Executive Summary: Key Legal and Evidentiary Issues

• The court examined whether 5716650 Manitoba Ltd. established, on a balance of probabilities, that the 1998, 2012, and 2020 mortgages were paid, redeemed, or should be discharged.

• Evidence revealed the Lorette Property mortgages were part of a broader fraudulent mortgage scheme involving Sigmar Mortgage Services Ltd. and its principal, Thomas Standing, with unclear but significant involvement by 571 and its principals.

• The issue of whether 571 or its principals ever received proceeds from the mortgage loans, or were responsible for making payments, was central to the applications.

• The validity of the 2012 and 2020 mortgages, including the assignment and registration process, was scrutinized, particularly in light of alleged misrepresentations and lack of direct evidence of representations to 571.

• The rights of innocent investors who held valid security in the form of mortgages on the Lorette Property were weighed against 571’s claims for equitable relief.

• Sun Mortgage’s entitlement to an order for possession of the property was determined based on 571’s default under the 2020 mortgage and the validity of Sun Mortgage’s assignment.

Facts of the case

The applications concern the property at 1214 Lorette Avenue, Winnipeg, Manitoba, held by 5716650 Manitoba Ltd. (“571”). The first application (CI 22-01-38699), filed by 571 on December 5, 2022, sought to have several mortgages discharged from the property. The second application (CI 24-01-46659), filed by Sun Mortgage Corporation (“Sun Mortgage”) on June 6, 2024, sought an order for possession of the property as the current registered owner of Mortgage No. 5188296/1 (the “2020 Mortgage”).

The Lorette Property had five mortgages registered at the time the mortgage fraud was discovered and Sigmar Mortgage Services Ltd. (“Sigmar”) was assigned into bankruptcy. The mortgages were: (a) a 1989 mortgage by Laurentian Bank of Canada, later held by Royal Bank of Canada and since discharged as statute barred; (b) a 1998 mortgage by Sigmar for $65,000, now held by Caplan and agreed to be statute barred; (c) a 2012 mortgage by B2B Trust and Sigmar for $300,000, now held by B2B and Caplan; (d) a 2020 mortgage by Sigmar for $260,000, now held by Sun Mortgage; and (e) a 2021 mortgage by Olympia Trust Company for $425,000, still held by Olympia.

571 was the registered mortgagor on all these mortgages and sought discharge of the 1998, 2012, and 2020 mortgages. Only the 2012 and 2020 mortgage discharges were opposed. The evidence showed that Sigmar and B2B were registered as mortgagees in their capacity as agents and trustees for individual investors.

The court noted that the mortgages and property were part of an elaborate fraudulent mortgage scheme perpetrated by Standing and Sigmar, with the involvement of a lawyer who also acted for 571 and the Morgantes. The specifics of the scheme and the role of 571 and the Morgantes remained somewhat unclear, but JM (Jack Morgante) acknowledged that 571 held title to approximately 19 other properties acquired on behalf of, or in partnership with, Sigmar. JM stated that 571 never made payments toward the acquisition of those properties, nor was responsible for mortgage payments.

For the Lorette Property, the Morgante family acquired it in 1984. Title was transferred to 571 in 2012, concurrent with registration of the 2012 mortgage. Between 2012 and 2021, Sigmar arranged financing for 571 and/or used the property as security in a series of overlapping transactions.

On April 30, 2012, Sigmar confirmed financing of $300,000 to 571, to be registered as a second mortgage, with monthly payments of $3,300 at 12% interest and a holdback for the first six months of payments. The terms also required discharge of the 1998 mortgage. JM signed the agreement on behalf of 571. The 2012 mortgage was registered on August 20, 2012, in series with a transfer of title from AM (Angie Morgante) to 571. $300,000 was advanced under the 2012 mortgage. Payments totaling $26,400 were made by Sigmar, but all payments stopped on June 2, 2014. By December 31, 2019, the B2B portion balance was $182,691.99, which remained outstanding. The Sigmar portion balance was $414,171.53 in January 2021, paid by Sigmar from a mortgage advance from Olympia in 2021. No portion of the 2021 mortgage advance was paid to B2B.

On December 12, 2018, Sigmar confirmed financing of $425,000 to 571, to be secured by a first mortgage on the property, with monthly payments of $4,300 at 10.75% interest. On January 11, 2019, Sigmar confirmed financing of $260,000 to 571, to be secured by a second mortgage, with payments of $2,650 per month at 11.5% interest. AM signed the agreement for 571. The $260,000 was advanced to Sigmar, with $5,000 disbursed to JM and the balance to OS. The 2020 mortgage was signed by AM on July 6, 2020, and registered the same day, maturing on July 7, 2020. No payments were made on the 2020 mortgage, and the balance due at maturity was $293,796.41. A Notice Exercising Power of Sale was filed on August 1, 2023, indicating a balance of $414,171.53 owing.

JM testified that Standing or Sigmar was to make all mortgage payments, and that neither he, AM, nor 571 made any payments under the mortgages. 571 initiated the discharge application after the Notice Exercising Power of Sale was filed. Sun Mortgage responded with its application for possession as trustee for the Thiessens, the beneficial owners of the 2020 mortgage.

Policy terms and mortgage clauses at issue

The 2012 mortgage involved a $300,000 loan, registered as a second mortgage, with monthly payments of $3,300 at 12% interest, and a holdback for the first six months. The 2020 mortgage was for $260,000, registered as a second mortgage, with monthly payments of $2,650 at 11.5% interest, and was to mature on July 7, 2020. Both mortgages required the mortgagor (571) to make payments and allowed for the proceeds to be directed to pay debts to OS. The 2021 Olympia mortgage was for $425,000, but its proceeds were insufficient to pay out prior mortgage balances, and no postponement agreement was registered.

Arguments and analysis

571 argued that, but for Standing’s improper conduct, the 1998, 2012, and 2020 mortgages would have been paid out with the 2021 Olympia mortgage proceeds and discharged. 571 claimed not to have received any mortgage proceeds and relied on representations by Standing that Sigmar would make all payments and discharge prior mortgages. 571 asserted it was a victim of Standing’s fraudulent scheme and sought equitable relief, including estoppel and a finding that the mortgages were redeemed.

Sun Mortgage argued that 571 and the Morgantes were actively involved or complicit in the fraudulent scheme and did not come to court with clean hands. Sun Mortgage also argued that 571 failed to prove, on a balance of probabilities, that the mortgages would have been paid off and discharged but for Standing’s conduct, and that the Olympia mortgage funds were insufficient to pay out the prior balances. B2B, holding the 2012 mortgage with Caplan, argued that its portion of the debt remained outstanding and the mortgage should not be discharged.

The court found no evidence that representations regarding discharge of the mortgages were made directly to 571, JM, or AM by Standing or Sigmar. The evidence relied upon by JM was based on a review of Sigmar’s file during litigation, not on personal knowledge or contemporaneous communications. The court found that 571 had not made any payments on the mortgages, and that money advanced under the mortgages became a debt of the mortgagor, even if disbursed to other parties on the mortgagor’s instructions. The court also found that 571 had received payments from OS and executed written instructions to pay mortgage proceeds to OS, contradicting their claim of not owing or receiving money.

The court concluded that 571 was at least complicit in mortgage fraud by executing documents it knew to be false and misleading, and that it did not come to court with clean hands. There was no credible evidence of detrimental reliance on any representation by Standing or Sigmar.

Ruling and outcome

The court dismissed 571’s application for discharge of the 2012 and 2020 mortgages, finding that 571 did not come to court with clean hands and was not entitled to equitable relief. The court found that 571 had not established, on a balance of probabilities, that the mortgages were paid, redeemed, or should be discharged.

On Sun Mortgage’s application, the court found that the 2020 mortgage was in default, that Sun Mortgage was the valid assignee and mortgagee, and that the beneficial owners (the Thiessens) had received no payments. The court granted Sun Mortgage an Order for Possession of the property at 1214 Lorette Avenue, Winnipeg. The issue of costs was left open for further submissions if the parties could not agree.

Sun Mortgage was the successful party, obtaining possession of the property. The outstanding balance on the 2020 mortgage at the time of the Notice Exercising Power of Sale was $414,171.53. The exact amount ordered or awarded in favor of Sun Mortgage for costs or monetary award cannot be determined from the decision and remains undetermined pending further submissions.