Hants-Kings Business Development Centre Ltd. v. Arenburg

Hants-Kings Business Development Centre Ltd. v. Arenburg Court Supreme Court Date 2012-03-09 Citation 2012 NSSC 105 Docket Ken 357563 Judge/Registrar/Adjudicator Murphy, John D. (Honourable Justice) Document Type Decision Relations Library Sheet - Hants-Kings Business Development Centre Ltd. v. Arenburg - 2012 NSSC 105 - 2012-03-09 - Library Sheet Decision Content SUPREME COURT OF NOVA SCOTIA Citation: Hants-Kings Business Development Centre Ltd. v. Arenburg, 2012 NSSC 105 Date: 20120309 Docket: Ken No. 357563 Registry: Kentville Between: Hants-Kings Business Development Centre Limited, a body corporate, with its head office at Windsor, Nova Scotia Plaintiff v. Leroy R. Arenburg and Alicia M. Arenburg Defendants Judge: The Honourable Justice John D. Murphy Heard: February 7, 2012, in Kentville, Nova Scotia Final Written Submissions: February 24th and February 28, 2012 Counsel: Barry J. Alexander, for the plaintiff Plamen Petkov, for CIBC Mortgages By the Court: Introduction [1] The applicant, CIBC Mortgages Inc. (“CIBC”) which purchased a foreclosed property at a sheriff's sale and gave a deposit, seeks an order confirming that it is not required to pay any further amount in order to obtain the sheriff's deed, and that any amount by which the deposit exceeds the cost of the sheriff's sale and the amount owed to the plaintiff shall be paid back to it. Background [2] This foreclosure proceeding was commenced by the plaintiff, Hants‑Kings Business Development Centre, which held a second mortgage on the subject property. The plaintiff obtained an Order for Foreclosure, Sale and Possession (the “Order”) under that mortgage, which provided that the proceeds of the sheriff's sale would be applied first to cover the expenses of the sale, with the remainder going to the plaintiff and any surplus to the Prothonotary. The Order and any subsequent sheriff's sale were made "subject to the first mortgage" held by CIBC, which did not consent to the proceeding. The amount due on the plaintiff's second mortgage was settled by the Order at $6,084.16. The plaintiff also held a third mortgage on the property, in the amount of $10,553.88. The sheriff's sale was held on January 20, 2012, and CIBC successfully bid $23,000. The principal amount owing on CIBC’s first mortgage exceeded $113,500 at the time of the sale. CIBC provided a deposit of $12,800. The cost of the Sheriff's sale was $1,018.67. [3] CIBC now seeks an order confirming that it is not required to pay any further amount in order to obtain the sheriff's deed, and that any amount by which the deposit exceeds the cost of the sheriff's sale and the amount owed to the plaintiff on the second mortgage only shall be paid to CIBC. Law and Argument [4] CIBC argues that as the first mortgage‑holder it is entitled to any amount realized at the sheriff's sale in excess of the costs of the sale and the amount owing to the plaintiff pursuant to the foreclosure order. The deposit of $12,800 is sufficient to pay the combined costs of the sale and the face amount of the foreclosure order, which total $7,102.83, with a surplus remaining. CIBC submits that requiring it to pay the remainder of the amount due to the sheriff serves no purpose, as those funds would then be paid back to CIBC as the first mortgagee. [5] The plaintiff takes the position that CIBC must pay the balance of the amount bid at the sheriff's sale before obtaining the sheriff's deed. That amount, it maintains, should be applied not only to the second mortgage, but also to the third, also held by the plaintiff. By the scenario proposed by the plaintiff, the bid price would go to cover all subsequent encumbrances in order of priority – of which there is only one, the third mortgage – before any amount could be applied to CIBC's own first mortgage. In other words, the subsequent mortgagees would leapfrog the first mortgagee. The rules of priority would apply, except that the mortgagee first in priority would become last in priority. [6] The general rule governing the distribution of the surplus proceeds of a sheriff's sale is that "the Sheriff pays money into court to be distributed to the persons entitled according to their priorities": Credit Union Atlantic Ltd. v. Bonang (1995), 145 N.S.R. (2d) 175 (C.A.) at para. 3. The governing rule in Bonang was Rule 47.11 of the Civil Procedure Rules (1972), which provided that where the purchase money on a sale exceeds what is found to be due to a plaintiff, all accounts may be taken, inquiries made, costs taxed, and necessary proceedings had to distribute the surplus among the persons entitled thereto according to their priorities.... The present Rule 72.14 deals with priorities in the following terms: (1) A mortgagee who is paid in full out of the proceeds of sale under an order for foreclosure, sale, and possession must, if there is a balance remaining, notify subsequent encumbrancers or other parties of the amount of the surplus fund. (2) A subsequent encumbrancer or other party must be notified of the surplus funds in either of the following ways, unless there is a designated address for delivery or a judge orders otherwise: a) by sending the notice by registered mail to the last known address of the encumbrancer or party; (b) in the same way as a party is notified of a proceeding made under Rule 31 ‑ Notice, as if the notice were an originating document. (3) A subsequent encumbrancer or other party may make a motion for payment of the surplus fund. (4) A judge may take accounts, make inquiries, tax costs, and order distribution of the surplus. [7] CIBC takes the position that Rule 72.14 does not mark a substantive change from the former Rule 47 in dealing with priorities in a foreclosure initiated by a second mortgagee. CIBC says the reference to "other parties" along with subsequent encumbrancers indicates that prior encumbrancers are also entitled to share in a surplus. In addition, CIBC cites the practice set out in paragraph 3.4 of Practice Memorandum #1: 3.4 Claim for surplus (a) Each subsequent encumbrancer intending to make a claim to all or any part of the surplus is required, in advance of the motion, to file an affidavit in proof of the claim. (b) The Court will order distribution of the surplus to encumbrancers according to their priorities. [8] CIBC points out that the surplus is to be distributed to "encumbrancers," not only "subsequent encumbrancers." There is nothing, it submits, that suggests that a prior encumbrancer should not share in a surplus. The plaintiff, on the other hand, maintains that the first mortgage would simply remain in effect. I agree that this would be the case if the recovery at the sheriff's sale did not leave a surplus after the plaintiff was paid. But where there is a surplus, the plaintiff has not offered a legal basis for placing the prior encumbrancer at the bottom of the list of priorities. The plaintiff submits that if CIBC wanted to share in the proceeds, it should have brought its own foreclosure proceeding. I am not persuaded that this is a reason to set aside the general rules of priority. [9] The plaintiff also argues that there is some significance for priorities in the fact that the foreclosure order made the sale subject to the CIBC first mortgage. Once again, this appears to be a routine practice (and one mandated by s.2.6 of Practice Memorandum 1.) It is not evident why it would affect priorities. [10] The plaintiff has referenced several decisions which, it submits, support its position. They are, however, distinguishable. Victor Investment Corp. v. Fidelity Trust, [1975] 1 S.C.R. 251 is a decision under the dissimilar Manitoba foreclosure process, and the plaintiff's submission that the statutory provision in question restated a "common law" doctrine is not supported by further authority. In any event, the proceeding must be governed by the language of the Nova Scotia foreclosure provisions. For the same reason, Bank of Montreal v. Lucas (1998), 175 N.S.R. (2d) 394 (S.C.), does not establish the principle claimed by the plaintiff, being a decision under the Sale of Land under Execution Act, R.S.N.S. 1989, c.409. [11] The plaintiff has not established that CIBC is disentitled to share in the surplus in accordance with the general rules of priority. Nor has the plaintiff established that the fact CIBC successfully bid on the property changes this result. I am satisfied that CIBC is entitled to the order requested. The plaintiff has not established that general rules of priority do not apply. As such, CIBC is entitled to a sheriff's deed without paying further funds to the sheriff, and the Prothonotary shall pay to CIBC the amount by which the deposit paid exceeds the cost of the sheriff’s sale and the amount owed to the plaintiff pursuant to the Order. J.