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Extension of the Redemption Period in Foreclosure Actions and Dueling Valuations

After the expiration of the “usual” six month redemption period in a foreclosure action in British Columbia, the mortgagee will generally apply for an order for conduct of sale with respect to the subject property. However, where the mortgagor believes that the subject property has ample value to satisfy the mortgagee’s claim, the mortgagee may apply for an extension of the redemption period. Often those competing applications will be heard at the same time. Such was the case in the recent decision in First National Financial GP Corporation v. 0734763 B.C. Ltd., 2020 BCSC 1349.

Master Elwood noted that: “to obtain an extension of a redemption period, the mortgagor must establish: (a) that the property has sufficient value by way of security for the amount outstanding; and (b) a reasonable prospect of repayment within an extended period.”

In addressing the first requirement, Master Elwood consider the value of the property in the context of competing valuations.

Not surprisingly, the mortgagor had two appraisal which valued the vacant and undeveloped property well in excess of the amount owed under the mortgage. The mortgagee challenged those appraisals on the basis that the valuations were based on the “value of a completed development” which was “not a meaningful representation of the value of its security.”

While Master Elwood did not accept this to be an accurate characterization of the appraisals, he recognized the appraisals contained the assumption that the development plan for the property was feasible but found there was, “little evidence with which to test the assumption underlying the two appraisals.”

The mortgagee put into evidence listing proposals with respect to the property which provided significantly lower valuations, although indicated a value still greater than was owed under the mortgage. Master Elwood noted that, “it is difficult on this application, without full expert reports and cross-examinations, to prefer one valuation over the other.” He was forced to conclude that while the value of the property exceeded the amount owing under the mortgage, there was “significant uncertainty by how much.” Accordingly, he concluded that there was risk to the mortgagee’s security in the event the redemption period was extended a further six months.

In considering the second aspect of the test for an extension of the redemption period, Master Elwood found that the mortgagor failed to show there was a reasonable prospect of repayment. In the result, he dismissed the application for extension of the redemption period and granted the order for conduct of sale.

Valuations of development property

The decision illustrates the difficulty in presenting evidence of value in respect of development property in foreclosure. Mortgagors and mortgagees in such circumstances should obtain valuations which are reflective of the fair market value of lands in a foreclosure sale. While a development based valuation of vacant land may yield a higher valuation, it is not necessarily reflective of the value to a purchaser who is taking into account the forced sale nature of the property. In contrast, a listing or marketing proposal does not meet the more rigorous requirements of an appraisal. Neither valuation is reflective of what should be anticipated in the forced sale situation.

In absence of a clear evidence that the mortgagee’s security has sufficient value to satisfy the claim, an extension of the redemption period is not likely to be granted. In such circumstances, the mortgagee will likely be granted conduct of sale.

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