February 4th - 2005

LEGALBEAT: Overlisting is risky business

The buyer bought a development property and gave a mortgage back to the sellers.

The buyer bought a development property and gave a mortgage back to the sellers. The buyer did not develop the property for several years as an intended 30 lot subdivision and the municipality transferred its sewer allocation capacity to a different project. That made it impossible for the buyer to develop this subdivision. When the buyer defaulted on the mortgage the seller/mortgagee started power of sale proceedings, obtained an appraisal for $395,000 and retained, serially, several real estate agents to market the property. It was listed for six years for $750,000 and there was an eventual sale for $500,000. The buyer argued that listing the property at that price created an improvident sale.

The judge decided that the evidence was not sufficient to support a rational finding that a higher price would have been obtained. "There are many reasons why a property might not sell. ... It is commonplace for persons to make offers for much less than the list price. Indeed, offers were received for prices much lower than the listing price." The buyer did not produce any evidence to establish that the seller had acted improperly; "there is only a theory." The seller explained that they had acted on the advice of real estate agents and had a desire to be fair to both themselves and the buyer who would be liable for the shortfall. Even if there was a breach of duty the buyer did not show that a higher price would have been obtained but for the breach.

Samu v Arts 2004 ONCA 11440

MERV'S COMMENTS
A mortgagee should take reasonable steps to obtain a market value for a property being sold under power of sale. This property was sold for $500,000 with a shortfall of $1.4 million. Most of the loss must have occurred due to the difficulty in obtaining building permits, municipal approvals and other reasons to cause the failure to develop the property in a timely manner.

However, mortgagors may attack the process and mortgagees must be prepared to defend their actions. Overlisting a property by such a striking amount is not wise. It would be safer to obtain other appraisals, and at different times during the listing period.

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