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MORTGAGES - Power of sale - Sale proceeds - Distribution - Priorities

Monday, December 09, 2019 @ 9:15 AM  


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Appeal by Patrick Street Holdings from a decision of the applications judge that determined the validity, value and priority of claims against the subject property. The appellant was the mortgagee over an area of land in the subject property. Following a default in mortgage payments, the appellant commenced power of sale proceedings. The respondent Cook was a mortgagee with respect to two additional mortgages on parcels of land within the subject property. The respondent J-3 Consulting was a mechanics’ lien claimant against the owner of the subject property. The respondent 11368 NL Inc. was the beneficial owner of the subject property prior to the power of sale proceedings. At a public auction, the subject property was sold to the appellant for $11,400,000. Under the final accounting as determined by the applications judge, there were sufficient proceeds from the sale to make payment of J-3 Consulting and Cook’s claims. He found four directions to pay registered prior to the J-3 Consulting lien and Cook mortgages did not rank in priority over those claims. The applications judge did not allow an $800,000 mortgage on the basis it was contingent on events that did not occur. He disallowed the appellant’s registered mortgage of $4,000,000, given to support a guarantee, on the basis the actual amount owing under that mortgage was not properly established on the evidence.

HELD: Appeal dismissed. The directions to pay were not charges that encumbered the property. The directions did not convey an interest in the real property but only directed the redirection of funds that would otherwise go to the owner. The directions to pay were not encumbrances under the Mechanics’ Lien Act or encumbrances that would make the beneficiary of the directions a person entitled to the mortgaged property. The applications judge did not err in finding the J-3 Consulting lien and Cook mortgages ranked in priority to the directions to pay. There was no error in the applications judge’s finding that the $800,000 mortgage was not payable at the time the power of sale took place. There was no basis to interfere with the applications judge’s conclusion that the amount owing on the appellant’s $4,000,000 mortgage was not established and therefore disallowed.

Cook v. Patrick Street Holdings Ltd., [2019] N.J. No. 331, Newfoundland and Labrador Court of Appeal, C.W. White, L.R. Hoegg and F.P. O'Brien JJ.A. October 24, 2019. Digest No. TLD-December92019002