Tag: power of sale

DISTRESSED PROPERTY FOR SALE IN ONTARIO: UNDERSTANDING COURT-APPOINTED RECEIVERS AND ASSET VESTING ORDERS – WHAT THE COURT OF APPEAL FOR ONTARIO WANTS YOU TO KNOW

Post author By Brandon Smith
Post date January 19, 2026

distressed property for sale

By Brandon Smith, LIT, CIRP, Senior Vice-President of Ira Smith Trustee & Receiver Inc.

Distressed Property For Sale Introduction

The idea of finding a “distressed property for sale” can spark a mix of excitement and curiosity. Many see it as a chance to find hidden value in a tough market. However, behind every distressed property sale is often a challenging story of financial strain, requiring a clear and fair solution.

When a company faces deep financial trouble, its assets may need to be sold. This process often involves a court-appointed receiver and specific legal tools, such as an Asset Vesting Order (AVO). These tools ensure fairness and clarity for everyone involved.

At Ira Smith Trustee & Receiver Inc., we understand these complex situations. We are here to guide you through them. This blog will explain the roles of receivers and AVOs, and delve into a recent and important decision from the Court of Appeal for Ontario. This decision sheds crucial light on what happens when someone tries to appeal an AVO. We bring expert advice to help you understand your options and rights.

Distressed Property For Sale Key Takeaways

Court-appointed receivers are neutral officers of the court. Their job is to manage and sell assets fairly when someone is in financial distress.
An Asset Vesting Order (AVO) is a court order that legally transfers ownership of an asset. It ensures the buyer gets the asset sold through distress sales, free from past claims. The cash paid by the purchaser replaces the sold asset.
Appealing an AVO is very difficult. Courts prioritize the fairness and finality of sales managed by a receiver.
The Court of Appeal for Ontario case, Toronto-Dominion Bank v. 1871 Berkeley Events Inc., shows how important it is to follow strict legal timelines when appealing.
If you are involved in a distressed property for sale situation, whether as a buyer, owner, or creditor, getting expert guidance from a Licensed Insolvency Trustee and an insolvency lawyer is vital.
distressed property for sale

The Landscape of Distressed Property for Sale

“Distressed property for sale” refers to real estate or other assets that are being sold because the owner is under severe financial pressure. This pressure might come from overwhelming debt, a failing business, unpaid mortgages, or other economic hardships. It’s a term that describes assets that need to be sold quickly, often at a potentially reduced price, due to the seller’s urgent financial needs.

For some, buying a distressed property for sale seems like a smart investment, offering a chance to acquire assets at a potentially lower price than what might be found in a regular market. These properties can include homes, commercial buildings, land, or even business assets. The allure is often the prospect of a good deal, especially in a fluctuating real estate market where interest rates and economic shifts can put significant pressure on property owners.

However, these sales are often far more complicated than a typical real estate transaction. They are handled through specific legal processes like foreclosure, power of sale, bankruptcy, or receivership. Each of these paths has its own rules, timelines, and potential risks. These aren’t standard transactions with straightforward negotiations. Instead, they often involve multiple parties – the owner, various creditors, and the legal system – all with different interests and claims.

For the person or business holding the distressed property for sale, it represents significant financial pain. It means they’ve reached a point where they can no longer meet their financial obligations, and selling assets is the only way to try to resolve the situation. This can be a deeply stressful and emotionally taxing experience.

Understanding these processes is key. Without proper knowledge and expert help, even a promising opportunity can turn into a costly mistake for buyers. For sellers and creditors, navigating this landscape without professional guidance can lead to further losses or missed opportunities. At Ira Smith Trustee & Receiver Inc., we regularly see the impacts of financial distress and provide solutions that bring order and fairness to these challenging situations.

Distressed Property For Sale: The Court-Appointed Receiver – An Impartial Steward in Crisis

When financial trouble strikes and assets are at risk, a court may step in and appoint a special party called a court-appointed receiver. A court-appointed receiver’s main job is to manage and sell assets fairly and transparently when a person or business is in severe financial distress.

This person is a neutral professional and can only be a Licensed Insolvency Trustee (LIT) like Ira Smith Trustee & Receiver Inc., whose role is to take control of specific assets or an entire business. We act as an officer of the court, and when in a court-appointed role, we must be impartial and work for the benefit of all parties involved, not just one creditor.

The receiver’s primary goal is to maximize the value from the sale of these assets to pay off debts in an orderly and legally compliant manner.

Receivers are appointed for several reasons, all aimed at bringing order to a chaotic financial situation. These include preserving the value of assets, preventing them from being wasted or misused, ensuring an organized and fair sale process, and ultimately, repaying creditors as much as possible according to their legal priorities. The court steps in to protect the interests of everyone involved – the owner, secured creditors, unsecured creditors, and even employees – by having an independent expert manage the assets.

Their Key Responsibilities in Selling Assets Include:

Taking control: The receiver secures and manages the distressed property or business assets. This might involve changing locks, reviewing financial records, assessing inventory, or taking over the day-to-day operations of a business for a short period. Their immediate action is to protect the assets from further harm or loss.
Valuation: They often hire independent experts, such as real estate appraisers or business valuators, to appraise the assets. This is done to determine their true market value, ensuring that any sale is based on realistic and fair pricing. This step is crucial for demonstrating that the receiver is trying to get the best possible price.
Marketing: Once valued, the receiver actively markets the assets widely to attract the best possible offers. This isn’t just a simple listing; it involves strategic marketing to a broad audience of potential buyers, ensuring a competitive bidding process. This transparency in marketing helps assure all parties that a fair attempt is being made to maximize recovery.
Court Approval: A critical step in the process is that the receiver must ask the court to approve their sales process and each specific sale transaction. This court oversight ensures that the process is fair, transparent, and proper, protecting the interests of all stakeholders. The court reviews the receiver’s efforts to ensure the best price was obtained and that no procedural errors occurred.
Distribution: After a sale is approved and completed, the receiver collects the funds. They then distribute the money to creditors according to legal rules and priorities set out in Canadian insolvency laws. This complex task ensures that everyone with a valid claim gets their rightful share, based on the legal pecking order of creditors.

The court-appointed receiver’s actions are always overseen by the court. This supervision builds confidence among all parties that the process is transparent and just. For any business or individual facing severe financial challenges where assets might need to be sold, working with a court-appointed receiver provides a structured and legally sound path forward. At Ira Smith Trustee & Receiver Inc., our team has extensive experience acting as court-appointed receivers, bringing both expertise and empathy to these difficult situations.

distressed property for sale

Distressed Property For Sale: Understanding the Asset Vesting Order (AVO)

An Asset Vesting Order (AVO) is a powerful legal tool often used in receivership proceedings. In a receivership, an AVO is critical because it gives the buyer clear legal title to the assets, which means the buyer usually receives the property “free and clear” of any previous claims, liens, or other legal burdens that were on the distressed property for sale before the sale. Essentially, it’s a court order that directly transfers legal ownership of the distressed property for sale from one person or entity to another.

Think of an AVO as a legal “clean slate” for the asset being sold. When a property or asset is sold in a regular transaction, the buyer usually takes it subject to any existing liens, mortgages, or other claims registered against it. In a distressed situation handled by a receiver, however, there are often many such claims. If the buyer had to take on all these existing problems, very few people would want to buy the asset, or they would only offer a very low price. This would defeat the purpose of the receivership, which is to maximize the value from the sale.

The purpose of an AVO in a receivership sale is twofold:

Buyer Certainty: It assures buyers that their purchase is final and that they won’t inherit the previous owner’s debts or legal problems tied to the asset. This certainty makes the distressed assets more attractive to buyers, encouraging competitive bidding and helping the receiver achieve a better sale price. Without this guarantee, buyers would be hesitant, fearing future legal challenges or unexpected liabilities.
Streamlined Sales: It makes it easier to sell assets that might otherwise be held up by complicated legal disputes or claims against them. By wiping the slate clean, the AVO removes obstacles that could delay or even prevent a sale, allowing the receiver to move quickly and efficiently. This is especially important when asset values might be declining.
Converting Claims: The AVO essentially shifts the creditors’ claims from the actual assets to the money received from the sale. Instead of having a claim against the specific property, creditors now have a claim against the pool of money generated by the sale. This money is then divided among creditors based on legal priorities, such as who has a secured interest, what type of debt it is, and the order in which claims were registered. This process ensures an equitable distribution of proceeds, even if some specific claims on the asset are extinguished.

The power of an AVO is immense, but it is always granted by a court after careful consideration. The court ensures that the receiver has acted properly and that the sale process is fair. This legal tool is a cornerstone of effective receivership, enabling the orderly resolution of complex financial distress. At Ira Smith Trustee & Receiver Inc., we understand the nuances of AVOs and how they impact all parties in an insolvency proceeding.

Appealing an AVO: The Court’s Strict Approach

While it’s theoretically possible to appeal a court order made during a receivership, challenging a sale approval and an Asset Vesting Order (AVO) is extremely difficult. The courts have a very high standard for such appeals, often prioritizing the finality of the sale. This strict approach is not arbitrary; it’s fundamental to the integrity and effectiveness of the insolvency system.

Why Courts Uphold Finality:

Integrity of the Process: The court system relies on its processes being seen as fair and final. Overturning a sale that has been approved by a court undermines confidence in the entire receivership system, which is designed to resolve financial distress efficiently and predictably. If every sale could be easily challenged, the whole system would become bogged down in endless disputes, rendering it ineffective.
Maximizing Value: Delays caused by appeals can make assets lose value. For example, if a property’s market value drops during a prolonged appeal, or if a business asset deteriorates, it hurts all creditors who are hoping to recover funds. Receivership aims for a quick and decisive sale to preserve and maximize asset value for creditors.
Buyer Certainty: Buyers who purchase assets through a court-approved process need to be sure that their new ownership won’t be undone by a later appeal. Without this certainty, fewer buyers would be willing to participate in court-supervised sales, leading to lower prices for distressed assets. This would be detrimental to the creditors, as they would recover less money. Buyers need to know that once they buy, the asset is truly theirs, free from ongoing legal challenges. This confidence is what drives competitive bids and ensures that receivers can effectively liquidate assets.

When deciding whether to approve a receiver’s sale, Ontario courts often refer to the “Soundair Test.” This test comes from the case Royal Bank of Canada v. Soundair Corp. and provides a framework for the court’s review. It guides the court to consider:

(a) if the receiver made enough effort to get the best price, meaning they conducted a thorough marketing process to attract qualified buyers and maximize the sale price; and
(b) if the receiver acted properly and not carelessly, which means the receiver followed all legal procedures, acted impartially, and fulfilled their duties responsibly.

To succeed in an appeal against a sale approval or an AVO, a party generally needs to prove a major mistake by the initial judge, a deeply flawed sales process (such as a failure by the receiver to properly market the assets), or significant unfairness that fundamentally compromised the integrity of the sale. The bar for success is set very high, and simply believing a better price could have been obtained is usually not enough. The appellant must demonstrate a serious error in principle or a clear misapprehension of the facts by the lower court.

This strict approach brings us to a crucial Ontario Court of Appeal decision, Toronto-Dominion Bank v. 1871 Berkeley Events Inc. This case vividly illustrates the court’s commitment to finality and the procedural hurdles involved in challenging an AVO. Understanding this strictness is vital for anyone involved with a distressed property for sale, whether as a buyer, an owner, or a creditor. Our team at Ira Smith Trustee & Receiver Inc. guides clients through these stringent legal requirements, ensuring they understand the reality of their position.

distressed property for sale

Distressed Property For Sale Case Study: Toronto-Dominion Bank v. 1871 Berkeley Events Inc., 2026 ONCA 22

(CanLII: https://canlii.ca/t/khldq)

Background and Factual Context

On July 31, 2023, the moving party corporations were placed under receivership control. At the time of receivership, these entities owned and operated an events centre located in Toronto. On January 16, 2024, the Ontario Superior Court of Justice made an unopposed order authorizing the Receiver to sell the property. After approximately two years on the market, the Receiver entered into an agreement of purchase and sale (APS) with a buyer on August 13, 2025.

Lower Court Proceedings

The Receiver brought a motion before Justice Myers seeking an approval and vesting order (AVO) to close the sale. On October 28, 2025, Justice Myers granted the motion, applying the “Soundair principles“. The motion judge found that the Receiver’s decision to accept the offer was reasonable because:
The offer was unconditional and fell within a narrow range of three other offers received.
It was obtained after responsible marketing efforts in the absence of bad faith.
The offers themselves provided a better indication of current market value than earlier appraisals, which had anticipated a higher valuation.
The Receiver was not acting improvidently.

Procedural Issues on Appeal

A critical issue arose regarding the appellants’ failure to meet procedural deadlines. Under the Bankruptcy and Insolvency Act rules, the appeal period for receivership orders is only 10 days. Although the moving parties attempted to initiate an appeal within the deadline, they erroneously filed in the Divisional Court instead of the Court of Appeal for Ontario.

After being advised of the correct jurisdiction, they eventually submitted an updated motion for leave to appeal, but it was rejected by the Registrar for having “too many deficiencies with the materials.” Subsequently, on December 23, 2025, the moving parties brought a motion for an extension of time to file the appeal, coupled with a motion for a stay of the approval and vesting order.

Motion 1: Extension of Time to File a Motion for Leave to Appeal

The Court of Appeal applied the test from Shaver-Kudell Manufacturing Inc. v. Knight Manufacturing Inc. (2021 ONCA 202), which requires consideration of:

A bona fide intention to appeal during the appeal period.
The length and explanation for the delay.
Prejudice against the responding party.
The merits of the proposed appeal.

Decision: Motion dismissed. While the moving parties had demonstrated an intention to appeal, Justice Paciocco found that:

The explanation for the delay was inadequate. The moving parties failed to provide affidavit evidence addressing the legal tests for an extension, relying instead on “bald assertions about unspecified errrs caused by court staff.”
Unexplained delay: The delay of approximately 40 days (nearly four times the 10-day period) was unexplained and unjustified.
Substantial prejudice accrued to the Receiver. The APS contained a condition precedent that would be breached if an appeal or threatened appeal restricted closing. Additionally, the moving parties’ principal’s conduct in publicly disclosing confidential information about the sale price and marketing details would prejudice any future bidding process if the proposed sale fell through.
The receiver continues to bear the carrying costs of the distressed property for sale until the sale is completed.

Merit Assessment: Justice Paciocco also found the proposed appeal lacked merit. The moving parties’ grounds fell into two categories: (a) claims of procedural unfairness related to the removal of counsel, and (b) attempts to re-argue the motion by challenging the providence of the sale, alleging conflicts of interest and valuation irregularities. The Court found that:

The procedural fairness submissions lacked supporting material and detail.
The substantive grounds failed to identify any legal errors or palpable and overriding errors of fact.
The submissions simply represented disagreement with the motion judge’s conclusions, which would be entitled to deference on appeal.

Motion 2: Stay Pending Appeal

Decision: Motion dismissed. Once the extension of time motion was dismissed, there was no valid appeal pending before the Court, eliminating the Court’s jurisdiction to grant a stay under Rule 63.02(1)(b) of the Rules of Civil Procedure. Even if jurisdiction existed, Justice Paciocco would have dismissed the stay motion because:

The moving parties failed to raise a serious issue to be decided on appeal.
Any harm from the pending sale (the building being put out of reach) was not clearly non-compensable.
The balance of convenience favoured the Receiver and creditors, given that a delay to the sale would be prejudicial to the receivership estate.

Procedural Notes

The moving partie’s principal, though not a lawyer, had been granted leave by a different judge to represent the moving party corporations before the Superior Court on October 8, 2025.
Justice Paciocco noted that self-represented litigants, like all parties, have an obligation to familiarize themselves with relevant procedures.
No costs order was made, as the Receiver did not request one.

Disposition

Both of the moving parties’ motions were dismissed.

Professional Significance

This decision illustrates the strict temporal requirements in insolvency proceedings, designed to discourage delay and maintain the integrity of receivership sales. It also demonstrates the court’s deference to a receiver’s business judgment in accepting conditional offers within a reasonable range of other bids, provided the receiver has undertaken responsible marketing efforts absent bad faith. The case underscores the significant risks posed by disclosure of confidential sale information and the procedural barriers faced by self-represented parties in appellate proceedings.

Comparison Table Section: Key Players in Insolvency – Receiver and Other Licensed Insolvency Trustee (LIT) Roles

Understanding the various roles in financial distress is important. While a court-appointed receiver is a Licensed Insolvency Trustee (LIT), their specific functions can differ depending on the type of insolvency proceeding. It’s crucial to recognize these distinctions, as they impact how assets are managed and debts are resolved. Both roles are vital in the Canadian insolvency system, but they serve different primary purposes and are governed by different sets of rules and circumstances.

Here’s a comparison to clarify their distinct, though sometimes overlapping, responsibilities:

Feature	Court-Appointed Receiver (a LIT)	Licensed Insolvency Trustee (LIT) (e.g., in consumer proposal or bankruptcy)
Primary Role	Manages specific assets or an entire business, usually to sell them and pay creditors. Their focus is asset realization.	Administers formal debt relief processes like consumer proposals, financial restructuring and bankruptcies for individuals and corporations. Their focus is on debt restructuring or liquidation.
Appointment	Appointed by a court order (under the Courts of Justice Act and BIA, or equitable powers), or by a secured creditor through a private agreement.	Appointed by the Office of the Superintendent of Bankruptcy (OSB), a federal regulator, to administer BIA proceedings.
Scope of Work	Takes control, manages, and sells specific assets or a business to maximize recovery for creditors, primarily secured creditors. Can also manage the business.	Helps debtors find debt solutions, negotiates with creditors, manages bankrupt estates, and distributes proceeds to all creditors according to the BIA.
Primary Goal	Maximize recovery for secured creditors by realizing on assets efficiently and according to court direction. Often asset-specific.	Fairly administers assets for all creditors and provides a financial fresh start for debtors (if applicable). Oversees the entire debt resolution process.
Who They Help	Primarily secured creditors looking to recover their loans, but indirectly benefits all stakeholders by ensuring an orderly and transparent process.	Individuals and businesses struggling with debt can be offered solutions, and creditors can obtain a fair distribution according to the BIA.
Legislation	Governed by the provincial Courts of Justice Act, the federal Bankruptcy and Insolvency Act (BIA), and sometimes specific contractual agreements.	Strictly governed by the federal Bankruptcy and Insolvency Act (BIA).
Officer Of	The Court (for court-appointed receivers) or a secured creditor (for private receivers).	The Court and the OSB (a federal regulator). They owe duties to all creditors and the debtor.

Only LITs can act as court-appointed receivers. Their specific powers and duties in a receivership come from the court order or private agreement, not directly from their LIT license for a BIA proceeding. An LIT acting in a consumer proposal or bankruptcy has a broader mandate concerning all creditors and the debtor’s overall financial situation, guided strictly by the Bankruptcy and Insolvency Act.

At Ira Smith Trustee & Receiver Inc., our team consists of experienced Licensed Insolvency Trustees who are qualified to act for a creditor. You receive the most appropriate and effective advice for your unique situation. We bridge the gap between complex legal frameworks and practical solutions.

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Distressed Property For Sale FAQ Section

Q: What exactly is a distressed property for sale?

A: A distressed property is typically real estate or a business asset that must be sold quickly due to the owner’s severe financial problems. These problems might include unmanageable debt, mortgage default, a failing business, or other economic hardships. The sale is driven by a need for funds rather than a strategic decision, and often occurs through formal legal processes like receivership or bankruptcy.

Q: Can I buy a distressed property for sale directly from a receiver?

A: While you can’t typically “bargain” directly in a private sale sense, a receiver is legally bound to market properties widely to get the highest possible price for the creditors. As a buyer, you would submit an offer, usually through standard real estate channels, to the receiver. This offer, along with others, would then be presented to the court for its approval. The court will ensure the receiver acted diligently to obtain the best offer.

Q: What happens if I try to appeal an AVO, based on the TD case?

A: The TD case clearly shows that even if your appeal has legal merit, it will likely be dismissed if it’s not filed within the strict legal deadlines. For sale approval orders and AVOs under the Bankruptcy and Insolvency Act, this deadline is often just 10 days. Courts prioritize the finality and efficiency of these sales to ensure market stability and recover value for creditors.

Q: How long does a receivership process usually take?

A: The length of a receivership varies greatly depending on the complexity of the assets and the financial situation. Simple cases involving easily liquidated assets might be resolved in a few months. However, complex situations with many assets, ongoing legal disputes, environmental issues, or the need to operate a business before sale can take several years. Each receivership is unique.

Q: When should I contact a Licensed Insolvency Trustee like Ira Smith Trustee & Receiver Inc.?

A: You should contact us as soon as you recognize signs of financial difficulty, whether for yourself or your business. This applies whether you’re an individual struggling with overwhelming debt, a business owner facing insolvency, a creditor looking to recover funds, or even an interested party in distressed asset sales. Early professional advice is always the most effective strategy to understand your options, protect your interests, and work towards a solution. Waiting too long can limit your choices and worsen the situation.

Brandon’s Take:

Navigating financial distress, whether you’re a business owner facing tough decisions, a creditor trying to recover what’s owed, or an investor looking at a “distressed property for sale,” can feel overwhelming. It’s a complex landscape filled with legal jargon and strict rules. The TD decision is a powerful reminder of how critical both the substance and the procedure are in insolvency proceedings. It teaches us that even when there’s a good argument on the core legal issue, missing a deadline can swiftly end your chances. This underscores the necessity of immediate, informed action when dealing with court orders in receivership.

This case reinforces that courts are committed to the integrity and finality of court-supervised sales. They want processes to be fair, but also efficient and conclusive. This gives stability to the market and ensures that when a receiver sells an asset, the deal is truly done, providing certainty for buyers and maximum recovery for creditors. The strictness isn’t to be punitive; it’s to ensure the system works effectively for everyone.

At Ira Smith Trustee & Receiver Inc., we understand the human element behind these legal and financial challenges. We know that these situations can be incredibly stressful, filled with uncertainty and fear. Our role in the Greater Toronto Area is to bring clarity, expertise, and a non-judgmental approach to help you understand your options. We ensure that your rights are protected and that you make informed decisions, whether you’re dealing with personal or business debt, considering a receivership, or exploring buying assets from one. Don’t navigate this alone; professional guidance is your strongest ally to achieve a clear path forward.

distressed property for sale

Distressed Property For Sale Conclusion: Your Clear Path Forward

The world of distressed property sales, court-appointed receivers, and Asset Vesting Orders is complex, but it doesn’t have to be a mystery. We’ve seen how court-appointed receivers act as crucial, neutral figures, ensuring assets are sold fairly and transparently to maximize recovery for creditors. We’ve also learned about the power of AVOs to provide a clear title to buyers, making these sales viable. Most importantly, we’ve understood the strong emphasis courts place on the finality and procedural correctness of these sales, as vividly highlighted by the Toronto-Dominion Bank v. 1871 Berkeley Events Inc. case. Missing a deadline, no matter how strong your argument, can be fatal to your case.

Whether you are a business owner facing insolvency, a creditor seeking recovery of funds, or an individual considering a distressed property purchase, understanding these legal frameworks and the strict timelines involved is absolutely essential. More importantly, having the right expert by your side can make all the difference, transforming confusion into clarity and stress into solutions.

Don’t navigate the complexities of financial distress or distressed asset sales on your own. The team at Ira Smith Trustee & Receiver Inc. consists of experienced Licensed Insolvency Trustees who can provide the authoritative, actionable, and empathetic advice you need. We offer confidential, no-obligation consultations to discuss your specific situation and help you understand all your options.

Contact Ira Smith Trustee & Receiver Inc. today. Let us provide you with the professional guidance and peace of mind you deserve during these challenging times. We can help you achieve a financial fresh start and ensure you make the best decisions for your future.

Ira Smith Trustee & Receiver Inc. is licensed by the Office of the Superintendent of Bankruptcy and is a member of the Canadian Association of Insolvency and Restructuring Professionals.

Phone: 905.738.4167
Toronto line: 647.799.3312
Website: https://irasmithinc.com/
Email: brandon@irasmithinc.com

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Disclaimer: This analysis is for educational purposes only and is based on the cited sources and my professional expertise as a licensed insolvency trustee. The information provided does not constitute legal or financial advice for your specific circumstances.

Every situation is unique and involves complex legal and factual considerations. The outcomes discussed in this article may not apply to your particular situation. Situations are fact-specific and depend on the particular circumstances of each case.

Please contact Ira Smith Trustee & Receiver Inc. or consult with qualified legal or financial professionals regarding your specific matter before making any decisions.

About the Author:

Brandon Smith is a Senior Vice-President at Ira Smith Trustee & Receiver Inc. and a licensed insolvency trustee serving clients across Ontario. With extensive experience in complex court-ordered receivership administration and corporate insolvency & restructuring proceedings, Brandon helps businesses, creditors, and professionals navigate challenging financial situations to achieve optimal outcomes.

Brandon stays current with landmark developments in Canadian insolvency law. He brings this cutting-edge knowledge to every client engagement, ensuring his clients benefit from the most current understanding of their rights and options.

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Brandon Blog Post

REAL ESTATE RECEIVER NAVIGATES REAL ESTATE INSOLVENCY: A COMPREHENSIVE GUIDE

Post author By Brandon Smith
Post date June 10, 2024

real estate receiver

Real Estate Receiver Introduction to Real Estate Insolvency

Commercial real estate markets are constantly evolving, and with the recent upswing in defaulted real estate loans on commercial properties, lenders and borrowers are facing unprecedented challenges. I have observed the current market conditions from our ongoing real estate receiver files with keen interest. The landscape is evolving, presenting both challenges and opportunities for developers, lenders and real estate investors alike.

In this Brandon’s Blog post, from my perspective as a real estate receiver, I delve into the intricacies of the growing sector of real estate insolvency, offering (hopefully) valuable insights for both owners and lenders. This includes the challenges faced by developers, the growing demand for remedies in distressed properties, and the overall market dynamics. Join me as I explore the remedies available to navigate through these turbulent times.

Real Estate Receiver Overview of the Current Market Conditions

The real estate sector is currently navigating through dynamic market conditions that have been shaped by various factors. The recent upswing in defaulted commercial real estate loans serves as a signal of a continued downward trend in the market cycle. Developers, especially those with ongoing residential condominium projects, find themselves particularly vulnerable to unexpected upheavals.

Challenges Faced by Developers with In-Progress Projects

Developers face challenges during the construction phase. Delays, spiking costs, and inflation in construction expenses have eroded profit margins, leading to financial strains on developers.

Developers of residential real estate typically need to presell a significant portion of units to secure financing.
Construction cost inflation and pandemic-related disruptions have further complicated project economics.
Delays in construction schedules have been a common occurrence.

Developers in the real estate market are struggling with unprecedented challenges, with many facing insolvency issues. Adapting to changing market conditions and mitigating financial risks has become paramount. Legal experts note a growing demand for remedies across all types of distressed properties, highlighting the urgency in finding solutions to support developers and real estate investors.

Developers must navigate these challenges effectively by exploring various options such as mezzanine lending, private lending, and workout agreements. The evolving market dynamics require a proactive approach to address financial distress and ensure the successful completion of projects.

Growing Demand for Remedies in Distressed Properties

The growing demand for remedies in distressed properties underscores the need for collaborative efforts between lenders and borrowers to resolve defaults. Workout agreements and restructuring of loans offer potential solutions to mitigate financial risks and stabilize projects facing insolvency.

“It’s essential to establish trust and cooperation between borrowers and lenders to navigate through financial challenges effectively.”

Partnerships such as the conversion of mezzanine loans into equity demonstrate innovative approaches to address insolvency issues and support project completion. By exploring alternative solutions, stakeholders in the real estate sector can work towards sustainable outcomes and mitigate potential losses.

Real Estate Receivership: Challenges in Residential Condominium Economics

In my role as a real estate receiver, I am intrigued by the complexities of residential condominium project economics, particularly in the face of obstacles such as construction delays and escalating costs. These variables can substantially affect the financial viability of such projects, necessitating developers to implement targeted risk mitigation strategies.

Impact of Construction Delays and Cost Inflation

One of the most critical aspects affecting condo projects is the occurrence of construction delays and cost inflation. During the construction phase, when financing is fixed, any delays can lead to financial strain as developers cannot generate income until the project’s completion. Typically, developers aim to presell a significant percentage of units to secure financing. However, the recent spike in construction costs, coupled with delays, has eroded profit margins.

Statistics Canada reported substantial inflation in construction costs.
Delays in project timelines can lead to increased expenses and reduced profitability.
Preselling units becomes challenging when costs cannot be accurately predicted.

Strategies for Developers to Mitigate Financial Risks

Developers facing these challenges must consider various strategies to safeguard their investments and navigate through uncertain economic conditions. Some effective risk mitigation strategies include:

Diversifying funding sources to reduce dependency on a single financing option.
Implementing robust project management techniques to minimize delays and cost overruns.
Engaging in transparent communication with stakeholders to manage expectations effectively.
Conversion of mezzanine loans into equity.

Real Estate Receiver: Power of Sale vs. Foreclosure Process

When it comes to handling defaulting real estate loans, there are various legal mechanisms available to lenders and borrowers to manage real property insolvency situations effectively without the need for a real estate receiver. In this section, I will compare the processes of power of sale and foreclosure, explore key scenarios where each approach may be beneficial, and discuss the legal considerations that both lenders and borrowers need to take into account.

Comparison of Power of Sale and *Foreclosure Proces**ses*

Both power of sale and foreclosure are methods that lenders can use to recover funds from defaulted borrowers. The key difference between the two lies in the execution and outcome of the process.

Power of Sale: This approach allows lenders to sell the property without involving court proceedings. It is authorized under Ontario’s Mortgages Act and is generally faster and less costly compared to foreclosure. Lenders have the right to sell the property to recoup the outstanding debt, with any surplus earnings returned to the borrower and any shortfall being the responsibility of both the borrower and any guarantors of the borrower’s mortgage financing.
Foreclosure: In a foreclosure action, lenders take ownership of the property in exchange for the debt owed. This process involves court proceedings, starting with a statement of claim issued by the creditor. Foreclosure can be challenged by the borrower, and in some cases, the court may convert it to a judicial sale, allowing other parties to benefit from any potential surplus proceeds.

Key Scenarios for Each Approach

The choice between the power of sale and foreclosure may depend on the specific circumstances of the defaulting loan and the goals of the lender or borrower.

Power of Sale: This method is often preferred when quick action is required to recover funds. It is suitable for situations where the market value of the property is likely to cover the debt, and lenders want a faster resolution.
Foreclosure: Foreclosure may be more appropriate when the debt exceeds the property value, or when disputes regarding the validity of a sale are likely. Turning foreclosures into judicial sales provides added oversight and protection for borrowers, allowing for a fair distribution of proceeds.

Legal Considerations for Lenders and Borrowers

Both lenders and borrowers need to navigate various legal requirements and considerations when dealing with the power of sale and foreclosure processes.

Lender Responsibilities: Lenders must adhere to statutory and contractual obligations, including providing notification to borrowers and ensuring fair market value in property sales. They have the right to pursue borrowers for any remaining debt after the property sale.
Debtor Rights: In cases of insolvency, borrowers have the right to contest the sale and request evidence of its legitimacy. They may insist that lenders provide proof that the sale price accurately reflects the property’s true market value, supported by appraisals and appropriate marketing efforts.

The decision between utilizing the power of sale and pursuing foreclosure should be based on the specific circumstances of the defaulted loan, the characteristics and interests of all involved parties, and the desired outcomes for both lenders and borrowers. A comprehensive understanding of the variances and consequences associated with each approach is essential for effectively navigating insolvency scenarios within the real estate sector.

Real Estate Receiver: Workout – The Collaborative Solution

As a real estate receiver, I believe it’s crucial to understand the various mechanisms available to address mortgage defaults and insolvency in addition to a real estate receivership enforcement action in dealing with real estate assets. One such approach that has traction in the right circumstances in dealing with a real estate distressed asset is the concept of workouts as a collaborative solution to resolving defaults. Let’s delve into the key components of a workout plan and forbearance agreements.

Exploring the Concept of Workouts as a Collaborative Approach

When creditors and debtors face insolvency or defaults, engaging in a workout plan can offer a mutually beneficial solution. Unlike traditional enforcement measures like foreclosure or power of sale, workouts emphasize collaboration and finding a middle ground that works for both parties. This approach is based on trust, cooperation, and a shared goal of resolving financial difficulties.

Key Components of a Workout Plan and Forbearance Agreements

A workout plan typically involves amending the original loan agreement or creating a forbearance agreement to outline the terms and conditions for resolving the default. It requires a thorough assessment of the situation, a solid plan to address the financial issues, and a commitment to openness and transparency between the borrower and lender. By setting clear objectives and timelines, both parties can work towards a viable solution that avoids costly legal proceedings.

*Real Estate Receiver**: A Detailed Overview of a* *Real Estate Receiver**ship*

When comparing receivership with judicial sales and foreclosure processes, it becomes apparent that each approach has its unique advantages and challenges. Receivership, often court-appointed, involves a licensed insolvency trustee acting as the receiver overseeing the property’s recovery and sale to recoup funds owed. While more time-consuming and costly than the power of sale or foreclosure, court-appointed receivership offers a structured way to handle complex real estate insolvencies. Due to the complexity, a real estate receiver requires extensive powers from the court.

Challenges and benefits arise for both lenders and borrowers in the realm of receivership. Lenders may face the risk of insufficient property sale proceeds, prompting the pursuit of borrowers for remaining loan amounts. On the flip side, borrowers have the legal right to challenge the validity of a power sale and must ensure the property’s sale price reflects its market value to protect their interests.

Receivership serves as a court-supervised controlled process that aims to maximize gross sales proceeds and prioritize creditors’ claims transparently and efficiently. By applying to the court to appoint a receiver to handle property recovery and distribution, the complexities of insolvency can be managed effectively, safeguarding the interests of all stakeholders involved.

What is a receivership and how does it function in Canada’s legal framework?

Within the legal landscape of Canada encompassing matters of commercial contention, there is the intricate notion of receivership. This process entails the designation of one of the two types of receivers; either a privately-appointed receiver or a court-appointed receiver. A receiver is vested with the authority to assume dominion over a business’s array of assets and properties. This authority arises from situations of monetary default on their secured loans.

It is prudent to retain awareness that the role of a receiver can only be filled by a licensed trustee for assuming the mantle of a receiver within the confines of Canada’s legal expanse.

The fulcrum upon which the inception of the receivership mechanism pivots is usually the inability of secured creditors to recoup their financial outlay from a debtor, who in turn is incapacitated in discharging its pecuniary obligations.

The receiver becomes vested with the possession and control of the assets, affects their liquidation, and subsequently allocates the ensuing sale proceeds among the cadre of creditors within the hierarchy delineated by the legal ladder of priority of claims. A court-appointed real estate receiver may also need to retain other real estate experts such as property managers, appraisers and real estate agents.

As an instrumental constituent of the commercial legal architecture in Canada, the receivership process endeavours to safeguard the vested interests of both creditors and debtors. It offers creditors the avenue to recoup either the entirety or a portion of their outstanding amounts due.

Concurrently, beleaguered commercial entities are afforded the prospect of either orchestrating a financial reconfiguration that extricates them from the quagmire of their fiscal problems or facilitating the divestiture of assets with the aspiration of facilitating the uninterrupted continuity of the business, but under new ownership. It, therefore, emerges as an indispensable instrument within the gamut of the Canadian legal paradigm, upholding the equilibrium of economic constancy.

Who is an approved buyer in the context of a receivership sale?

In the detailed context of a receivership sale, an approved buyer describes an individual or entity that has effectively met the specific requirements stated by the designated receiver. These standards encompass a variety of variables, including financial disclosure, a shown understanding of the sale’s terms and conditions, and the tried and tested capacity to finalize the purchase quickly. Usually, the recognition of an approved buyer takes place within a defined bidding procedure, in which potential purchasers compete to meet these developed requirements.

Once identified, an approved buyer ends up being subject to the terms and terms laid out within the sale arrangement. It is the receiver’s responsibility to ensure that the sale is carried out with a commitment to fairness and transparency. This consists of the duty to pick an approved buyer who not only can efficiently wrap up the real estate transaction but also can enhance the overall value of the assets that are being sold.

The fiduciary responsibility of the receiver is paramount throughout this process. The receiver is obliged to act in the very best interests of all parties, which encompasses lenders and other stakeholders. For that reason, the receiver’s duty surpasses the simple identification of an approved buyer; it includes securing the integrity of the sale, guaranteeing fairness for all parties, and ultimately maximizing the value that can stem from the assets being sold within the context of the receivership.

The role of *secured creditor**s and their rights in receiverships*

In the world of Canadian receiverships, secured creditors play an essential function in identifying the destiny of troubled companies. Recognizing their rights is essential in going through this complex landscape. Secured creditors have the legal authority to take enforcement proceedings against the assets covered by their security and have a higher priority in payment contrasted to unsecured creditors. They can either privately appoint or apply to the court for the appointment of a receiver.

The court-appointed receiver acts as a neutral party in charge of taking care of and selling the assets. The secured lenders have the right to challenge court-approved buyers if they think the receivership sale process is unfair or if they have a better deal. Nonetheless, safeguarding their legal rights within receiverships calls for a detailed understanding of the legal complexities and efficient timing associated with receiverships.

A secured creditor plays a crucial duty in the sale process. As the main financial stakeholder given their claim against the secured assets, the secured creditor has a vested interest in the result of the sale procedure. The court-appointed sale procedure includes the marketing and sale of the debtor’s assets and properties, which inevitably establishes the amount of funds that will be available to pay against the secured debt.

For that reason, the secured lender has a significant interest in guaranteeing that the sale procedure is conducted in a way that optimizes the recuperation of funds. The secured creditor’s beneficial interest in the sale procedure is shown in their capability to approve or reject the sale of assets in a private appointment and carries a level of weight with the court for a court-approved sale. This power allows them to protect their economic interests and ensure the very best feasible result from the sale process.

The timelines and stages of a receivership sale: The role of the approved buyer in Canadian receiverships

In Canadian receiverships, the role of the approved buyer is essential to the successful outcome of a receivership. In a court-appointed receivership, approved buyers are court-approved purchasers who typically offer the highest and most beneficial bid for the debtor company’s assets. They play a crucial role in maximizing the value of the distressed company and ensuring the best outcome for all parties involved. Their timely participation in the receivership process is instrumental in achieving sale finality and ultimately shaping the fate of the distressed entity.

In the world of Canadian receiverships, the involvement of court-approved buyers functions as a cornerstone in supporting an equitable and clear process. This essential process makes certain that every interested party can take part in the bidding process for the assets being sold. The result of this bidding process finishes with the choice of the best overall bidder. This mechanism of operation is rooted in concepts of justness, striving to eliminate any type of unnecessary benefit that a solitary party might have over others.

When a company is placed into receivership, the assigned receiver assumes command over the assets as well as operational elements of the business. The purpose behind the orchestration of a receivership sale revolves around the liquidation of the firm’s holdings to get them out of the insolvent troubled company and into the hands of a buyer who can maximize their value. The timing and stages integral within receiverships have a level of fluidity depending upon the intricacy and complexity of the business’s operations and assets.

Generally, the receiver’s starting point is the meticulous groundwork and strategy in setting up the sale procedure. Typically, the initial stage involves the preparation and marketing of the sale of the assets. This is followed by the negotiation and acceptance of offers from interested parties. In court-appointed receiverships, once an offer is accepted, the sale is subject to court approval and then the transfer of ownership is completed.

As this complex process unravels, the receiver must follow rigid lawful as well as regulatory requirements, thereby promoting an environment of impartiality and transparency that emphasizes a fair sale process. In its totality, the underlying purpose of a receivership sale opens up as the optimization of the company’s asset values, a pursuit carried out in the service of all stakeholders’ well-being.

Real Estate Receiver: What the Court Requires To Approve A Real Estate Receivership Sale

Being involved as a bidder in real estate receivership sales can be both exciting and daunting, laden with unique challenges and opportunities. Let’s delve into the intricacies of what the Court requires for the legal process to approve a particular sales process and sale of assets when the company is in receivership.

The Soundair principles

The Soundair principles are a collection of lawful standards developed by the Court of Appeal for Ontario in 1991 in the case of Royal Bank of Canada v. Soundair Corp., 1991 CanLII 2727 (ON CA). All Canadian courts follow these principles.

The Soundair principles are aimed at creating fairness and transparency in the sale of assets throughout real estate receivership cases. Thirty-one years later, it is still the leading case in Canadian insolvency asset sales rules and regulations. These concepts guide courts in evaluating whether the sale procedure carried out by a receiver has been fair and suitable.

Here are the Soundair principles in detail:

Diligent Efforts to Secure the Best Price: The receiver/trustee is obliged to exert sensible efforts to secure the highest possible price for the assets for the general benefit of creditors. This entails thoroughly advertising the assets for sale, soliciting competing bids, and ensuring that prospective purchasers have sufficient information to submit proper offers to purchase. The goal is to get the highest sales price possible under the circumstances, to maximize the return for the benefit of creditors.
Fairness and Integrity in the Sale Process: It is essential to give all interested parties an equivalent opportunity to join the sales process and to avoid any potential purchaser from obtaining an unreasonable edge. Transparency and impartiality are vital, and conflicts of interest cannot be tolerated.
All Stakeholders’ Interests: The receiver/trustee must look out for the interests of all parties, secured creditors and unsecured creditors, shareholders, and any other appropriate stakeholders. It is very important for the licensed insolvency trustee to avoid preference for any party and to strive for a fair equilibrium of the interests among everybody affected because the company is insolvent.
Input from significant creditors: This is a crucial consideration for the licensed insolvency trustee. While the trustee retains the ultimate decision-making authority, it is essential to carefully weigh and consider the recommendations and preferences of major creditors. Given that these creditors will bear financial implications based on the sale outcomes, their input carries substantial significance in the decision-making process.

Application of the Soundair principles

In practice, when a sale of assets is held because the company is in receivership, there are two stages of court review. First, the licensed insolvency trustee needs to get approval for the actual sales process itself. Then, the Court will review the process as implemented by the licensed insolvency trustee.

The Court’s reviews are to ensure conformity with these Soundair principles. This is the case if this is not a sale at arm’s length purchaser. The court will take into consideration the following elements:

Marketing Efforts: How the assets were advertised and marketed, including the period and reach of the advertising and marketing initiatives.
Number and Quality of Offers: The variety of offers obtained and whether they reflect reasonable market price. To assist the Court in determining the reasonableness of the offers received, the Trustee must provide evidence to the Court. An independent appraisal of the assets and other market data is the normal kind of evidence usedwhat a fair valuation of the assets is.
Transparency: Whether the sale process was conducted fairly and transparently, with appropriate details provided to all possible purchasers.
Stakeholder Consultation: Whether the licensed insolvency trustee has spoken with and taken into consideration the views of significant creditors and other stakeholders.
Authorization of Sale: Whether the proposed sale is supported by the significant creditors or as a minimum, is not being opposed.

The Soundair principles assist when a company is in receivership, in guaranteeing that the sale of assets in an insolvency context is carried out in a fashion that maximizes value, keeps fairness, and appreciates the interests of all the major stakeholders. By adhering to these concepts, the court aims to supply confidence in the integrity and fairness of the process and protect the rights of all stakeholders.

Real Estate Receiver FAQs on Real Estate Receivership and Insolvency

What is a Real Estate Receiver? Answer: A real estate receiver is a court-appointed licensed insolvency trustee individual or firm responsible for managing, operating, and sometimes selling a property that is in financial distress. The receiver acts as a neutral third party to preserve the value of the property for the benefit of creditors and stakeholders.
What is Real Estate Insolvency? Answer: Real estate insolvency occurs when a property or the owner of a property is unable to meet financial obligations. This often leads to legal proceedings where creditors seek to recover owed amounts, potentially resulting in foreclosure or receivership.
When is a Receiver Appointed in Real Estate Cases? Answer: A receiver is typically appointed when a property is in financial distress, and there is a risk of losing significant value. This can occur during foreclosure proceedings, bankruptcy cases, or other situations where the property’s income and management are compromised.
What Are the Duties of a Real Estate Receiver? Answer: The responsibilities of a real estate receiver encompass overseeing the daily activities of the property, collecting rental payments, maintaining the property, facilitating required repairs, and occasionally coordinating the property’s readiness for potential sale. The primary objective of the receiver is to optimize the property’s value and uphold equitable treatment of all stakeholders.
How Does the Receivership Process Work? Answer: The receivership process commences upon the issuance of a court order appointing a receiver. The receiver assumes control of the property, evaluates its condition, and executes a management strategy. Regular reports are submitted to the court, and the receiver adheres to the court’s instructions until the property is stabilized, sold, or resolved in another manner.
What Are the Benefits of Appointing a Receiver? Answer: Appointing a receiver offers numerous advantages, including the stabilization of distressed properties, prevention of waste and loss, and provision of a neutral party to impartially manage the property. This can prove highly beneficial to creditors, owners, and tenants alike, safeguarding the property’s value and potentially optimizing its worth.
Can Property Owners Regain Control of Their Property After Receivership? Answer: Yes, property owners can regain control of their property if they resolve the financial issues and the court approves the termination of the receivership. This often requires paying off debts, restructuring finances, or meeting other conditions set by the court.
What Happens to Tenants During Receivership? Answer: Tenants generally continue their leases under the receivership. The receiver collects rents and manages the property as usual, ensuring that the property remains operational. Tenants may experience improved management and maintenance under a receiver’s oversight.
How Are Receivers Compensated? Answer: Receivers are compensated from the income generated by the property or from the proceeds of a property sale. Their fees and expenses must be approved by the court and are given priority over both secured and unsecured creditor claims by the court.
What Is the Difference Between Receivership and Foreclosure? Answer: Receivership and foreclosure are distinct legal processes in real estate management. Foreclosure refers to a legal action taken by a lender to recover the outstanding loan balance from a borrower who has defaulted on payments, often leading to the sale of the property. On the other hand, receivership entails the appointment of an impartial third party to oversee and stabilize the property, to potentially prevent foreclosure, maintain the property’s value and ultimately sell it.
Can a Receiver Sell the Property? Answer: Yes, a receiver can sell the property if authorized by the court. The sale process is usually supervised by the court to ensure it is conducted fairly and that the proceeds are distributed according to the court’s directives.
What Challenges Might a Receiver Face? Answer: Challenges include dealing with neglected maintenance, unpaid taxes, existing liens, tenant disputes, and market conditions. The receiver must navigate these issues while adhering to legal requirements and court orders.
How Long Does a Receivership Last? Answer: The duration of a receivership is contingent upon the intricacy of the case, the state of the property, and the objectives of the receivership. The timeline can range from several months to multiple years.
Who Can Request the Appointment of a Receiver? Answer: Interested parties such as creditors, lienholders, property owners, or other relevant entities have the option to seek the appointment of a receiver. The court will evaluate such requests by taking into account the specific circumstances and the necessity of safeguarding the property’s value.

These FAQs provide a comprehensive overview of key concepts related to real estate receivership and insolvency.

Real Estate Receiver Conclusion

I hope you have enjoyed this real estate receiver Brandon’s Blog. Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a plan, we know that we can help you.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

The information provided in this Brandon’s Blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content of this Brandon’s Blog should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc. as well as any contributors to this Brandon’s Blog, do not assume any liability for any loss or damage resulting from reliance on the information provided herein.

Brandon Blog Post

THE SAVVY FIRST MORTGAGEE: SOMETIMES YOU CAN’T ALWAYS GET WHAT YOU WANT

Post author By Brandon Smith
Post date September 12, 2022

first mortgagee

First mortgagee: What is the definition of a mortgagee?

A mortgagee is a person or company who gives a loan and uses the property as security for the debt. The mortgagee is the lender. The property owner who borrows the money is called the mortgagor.

I have acted in many real estate receivership matters. Real estate receiverships in Ontario normally involve a court-appointed receiver. The reason is usually that there are many competing parties and perhaps competing claims. The best way to resolve these disputes and for the party that purchases the real estate from the receiver is through court supervision.

In this Brandon’s Blog, I describe a recent decision of the Court of Appeal for Ontario involving a real estate receivership and the claim of the first mortgagee. I and my Firm are not involved in this matter.

What is the definition of a first mortgagee?

A first mortgage is a loan that is secured by real estate property in priority to any other loans registered against the real property. In the event of default, the first mortgage loan has priority over any other loans that are secured by the property. The first mortgagee is the mortgagee that holds that first mortgage for that mortgage loan.

Institutional First Mortgagee Definition

The term “institutional first mortgagee” refers to a lending institution that provides financing for a first mortgage loan. Such mortgage lenders are typically a banking institution, credit union, or company that specializes in mortgage lending.

The institutional first mortgagee typically offers the lowest interest rate and best terms for the mortgage loan, especially if they are going to hold an institutional first mortgage. However, this is not the case if the institutional lender is one that deals with harder-to-finance properties or sub-prime mortgage loans.

Is it possible to have more than one mortgage at the same time?

There are instances where multiple mortgages may be an option. However, it is no secret that mortgages can be difficult to obtain. Financial institutions are often hesitant to approve multiple mortgages for fear of the borrower’s ability to repay. It is quite possible that to get more than one mortgage a borrower may have to look at the secondary mortgage market to accomplish that second or third mortgage transaction on the same property.

Every lender is different. One lender may see an opportunity where another would deem it too risky. The terms and pricing being offered will match the lender’s risk assessment. Remember, there can only be one first mortgage. Each subsequent mortgage will be more expensive and may have more onerous terms as each subsequent mortgagee is taking on more risk than the first mortgagee lending against the same real property.

Adding another mortgage may only exacerbate your financial difficulties if you are already struggling to make payments on one. Before making a decision, it is important to carefully weigh all of your options.

first mortgagee

The case I am about to describe highlights the dangers of having an institutional first mortgage and then having a subsequent mortgagee holding the second mortgage when the owner’s business plan for the commercial real estate does not work out.

First National Financial v. Golden Dragon: You can’t always get what you want

The case before the Court of Appeal for Ontario is an excellent instance of not always obtaining what you want. The Rolling Stones stated it best in their 1969 tune, “You Can’t Always Get What You Want.”

The Court of Appeal decision that I describe below may seem fairly obvious. First National Financial GP Corporation v. Golden Dragon Ho 10 Inc., 2022 ONCA 621, stands for the proposition that in order for a first mortgagee (or any mortgagee) to make a claim for accelerated interest on the entire debt, or any other claim a mortgagee may make when a mortgage goes into default, you first must look at the mortgage terms to see what exactly they are entitled to.

The first issue to be addressed is a priority dispute between the first mortgagee, First National Financial GP Corporation (First National), the second mortgagee, Liahona Mortgage Investment Corporation (Liahona); and the mortgagors, Golden Dragon Ho 10 Inc. (GDH 10) and Golden Dragon Ho 11 Inc. (GDH 11) (collectively referred to as the mortgagor). The primary concern of this appeal is whether the trial judge erred in deciding that First National, as the first mortgagee, is entitled to payment of a future, unearned, interest to the end of the term of its closed mortgages.

Additionally, Golden Dragon appealed the receiver’s fee and costs approved by the lower court. The Court of Appeal for Ontario quickly dismissed their appeal.

First mortgagee: Should You Take Out a Second Mortgage?

When it comes to your finances, taking on more debt is generally not considered a good idea. However, there are some situations where taking out a second mortgage charge on title can make sense.

Opting for a second mortgage entails some risks. If you’re unable to keep up with all the mortgage payments, you could lose your property through the power of sale proceedings.

Golden Dragon used to own two residential apartment buildings that were next to each other in Ottawa. When they bought these properties, they assumed three closed registered mortgages: the first mortgage on one building, a first mortgage for the second building, and a second mortgage for the second building. All three mortgages were held by First National. Its second mortgage ranked pari passu with its first mortgage.

Despite being required to give notice to First National under its mortgages, Golden Dragon subsequently placed a second mortgage on the first building without giving any notice. This new subsequent mortgage was held by Liahona.

Golden Dragon took out a second mortgage to get access to funds to use to renovate the apartments. However, Golden Dragon was unsuccessful in renovating the properties and became insolvent. As of December 2016, the Liahona second mortgage was in default and no further payments were made.

Liahona issued a notice of sale for the property of Golden Dragon and obtained a default judgment, and a judgment to take possession of the property.

As of June 2017, the First National mortgage charges on title were in default. Their mortgages included cross-default provisions, meaning that a default under one was deemed to be a default under all three First National mortgages. On August 17, 2017, First National made a formal demand that Golden Dragon pays the arrears and cure the non-monetary defaults and delivered notices of intention to enforce security pursuant to s. 244 of the Bankruptcy and Insolvency Act. Golden Dragon was unable to cure the borrower defaults and the court appointed the interim receiver after considering the circumstances of default.

first mortgagee

The interim receiver ensured the properties were stable and increased the rental income. Rather than the first mortgagee or second mortgagee selling the properties by way of a power of sale, the court then expanded the interim receiver’s role to marketing and selling the apartment buildings. The interim receiver requested the court’s approval for the sale of the properties. The court found that the approval conditions were met, the sale was approved, and the properties were sold.

What can the first mortgagee claim if the mortgaged properties are sold?

The trial judge’s ruling found that the First National registered mortgages did not give it the right to claim the disputed “yield maintenance penalties,” which included an acceleration of all amounts due until the end of the mortgage terms.

Although the mortgages contained a provision allowing Golden Dragon to redeem the mortgages by paying a “yield maintenance” penalty calculated according to a formula set out in the provision, this privilege only applied if Golden Dragon was not in default under the terms of the mortgages. Since Golden Dragon was in default, it no longer enjoyed the privilege of prepayment of the mortgages. As a result, First National was not entitled to charge a yield maintenance penalty.

Despite this, the trial judge decided that First National was entitled to the amounts it claimed as a condition of payout:

under a common law rule that a mortgagee is entitled to all accelerated interest owing to the date of maturity when a closed mortgage is vested off the title before the end of the term; or
in accordance with an implied contractual entitlement to interest on the unpaid balance, the trial judge read into the First National mortgages.

Liahona submitted to the trial judge that the first mortgagee was not entitled to accelerated interest under their mortgages unless there was a specific clause in the mortgage authorizing such a claim. The trial judge rejected that argument and concluded that the accelerated interest under the mortgage became due when the registered mortgages were terminated prematurely upon being vested off title pursuant to the court-supervised sale.

What the Court of Appeal for Ontario decided

Liahona and Golden Dragon appealed the trial judge’s decision in interpreting the basics of mortgagee clauses for the following issues:

Whether the trial judge was correct in finding that the first mortgagee claim for priority for the accelerated interest under its mortgages under common law.
If the trial judge erred by implying a contractual term in the First National mortgages that didn’t exist.

The Court of Appeal for Ontario differed from the lower court’s ruling concerning the mortgagee clause relating to accelerated interest. The appellate court noted that the lower court misapplied the law as well not taking into consideration the full scope of the contracts. It further stated that a loan agreement is interpreted according to standard principles of contract interpretation.

The Court of Appeal for Ontario vacated the trial judge’s ruling. Even though First National objected, the appellate court decided that the first mortgagee was only entitled to the principal and interest, plus costs up to the day of the sale of the properties that the court authorized.

First mortgagee: The main point

The main point of this court case is that if you negotiate and bargain for a certain set of contractual terms set out in writing, the court will look at the rights and responsibilities of the parties to the contract. This includes any mortgagee clause it bargained for.

I hope you enjoyed this Brandon’s Blog on what this first mortgagee rights and what it was entitled to from the court-supervised sale of the properties. Are you or your company in need of financial restructuring? Are you or your company insolvent due to a contract you may have entered into? Can you or your business not able to afford to make all your necessary debt payments, including mortgage payments?

The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.

It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. We know that we can help you the way we take the load off of your shoulders and devise a debt settlement plan.

We realize that people and businesses in financial difficulty need practical advice and a workable solution in an easy-to-understand financial plan. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We can tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. If any of this sounds familiar to you and you’re serious about finding a solution, let us know.

Call us now for a no-cost initial consultation.

Brandon Blog Post

COURT APPOINTED RECEIVER REAL ESTATE: ALL PURCHASE TERMS AREN’T EQUAL

Post author By Brandon Smith
Post date September 17, 2018

Court appointed receiver real estate: Introduction

Over the last 5 years, (and of course for many years before then), we have taken on many Court appointments for commercial real estate receivership files. In August 2017 we wrote BUYING REAL ESTATE FROM A RECEIVER: READ, REMEMBER AND FOLLOW THE CONTRACT LAW FINE PRINT. In that blog, we described a BC Court of Appeal decision to show how tricky both the sale and purchase of court appointed receiver real estate can be. For this Brandon’s Blog, I list certain purchaser terms normal in an arm’s length non-distress situation. I explain why they can’t always work when purchasing from a receiver.

Court appointed receiver real estate: 558 Dovercourt Road, Toronto

One of our current assignments is the sale of real property with a civic address of 558 Dovercourt Road, Toronto. This is a residential income property (with a commercial storage component). Given the potential for competing claims, the second mortgagee wanted to go the court appointed receiver route, rather than a traditional mortgagee power of sale. This is so the Court is available to sort out any issues of competing claims or other claims.

We have to date received two offers to purchase. Unfortunately, both offers weren’t acceptable. Our sign back of the first offer was not accepted by the potential purchaser. The second offer was not even worthy of a sign back.

It was not only an issue of price. The potential purchasers also included various terms that were unacceptable to any court appointed receiver. This is notwithstanding that they may be fine to a normal vendor.

Court appointed receiver real estate: Unacceptable terms

Below are some common terms that we see potential purchasers include in an offer. I give the reason(s) why a court appointed receiver cannot include them in an acceptable agreement of purchase and sale. Keep in mind that the court appointed receiver is not trying to be difficult or mean. Hopefully, these explanations will help.

The seller – The seller is not just the court appointed receiver’s company name. Rather, the vendor is court appointed receiver’s company name, solely in its capacity as court appointed receiver of [legal name of property owner]. It is only the official court appointed receiver capacity selling the real estate. The court appointed receiver’s power to offer the property for sale and enter into an agreement as seller comes from the court appointment order. The Court also supervises the administration and sale.
All equipment/appliances will be in good working order on closing – A court-appointed receiver cannot give such a warranty. A private receiver or a court-appointed receiver sells assets on an “as is where is” basis, with no warranties. It’s just the way it is.
The court appointed receiver will obtain court approval for the sale before the purchaser has waived all of the purchaser’s conditions – A court appointed receiver can’t and won’t go to Court to obtain approval to a transaction that may not even exist later on because the purchaser won’t waive one or more conditions and the deal goes dead. The court appointed receiver won’t incur the cost of preparing its motion and going to Court before knowing there is a firm deal. This obviously includes the payment of the deposit funds.
Seller will discharge work orders – A court appointed receiver will not do the repairs or upgrades to the property in order to discharge work orders. The court appointed receiver will, of course, give clear title to the property by discharging mortgages or liens. The Court approval Order, called a Vesting Order, does this. The purchaser has the time to have his/her/its lawyer inspect title. The deal ends if proper title can’t be given. If the purchaser does not want to inherit certain work orders, then that should be another condition.
Seller will provide the buyer with keys that work to every exterior and interior door lock – A court appointed receiver will not agree to this. The court appointed receiver will certainly provide any keys in its possession.

These are the most common buyer conditions that a court-appointed receiver real estate sale won’t be able to handle. In my next blog, I will look at common conditions a court appointed receiver seller uses.

Court appointed receiver real estate: Is your mortgagor in trouble?

Are you a mortgagee over a commercial real estate property where the mortgagor is in default? Are there reasons why you need to consider applying to Court for a court appointed receiver + real estate sale?

If yes, contact the Ira Smith Team. Our philosophy for every person and company is to develop an outcome where Starting Over, Starting Now happens, beginning the minute you come in the door. You’re just one call away from taking the essential action steps to get back to leading a healthy and balanced stress-free life.

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Distressed Property For Sale Introduction

Distressed Property For Sale Key Takeaways

The Landscape of Distressed Property for Sale

Distressed Property For Sale: The Court-Appointed Receiver – An Impartial Steward in Crisis

Their Key Responsibilities in Selling Assets Include:

Distressed Property For Sale: Understanding the Asset Vesting Order (AVO)

Appealing an AVO: The Court’s Strict Approach

Why Courts Uphold Finality:

Distressed Property For Sale Case Study: Toronto-Dominion Bank v. 1871 Berkeley Events Inc., 2026 ONCA 22

Background and Factual Context

Lower Court Proceedings

Procedural Issues on Appeal

Motion 1: Extension of Time to File a Motion for Leave to Appeal

Motion 2: Stay Pending Appeal

Procedural Notes

Disposition

Professional Significance

Comparison Table Section: Key Players in Insolvency – Receiver and Other Licensed Insolvency Trustee (LIT) Roles

Distressed Property For Sale FAQ Section

Q: What exactly is a distressed property for sale?

Q: Can I buy a distressed property for sale directly from a receiver?

Q: What happens if I try to appeal an AVO, based on the TD case?

Q: How long does a receivership process usually take?

Q: When should I contact a Licensed Insolvency Trustee like Ira Smith Trustee & Receiver Inc.?

Brandon’s Take:

Distressed Property For Sale Conclusion: Your Clear Path Forward

Real Estate Receiver Introduction to Real Estate Insolvency

Real Estate Receiver Overview of the Current Market Conditions

Challenges Faced by Developers with In-Progress Projects

Growing Demand for Remedies in Distressed Properties

Real Estate Receivership: Challenges in Residential Condominium Economics

Impact of Construction Delays and Cost Inflation

Strategies for Developers to Mitigate Financial Risks

Real Estate Receiver: Power of Sale vs. Foreclosure Process

Comparison of Power of Sale and Foreclosure Processes

Key Scenarios for Each Approach

Legal Considerations for Lenders and Borrowers

Real Estate Receiver: Workout – The Collaborative Solution

Exploring the Concept of Workouts as a Collaborative Approach

Key Components of a Workout Plan and Forbearance Agreements

Real Estate Receiver: A Detailed Overview of a Real Estate Receivership

What is a receivership and how does it function in Canada’s legal framework?

Who is an approved buyer in the context of a receivership sale?

The role of secured creditors and their rights in receiverships

The timelines and stages of a receivership sale: The role of the approved buyer in Canadian receiverships

Real Estate Receiver: What the Court Requires To Approve A Real Estate Receivership Sale

The Soundair principles

Application of the Soundair principles

Real Estate Receiver FAQs on Real Estate Receivership and Insolvency

Real Estate Receiver Conclusion

First mortgagee: What is the definition of a mortgagee?

What is the definition of a first mortgagee?

Institutional First Mortgagee Definition

Is it possible to have more than one mortgage at the same time?

First National Financial v. Golden Dragon: You can’t always get what you want

First mortgagee: Should You Take Out a Second Mortgage?

What can the first mortgagee claim if the mortgaged properties are sold?

What the Court of Appeal for Ontario decided

First mortgagee: The main point

Court appointed receiver real estate: Introduction

Court appointed receiver real estate: 558 Dovercourt Road, Toronto

Court appointed receiver real estate: Unacceptable terms

Court appointed receiver real estate: Is your mortgagor in trouble?

Comparison of Power of Sale and *Foreclosure Proces**ses*

*Real Estate Receiver**: A Detailed Overview of a* *Real Estate Receiver**ship*

The role of *secured creditor**s and their rights in receiverships*