the amount of the debt.
As I understand it, most states have anti deficiency laws that were passed after the "Great Depression" of the 1930's when lenders foreclosed on many homes and farms which had become essentially worthless and then they continued to chase the debtors for years trying to collect the deficiency.