Background
John Alexsander David Lyons, Deborah Anne Lyons and Katherine Clarise Romaine borrowed $80,000 through Sigmar Mortgage Services Ltd. in 2013, secured by a mortgage on their Winnipeg property. Although Sigmar was the registered mortgagee, outside investors beneficially owned the mortgage. Sigmar was supposed to use part of the proceeds to discharge an existing B2B Trust mortgage but failed to do so until 2019.
In 2019, Gary Curtis Golf Shop Ltd. advanced funds to replace the original investors and became the mortgage’s beneficial owner. The borrowers stopped making payments in March 2021 after regulators froze Sigmar’s accounts. Following Sigmar’s bankruptcy, its trustee registered ownership of the mortgage and transferred it to Curtis Golf. On summary judgment, the application judge held that Curtis Golf could enforce the mortgage, dismissed the borrowers’ counterclaim, and ordered possession and sale of the property.
The Court’s Holding
The Court of Appeal dismissed the borrowers’ appeal in its entirety, with tariff costs to the plaintiffs. It found no palpable and overriding error in the conclusion that Curtis Golf became the beneficial owner in 2019. The documentary record showed that Curtis Golf funded the payout of the original investors, Sigmar acknowledged holding the investment in trust for Curtis Golf, and Curtis Golf thereafter received the borrowers’ payments. Once the trustee transferred the mortgage to Curtis Golf, it also became the legal owner with the statutory right to enforce the debt.
The Court rejected the borrowers’ remaining objections. The Mortgage Brokers Act did not prevent Curtis Golf, as lender and owner, from collecting payments; the borrowers’ knowledge or consent was unnecessary for a valid mortgage transfer; and Sigmar’s misconduct did not invalidate the mortgage, particularly because the B2B mortgage was eventually discharged at no cost to the borrowers. The Court also rejected the argument that subsequent encumbrancer AAR Mortgage should have been added, noting that no appealable order had been shown and that joinder would not have been expedient in any event.
Key Takeaways
- A mortgage transferee acquires the rights associated with the mortgage, including the right to enforce payment, without requiring the mortgagor’s knowledge or consent.
- A mortgage broker’s misconduct does not necessarily invalidate the borrower’s repayment obligation, especially where the misconduct caused no established loss affecting the mortgage’s validity.
- A subsequent encumbrancer need not invariably be joined to a mortgage-enforcement action when the governing rule permits an exception and joinder would not be expedient.
Why It Matters
The decision confirms that Manitoba courts will distinguish misconduct by a mortgage broker from the enforceability of the underlying mortgage. Borrowers cannot avoid an admitted mortgage debt merely because the broker mishandled proceeds where the debt and security remain valid and the current mortgage holder was not implicated in the wrongdoing.
It also reinforces the legal effect of registered mortgage transfers following bankruptcy: the transferee obtains the mortgagee’s enforcement rights even though the borrowers neither contracted directly with nor consented to the transferee.