Note: This article, which appeared in the Spring 2017 BarNotes, is republished with permission from the author, who notes that it was written with a Saskatchewan audience in mind.
Introduction
What do you do if, after making payment (on your client’s behalf) to a bank in accordance with the bank’s mortgage payout statement, you discover that the statement was inaccurate and the bank refuses to release its security unless further payment is made? This situation was considered in Mohan v Bank of Montreal, 2016 ONSC 3862, 2016 CarswellOnt 9331 (WL). The court held that the Bank of Montreal was estopped from refusing to discharge its mortgage registration. This holding depended, however, on an unusual set of facts.
Mohan v Bank of Montreal
As solicitor for the vendor, Mohan obtained a copy of title which showed that BMO had registered a mortgage in 2006. At closing, Mohan gave an undertaking to the purchaser’s solicitor to (i) use the purchase funds to pay off BMO’s mortgage; and (ii) cause BMO’s mortgage to be discharged from the title.
In Mohan’s request for a payout statement from BMO, he did not refer to the mortgage by registration number. Instead, he referred only to BMO’s “first charge against the property” (the title showed that BMO’s mortgage was first in priority). Subsequently, Mohan delivered a certified cheque to BMO to satisfy the mortgage debt.
Unbeknownst to Mohan, the title did not, due to an inadvertent error in the land registry, indicate that BMO had registered a prior mortgage in 2004. Mohan was also unaware that BMO’s payout statement pertained to amounts owing on the 2004 mortgage, not the 2006 mortgage.
BMO applied Mohan’s payment to the 2004 mortgage. When Mohan followed up with BMO regarding discharge of the 2006 mortgage, BMO (for the first time) informed Mohan about the 2004 mortgage. BMO indicated that it would not discharge the 2006 mortgage until it was paid in full.
The court found that Mohan knew nothing about the 2004 mortgage at the time he acted. Although Mohan’s client had knowledge of both mortgages, this knowledge was not shared with Mohan until after closing. The court concluded as follows:
72 Mr. Mohan acted reasonably in relying on BMO’s discharge statement. He searched title. He obtained a copy of the Land Titles Parcel Register. He relied on title as set out in the Land Titles Parcel Register, as he was entitled to do. He requested a payout statement…. BMO responded by providing a payout statement. Mr. Mohan, in good faith, dealt with BMO and relied on the payout statement. BMO’s representative agreed on cross examination that Mr. Mohan… had no other way of determining from the correspondence and Parcel Register that the 2004 mortgage remained outstanding or even bound the property.
73 Further, Mr. Mohan’s reliance on the statement was to his detriment. He gave a solicitor’s undertaking to the purchaser that the mortgages registered against the property would be discharged. He did all he could reasonably do to fulfill that obligation. He is bound by his undertaking should he not be able to fulfill it. BMO prevents him from fulfilling his undertaking as it will not issue a discharge of the 2006 mortgage. Hence, Mr. Mohan brings this Application.
…
77 … [A]t the time that BMO gave its payout statement, it was the only person with the knowledge to, and who could have avoided the problem the parties now face. It could have done so with a two word response to Mr. Mohan’s request for a mortgage payout statement: “Which mortgage?”
The court ordered that the 2006 mortgage be discharged.
Case law
Mohan was recently cited by the Saskatchewan Court of Queen’s Bench in Halpape v Bank of Montreal, 2017 SKQB 23. Faced with facts analogous to Mohan’s, the Court in Halpape ordered that a BMO enforcement charge against a piece of real property be discharged. Please note that, at the time of writing this article, the appeal period for Halpape had not expired.
Other cases have also addressed inaccurate payout statements, including:
- Ahaus Developments Ltd. v Savage, [1994] 8 WWR 131 (BC CA). The Court of Appeal stated “[w]here it is shown that the mortgagor or his or her agent has detrimentally relied on a pay-out statement by paying the amount indicated on that statement, that person is entitled to a discharge of the mortgage” (ibid at para 46).
- Cherrington v Montreal Trust Co. of Canada, [1990] 6 WWR 381 (BC SC). The court apportioned the loss flowing from an inaccurate payout statement, which was prepared by the vendor’s mortgagee, equally between the mortgagee and the vendor’s solicitor. The court reasoned that although the mortgagee was negligent in inviting the solicitor to rely upon the statement, the solicitor should have realized, based on the statement’s contents, that it might be inaccurate.
- Piché v Niagara Credit Union Ltd. (1988), 2 RPR (2d) 78 (Ont District Court). The credit union quoted a payout amount to the mortgagor’s solicitor but failed to mention that an early payout penalty would be charged. Subsequently, the credit union accepted the payout funds but refused to discharge the mortgage registration unless the penalty was paid. The court held that the credit union was estopped from refusing to discharge the mortgage registration.
For recent cases where fraud was involved, see Toronto Dominion Bank v Kevin I. Peddie Professional Corp., 2016 ABQB 26, 34 Alta LR (6th) 183; and Normak Investments Ltd. v Belciug, 2015 BCSC 700, 56 RPR (5th) 84.
Conclusion
Returning to the initial question, obviously your response would depend on your specific situation. For instance, when did you request the payout statement? If you made the request X days in advance of the payout date, the bank might have undertaken to discharge its mortgage upon receipt of the stated payout amount. Although highly unlikely, were you dealing with a bank lawyer rather than a non-lawyer employee? If so, trust conditions might be less difficult to enforce (see the Code of Professional Conduct, s. 7.2-11, Commentary [6]).
If you do make an application to court, whether the cases above would support your application depends partially on (i) whether you relied upon the payout statement in good faith and to your detriment; and (ii) whether you had no way of knowing that the quoted payout amount would not be sufficient to satisfy the mortgage debt.
Before making an application, however, try escalating the matter to a more senior bank employee. Refer to the Canadian Bankers Association’s “Contact List for Matters Involving Mortgage Discharges,” which is available in the Members’ Section of the Law Society of Saskatchewan website, for contacts at major banks to whom you can escalate your matter.
Andy Chiang is a lawyer in Saskatchewan