The Bank of Nova Scotia v. Marvin

2016 BCSC 1033 The Bank of Nova Scotia v. Marvin IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: The Bank of Nova Scotia v. Marvin, 2016 BCSC 1033 Date: 20160608 Docket: 101815 Registry: Kelowna Between: The Bank of Nova Scotia Petitioner And Gary Marvin Cynthia Louise Marvin Royal Bank of Canada Respondents Before: Master S. Wilson Reasons for Judgment Counsel for the Petitioner: M.R.B. Whittemore Appearing on their own behalf: G. Marvin C.L. Marvin Place and Date of Hearing: Kelowna, B.C. June 1, 2016 Place and Date of Judgment: Kelowna, B.C. June 8, 2016 [1] This application to approve sale of the subject property in foreclosure proceedings came before me on June 1, 2016. I reserved my decision until the afternoon because the respondents referred me to some materials that were not part of the chambers record, including a lengthy appraisal prepared by Mr. Steve Markle that I had reviewed at a prior application. I reread the respondents' appraisal and in the afternoon I approved the sale with reasons to follow. These are those reasons. [2] The property is 28.13 acres located on Lake Okanagan on Westside Road north of the Bennett Bridge in the City of West Kelowna. It has been owned and occupied by the respondents Gary Marvin and Cynthia Louise Marvin for over 20 years. [3] By way of background, no payments have been made to the petitioner on account of its mortgage since 2013. An Order Nisi was granted by Master Young, as she then was, on May 7, 2014, with a six-month redemption period, at which time the petitioner was owed in excess of $1,970,000. Conduct of sale was granted to the petitioner on January 14, 2015. In the spring of 2015, the petitioner obtained an appraisal from Mr. Bryan Chambers of A1 Appraisals Ltd., who opined that the value of the property was $1,920,000 (the "Chambers Appraisal"). [4] In July 2015, the petitioner retained Mr. Ungaro and Mr. Albrecht of Royal LePage in Kelowna, to list the property for sale. The realtors undertook their own comparative market analysis in which they indicated the value of the property was between $1,374,000 and $1,615,000. The property was initially listed for sale on July 23, 2015, at a price of $2,016,000, but reduced some five weeks later to $1,905,200. The realtors updated their comparative market evaluation on October 20 and concluded that the market value of the property was between $1,374,000 and $1,500,000. The price was further reduced on October 28, 2015, to $1,815,000. [5] An offer was received from Marcel Herman Piche and Michelle Lise Piche (the "Piches") in November 2015 for $1,700,000 (the "First Offer"). The petitioner brought an application to approve the First Offer, which application was adjourned in order to allow the respondents to obtain an appraisal. [6] The respondents' appraiser was Mr. Steve Markle and his report was dated January 26, 2016 (the "Markle Appraisal"). The Markle Appraisal provided an opinion of value of $2,500,000, but was subject to certain assumptions including that the property could be subdivided into three lots. The potential for subdivision will be discussed in more detail later in the reasons. [7] I heard the petitioner's application to approve the First Offer on February 3, 2016. I reserved my decision to February 9, 2016, at which time I declined the offer on the basis that the petitioner had failed to establish to my satisfaction that the proposed sale was a provident one. My reasons for so concluding included that the list price for the property had been reduced below the appraised value after only a few weeks of the listing, that the proposed sale price was well below the value in the Chambers Appraisal, and that the property had not been exposed to the market for a sufficient duration such that I could be satisfied that an offer closer to the appraised value was not attainable. [8] The respondents argued at the February hearing that subdivision of the property was likely to occur, and once completed, would result in an increase of the value of the property to something well in excess of $2,500,000 according to the Markle Appraisal. [9] I considered the Markle Appraisal and the subdivision option in the February 3, 2016 hearing and, although I declined to approve the sale, I concluded that I could not use the Markle Appraisal as an appropriate method of valuation because Mr. Markle's opinion was based on the assumption that the property could be subdivided into three lots. The respondents' proposed subdivision had not received preliminary layout approval from the City of West Kelowna, and even if that were to occur, there would be significant costs associated with creating the lots and there was no evidence that the respondents were able to pay them. I also noted that there was no obligation on the part of the petitioner to wait for whatever time may be required in order to obtain the approvals, create the lots, perform the necessary site works and then find purchasers. [10] The petitioner continued to market the property after I declined to approve the First Offer. On March 15, 2016, the Piches made a new offer for $1,815,000 subject to obtaining and approving an inspection report of the property. Following receipt of the home inspection report, the Piches reduced the amount of their offer to $1,725,000, which revised offer was accepted by the petitioner subject to court approval, resulting in this application. Preliminary matters in this application [11] At the commencement of the hearing, I was advised by counsel for the petitioner that there was another prospective purchaser in court who wished to make a bid. Although the common practice in the absence of any opposition is to review the initial offer prior to embarking on a sealed bids process, where the initial offer is opposed and there are sealed bids, it makes sense to defer argument until after the bids have been received - it may be that the respondents are no longer opposed, and it is neither efficient nor necessary for the parties to address the initial offer when a better one is forthcoming. [12] I directed that any interested parties provide their best offer to counsel for the petitioner over the morning break following which I would review the bids. The parties would proceed with their submissions assuming the application was still opposed by the respondents. [13] There were two bids, a revised bid from the Piches and one other bid. Curiously, both bids were in the identical amount of $1,936,000. Neither the petitioner nor the respondents encouraged me to engage in a second round of bidding, and since I had previously indicated that there would only be one opportunity to bid, such a process would likely not have been appropriate in any event. [14] The bids were not identical as the bid from the Piches had a $50,000 deposit, whereas the competing bid, which was from a limited company, had a deposit of $100,000. The parties were advised of the difference in the deposits, but neither considered it material. I did not consider the higher deposit from the new bidder to be significant because the Piches' deposit was already considered adequate by the bank, as evidenced by its acceptance of the Piches' offer, subject to court approval. [15] In my view, it is appropriate to prefer the original offeror when the offers generated by the sealed bids process are virtually identical. The original offeror has paid a deposit weeks before the hearing and is bound to proceed with a purchase should the court approve the offer. As such, the original offeror presumably has a limited ability to pursue other properties while waiting for the date for court approval. Funds have often been expended on investigations into the property, such as a home inspection in the case of residential property. By contrast, a person making competing bid has made no such investment or commitment. [16] The sales process in foreclosure matters in British Columbia depends upon the willingness of potential purchasers to pay a deposit and to wait significantly longer than would normally occur when dealing with a registered owner absent a court process. In all of the circumstances, I consider it appropriate when faced with virtually identical offers to prefer the bid from the original offeror whose offer resulted in the application to approve sale. [17] The matter that was then argued before me was whether the $1,936,000 offer of the Piches should be approved. Test on Approval of Sale [18] The decision I must make in this case is whether the proposed sale of the respondents' property to the Piches for $1,936,000 is a provident one. [19] The determination of whether or not a sale is provident is necessarily one that is primarily fact driven based upon the circumstances of the individual case. A party with conduct of sale is obligated to try to find a buyer in a businesslike manner. Positions of the parties [20] The petitioner says the sale should be approved because the offer is slightly above the appraised value in the Chambers Appraisal, that the property has now been adequately marketed, that there are issues with the property as evidenced by the cost to remediate it, and says that if the property were truly worth something in excess of $2,500,000 as suggested by the respondents, more offers would have been received. [21] The respondents say that market prices have gone up since the Chambers Appraisal dated May 2015, and that an updated appraisal should have been obtained. They also say that I should prefer the Markle Appraisal which contemplates the property as subdivided, that preliminary layout approval for the respondents' proposed subdivision is imminent and that the City of West Kelowna has treated the respondents very badly and has essentially run out of reasons to reject their proposed subdivision. [22] The respondent, Gary Marvin, also says that he has recently obtained some contracts and expects to be coming into some money shortly, with contracts on both Vancouver Island and in Saskatoon. He says that if all goes according to plan he can soon catch up the arrears. [23] I will deal with this last argument first. It is no answer for a respondent to say that he expects to receive funds such that he would be able to make payments in circumstances whereby no payments have been made for three years and the entire amount has already been found to be due and payable. In the absence of either cogent evidence that the respondent is able to redeem the mortgage or an application to extend the redemption period, which I would have rejected, the application to approve the sale must be considered on its merits. The Petitioner's appraisals [24] As indicated earlier, the Chambers Appraisal estimated that market value of the property as at May 6, 2015, was $1,920,000. I note that a previous appraisal from Mr. Chambers from March 2014 provided an opinion of value at $1,580,000. Mr. Chambers was denied access to the home when preparing his 2015 appraisal, and therefore the 2015 appraisal assumed the home was in the same condition as when he viewed it in 2014. [25] The respondents say that the petitioner ought to have obtained an updated appraisal. In support of this, the respondents tendered a letter from their appraiser, Mr. Markle, dated May 16, 2016, in which Mr. Markle provides comments on the Chambers Appraisal. Mr. Markle concludes as follows: The Bank of Nova Scotia appraisal reflects a value that is significantly lower than what would be applicable in today's market and the report needs to be updated. [26] It is telling that although Mr. Markle makes some observations about the Chambers Appraisal and comments about a need to update it, the respondents did not hire Mr. Markle or any other appraiser to provide a current opinion of value on their behalf. It was open to the respondents to obtain their own appraisal of the property in its current condition; had they done so, it presumably would have been open to them to argue that I should perhaps prefer the more current one. While the Chambers Appraisal is now a year old, I do not find it to be so dated such that I should not consider it. [27] Mr. Markle's letter indicates that the average price of single family homes in the Central Okanagan has increased 13.55%, the median sale price has increased 10.64%, and that "[w]aterfront properties typically increase faster in value than non-waterfront properties". The respondents invite me to thus conclude that their waterfront property is probably worth 15-20% more now than it was at the time of the Chambers Appraisal. [28] I cannot accept the respondents' submissions in this regard. An appraisal report in a foreclosure proceeding is not a precise determination of the value of a property but is simply an educated opinion by an expert as to the value of a property. Ultimately, however, a property is worth what someone is prepared to pay for it after it has been adequately exposed to the market. In some circumstances, the marketing history of a property can lead to the conclusion that the appraiser's opinion was incorrect. [29] It is not appropriate to extrapolate a new valuation by taking a previous appraisal and then making mathematical adjustments based upon market statistics that may or not apply to the subject property. The Respondents' appraisal and the subdivision issue [30] The respondents say that the Markle Appraisal of January 2016 provides for an opinion of value of $2,500,000 and that I ought to prefer it over the Chambers Appraisal which they say is more dated. However, the Markle Appraisal must be read subject to the two extraordinary assumptions on page 12, which state the following: 1. This appraisal is based on extraordinary assumptions and these assumptions pertain directly to this specific assignment, which, if found to be false, will alter my opinions and conclusions and the value noted will not be valid. These assumptions require certain future events, which are probable but not certain, to take place. The value is therefore hypothetical and is based on information available at January 5, 2016. (a) It is assumed that the subdivision proposal will be approved. A letter from MOTI indicates that the use of part of the highway right-of-way for an access road to two additional lakefront lots is acceptable to the Ministry (see letter in addenda). (b) It is assumed the final subdivision application to the City of West Kelowna will be approved. The letter from Keith Funk, provided in the addenda, outlines the City's requirements and answers their concerns. A subdivision with hooked lots and septic fields above Westside Road (non-lake side) is legal and subdivisions of this nature have been approved along Westside Road and in other areas of West Kelowna. [31] The Markle Appraisal, which considers the value of the lots once subdivided and the anticipated costs to create those lots, in addition to some other contingencies, is thus of little value unless the subdivision will be approved. Subdivision potential of the property [32] As I understand it, the respondents wish to subdivide their property into three lots, and the minimum lot size in the vicinity is 10 acres. The subject property is 28.13 acres and therefore the respondents are about two acres short in terms of the minimum land required to create three lots. [33] Mr. Marvin, speaking for he and Cynthia Marvin, says he essentially has two answers to this predicament. The first answer is under the Local Government Act. The respondents were threatened with expropriation in approximately 2004 as to a 3.16 acre parcel. He says that pursuant to s. 535 of Local Government Act, an expropriated area is considered as if it were still part of the subject site - in other words, the respondents' property must be considered to still be a 31 acre parcel for subdivision purposes. [34] The respondent says that in the alternative he has made arrangements with a neighboring owner such that he could acquire two acres. Evidence of this arrangement was put before me at the previous hearing and is not and was not disputed. [35] As to the Local Government Act argument, the respondent says the City of West Kelowna is taking the position that the 3.16 acres were not actually expropriated but rather were conveyed and therefore the Act does not apply. [36] The respondent says that he has been treated very badly and that there is no reason whatsoever for the City of West Kelowna to continue to refuse to allow his subdivision to proceed, even though they continue to refuse it. [37] The respondent asked me to review an exchange of correspondence between his lawyer and the City of West Kelowna's lawyer regarding the matter. Although these letters were not in evidence, the petitioner's lawyer did not object to my reviewing them. [38] There were other letters in the materials before me including one from the City of West Kelowna's Approving Officer Mr. Bob Dargatz dated March 3, 2016, that states that the City of West Kelowna has rejected the respondents' subdivision proposal because it does not consider the respondents' subdivision application to be in the public interest. In subsequent correspondence the City indicated that it is "fully prepared to defend those reasons in judicial review proceedings should your client choose to initiate them." The respondents would thus appear to have problems other than just the area of the property and whether s. 535 of Local Government Act applies. [39] I am not in a position to determine the merits of the respondents' arguments with regard to the City of West Kelowna, nor do I need to. There is no basis whatsoever upon which I can conclude that a subdivision approval is likely, which means the respondents are in a worse position on this issue than they were in February when Mr. Markle considered subdivision approval to be 'probable but not certain'. [40] Even if I were of the view that subdivision approval were likely, there is no obligation on the part of the petitioner to wait for that process to conclude. [41] I therefore do not need to decide between the Chambers Appraisal and the Markle Appraisal because the underlying assumptions that found the Markle Appraisal have not occurred and are not likely to occur. Marketing [42] The Chambers Appraisal had indicated a marketing period of 12 to 18 months may be required in order to obtain the appraised value. I took this comment into account at the time I rejected the first offer, as the property had only been on the market for less than four months when the first offer was received. Given that the marketing period had been so short relative to what the appraiser had indicated, I was unable to conclude that a sale for over $200,000 below the appraised value was a provident one. [43] The petitioner obtained a letter by way of an addendum from Mr. Chambers, dated April 7, 2016. Mr. Chambers states the following conclusion after a review of the sales data over the past year since his original appraisal: Giving consideration to the above comments, that indicated that the days on market for lake front homes and all housing types in the Central Okanagan have decreased in the past year and the current strong residential market conditions with the number of sales increasing year over year, it is suggested that the marketing period for the subject property should be decreased. Further to this, the days on market for the six comparable sales range from 30 days to 142 days, based on the last list price correction for each of the comparables, the marketing period day for the subject should be reduced to 60 to 120 days based on the current list price. [44] The petitioner says that the property has now been on the market for 268 days, which is in excess of the marketing period referenced in Mr. Chambers' addendum. [45] The petitioner's realtors provided a detailed marketing report. The property has been marketed on the multiple listing service. There were frequent print advertisements. The realtors commented that there were eight showings of the exterior, but only two prospective purchasers actually viewed the interior of the home. A short notice request for a showing was declined by the respondents. [46] The only comment by the respondents regarding the marketing was that there was an error in the initial marketing materials prepared by the petitioner's realtor. The respondents referred me to an email which is not a part of any affidavit, supposedly from Mr. Markle indicating that a mis-description of the property was not fixed within a day or so as indicated by the realtors in their earlier marketing report. However, there was no sworn evidence on this point and the only information provided with regard to the mis-description is dated July 27, 2015, which is the date of the listing. As such, I am unable to conclude that a mistake in the listing details persisted for weeks based on the evidence before me. [47] Even if there had been a mistake at the time of the initial listing, I am satisfied that the property has been thoroughly marketed and properly described for several months. Remediation costs [48] The petitioner included in its materials in support of this application a lengthy report from 20/20 Inspections, a home inspector retained by the Piches when performing their due diligence on the property. The report indicates a cost to remediate of between $175,000 and $300,000. Mr. Marvin in his submissions says he could make the repairs for 10% of that amount. I do not consider the home inspector's report to be helpful as it relates to determining the value of the property as the condition of the property was presumably a factor that was taken into account in the petitioner's appraisal. Conclusion [49] Upon consideration of their submissions, it is apparent that the respondents have focussed on the possibility of a subdivision as the sole solution to their predicament. By contrast, they have done little to facilitate the sales process - a showing was declined by them in April of this year, they refused to allow Mr. Chambers access when he was doing his second appraisal in early 2015, and although the home presented poorly, Mr. Marvin declined the opportunity to have new photographs taken, saying that the property would be shown in that state. It may be that the respondents are correct and that the municipality has no good reason to decline their subdivision request, but that has nothing to do with the petitioner, which is entitled to be paid. The petitioner is not obligated to participate in the inherent risks associated with the respondents' desire to subdivide. [50] I am satisfied in all of the circumstances that the offer of $1,936,000 from the Piches constitutes a provident sale. This offer is $236,000 higher than the offer I refused to approve in February, the property has been marketed for a further four months, resulting in a competing offer, and I have evidence that the appropriate marketing period in the current market is less than it was previously. This offer is slightly above the Chambers Appraisal, whereas the First Offer was over $200,000 below it. [51] The sale to the Piches for $1,936,000 is approved. [52] The petitioner is entitled to its costs at Scale B. "Master S. Wilson"