The Superior Court of Justice recently raised an interesting question: can a condominium corporation foreclose on a unit to enforce its lien? While the Court didn’t answer the question, raising the question seemingly casts doubt on what a corporation can or can’t do to enforce a lien. Fortunately, we don’t have to wait for another case to get our answer: earlier decisions have made it clear that a condominium lien can be enforced through foreclosure.
Section 85(6) of the Condominium Act, 1998 provides that a lien “may be enforced in the same manner as a mortgage”. To this point, the Court in TSCC No. 1678 v. 779857 Ontario Inc. noted:
The applicant has a lien under the statute and proposes to foreclose on the condominium units. I am not comfortable that a foreclosure remedy was necessarily intended by the very sparse wording of subsection 85 (6) of the Condominium Act, 1998…I choose to leave for a further case, to be argued with a respondent before the court, the fine legal question of whether, properly interpreted, subsection 85 (6) encompasses the right of foreclosure.
There is a legal and procedural distinction between “foreclosure” and “power of sale”. Foreclosure allows the lender to transfer title of a property in default to itself – the lender can then do what it wants with the property, has no duty to get the best price for the property and keeps any balance in equity or profit. However, the lender can’t claim any shortfall in paying the debt from that balance in equity or profit in a foreclosure process. Power of sale allows the lender to sell a property in default at fair market value to satisfy a default. The balance or profit from the sale after the default is satisfied is returned to the debtor and the lender can then sue for any shortfall. Both remedies are available to a mortgagee.
In either process, the party in default has an equitable right of redemption – in other words, they have an opportunity to pay their arrears to prevent their property from being transferred or sold. The right of redemption is a check-and-balance to prevent debtors from losing their property for the smallest default. In the same way banks can rely on their foreclosure rights to recover substantial loans, condominiums should be able to foreclose on a liened unit to recover common expenses which other owners should not have to contribute to.
Generally, the power of sale process is fast, predictable and therefore more common in the condominium world. There are certain complexities with the foreclosure process which may not make it as available in condominium lien collection. One also must consider whether the condo acquiring a unit under foreclosure would be a change in assets of the corporation requiring owner notice or approval under s. 97 of the Condo Act, which adds time and cost to the process. However, there is nothing preventing the use of foreclosure to enforce a lien and sell a unit in the right circumstances.
We do not see how section 85(6) of the Condo Act would not encompass the right to foreclose on a unit. Indeed, the Court of Appeal considered a mortgagee’s rights in Metropolitan Toronto Condominium Corp. No. 1385 v. Skyline Executive Properties Inc.. The Court of Appeal looked at how common expenses can be recovered:
If the [common expenses] are not paid, the condominium corporation may register a lien against the unit. The lien is enforceable in the same way as a mortgage (s. 85(2), s. 86(6)). Section 86 of the Act gives a s. 85(1) lien priority over almost all other encumbrances including mortgages. Consequently, if the costs described in s. 134(5) are not paid, the condominium corporation can recover that amount through the sale of the unit.
…the section was intended to shift the financial burden…to the unit owners whose conduct necessitated the obtaining of the order. Furthermore, the section was enacted to provide a means whereby the condominium corporation could, if necessary, recover those costs from the unit owner through the sale of the unit.
While the Court of Appeal’s analysis in Skyline was in the context of “costs awarded in an oppression application”, the ability to sell the unit “consequently” flows from a lien in the first place. A lien can secure unpaid monthly expenses, chargebacks or costs. But a condominium’s right to sell a unit – whether through power of sale or foreclosure – does not turns on “what is the lien for?” but rather “is there a lien at all?”. The Court of Appeal did not distinguish between power of sale or foreclosure as the means to the end: it simply said that the condo can recover unpaid amounts through the sale of the unit.
We continue to see illegitimate liens registered by heavy-handed lawyers even after the infamous Amlani decisions but Tony’s Takeaway is that in most cases, owners faced with a disputed lien should consider paying the lien “under protest” at the earliest instance to “stop the bleeding” ; that includes preventing a condominium from resorting to power of sale or foreclosure proceedings. The validity of a lien can be challenged in court after the fact.