Real estate transactional lawyers often assist clients with mortgage financing, but what happens when those transactions go sideways? A recent Ontario Superior Court decision offers important lessons about mortgage enforceability, the limits of creative defenses, and the high bar for obtaining injunctive relief against power of sale proceedings.
The Players and the Problem
In Condoman Developments v. Cannect International Mortgage, Justice Morgan confronted a situation where an experienced real estate developer, Howard Youhanan, owed over $46 million to lender Marcus Tzaferis and his companies, Cannect International Mortgage Corporation and Cannect Mortgage Investment Corporation. The loans had been in default since early 2023, and Cannect had issued Notices of Sale to enforce its registered mortgages.
Youhanan’s response? He brought a motion for an interlocutory injunction to halt the power of sale proceedings, arguing that the mortgages weren’t really mortgages at all—they were supposedly equity investments in a partnership arrangement.
The “I Didn’t Know What I Was Signing” Defense
Youhanan claimed he was unaware of the mortgages he had signed and believed Tzaferis was an equity investor rather than a lender. The court was unimpressed with this assertion, particularly given Youhanan’s extensive experience in the industry.
As Justice Morgan noted, Youhanan promotes himself as “Howard the Condoman, the #1 condominium broker in Toronto,” advertising that he has sold over 3,000 condo units in his career. His website describes his “vast knowledge of condominiums” and explains that he leads teams through all aspects of development from planning to construction.
The court found it implausible that someone with this level of sophistication would be unaware of what he was signing, especially when:
- He was represented by legal counsel when entering into comprehensive refinancing agreements
- His own correspondence repeatedly referred to the arrangements as “loans”
- He had waived independent legal advice while simultaneously confirming details about the properties being used as security
The “Financial Pressure Equals Coercion” Argument
Youhanan also argued that financial pressure leading up to the Kingston Property closing amounted to coercion that should invalidate the mortgage. The court rejected this theory entirely.
Justice Morgan observed that financial necessity is generally why borrowers seek loans in the first place: “At some level, all borrowers ‘need the money.’ They would otherwise not be borrowing large sums and granting security against their property. If financial necessity were in and of itself a reason to undermine the enforceability of a mortgage loan, I dare say there would be no mortgage loans to real estate developers.”
The court found no evidence of actual coercion or duress—only a borrower who needed funds and a lender willing to provide them on negotiated terms.
The Partnership That Never Was
Perhaps most problematic for Youhanan was his attempt to characterize the relationship as a partnership. The evidence showed that in June 2020, Youhanan and Tzaferis had created a “Kingston Management Agreement” naming Tzaferis as the “developer” of the Kingston Property project—but this was done solely to mislead Tarion (Ontario’s new home warranty program) into thinking the project wasn’t another Youhanan development.
Both parties eventually admitted the agreement was a fabrication created for regulatory purposes. Youhanan’s own emails confirmed he was “not supposed to be on the file” and asked associates to accompany Tzaferis to Tarion meetings since Tzaferis wasn’t the real developer.
Justice Morgan found Youhanan’s attempt to now use this fraudulent document as evidence of a genuine partnership particularly “disturbing,” describing it as “in effect, a falsification of a falsification.”
The Refinancing Agreements: The Final Word
The court placed significant weight on comprehensive refinancing agreements subsequently executed by the parties. These agreements:
- Summarized, clarified, and restructured all previous loans
- Were negotiated while Youhanan had legal representation
- Expressly referred to the parties as “Lender” and “Borrower”
- Recited that the parties’ recitals “are true and form an integral part of this Agreement”
- Provided for new loans and restructuring of existing debt
Justice Morgan found these agreements to be “irrefutably binding” and noted that Youhanan’s counsel avoided mentioning them entirely during argument—likely because they definitively established the lender-borrower relationship.
The Injunction Test: Three Strikes
Applying the RJR-MacDonald test for interlocutory injunctions, the court found Youhanan failed on all three prongs:
No Serious Issue to Be Tried: The overwhelming documentary evidence, including signed agreements, registered mortgages, and Youhanan’s own correspondence, established that these were enforceable loans secured by valid mortgages.
No Irreparable Harm: Loss of property subject to validly granted security is not irreparable harm—it’s simply the consequence of default. Any financial loss could be quantified and potentially remedied through damages if the mortgages were improperly enforced.
Balance of Convenience Favors the Lender: The court rejected Youhanan’s argument that because Tzaferis was “well-capitalized,” he didn’t need immediate repayment. As Justice Morgan pointedly observed: “A well capitalized lender needs to be repaid just like an under capitalized lender needs to be repaid. There really is not one law for the rich and one for the poor.”
Additional Factors Working Against the Borrower
Two additional issues undermined the injunction request:
Delay: Youhanan waited almost 20 months after the Notices of Sale were issued to bring his motion. This delay itself suggested the alleged risk wasn’t significant enough to warrant relief.
Hollow Undertaking: Youhanan’s undertaking as to damages had no practical value since all his assets were already pledged as security and were apparently insufficient to cover the outstanding debt. He had even admitted he might face bankruptcy if the properties were sold.
Practice Points for Transactional Lawyers
This decision offers several important reminders for lawyers advising on real estate financing:
- Document the relationship clearly: Loan agreements should explicitly identify the parties as lender and borrower, specify that funds are loans (not equity investments), and detail the security being granted.
- Sophistication matters: Courts are skeptical when experienced real estate professionals claim they didn’t understand transactions. Your client’s industry experience and expertise will be considered when evaluating claims of misunderstanding or mistake.
- Independent legal advice is protective: While not foolproof, having borrowers obtain (or knowingly waive) independent legal advice creates important evidence of informed consent.
- Comprehensive refinancing agreements: When restructuring multiple loans, comprehensive agreements that recite and supersede previous arrangements provide clarity and closure. The refinancing agreements in this case effectively mooted most of Youhanan’s arguments about earlier transactions.
- Financial pressure isn’t coercion: Borrowers cannot later claim that needing money urgently constituted improper pressure. This is particularly true in commercial contexts involving sophisticated parties.
- Never create misleading documents: The fabricated partnership agreement created for Tarion not only undermined Youhanan’s credibility but demonstrated he understood the true nature of the relationship all along.
The High Bar for Restraining Power of Sale
This case reinforces established principles that courts are “loathe to interfere with the lawful enforcement of mortgages” absent compelling reasons. As Justice Nordheimer stated in National Bank of Canada v. Guibord: “The enforcement of security validly given by a party, who is in default, should not be interfered with absent compelling reasons. Otherwise, the essential functioning of these type of commercial arrangements would be undermined.”
Moreover, even where compelling reasons exist, injunctive relief generally requires paying the outstanding debt into court—something that was unlikely to occur in this case given the $46 million owing.
Conclusion
Condoman Developments serves as a cautionary tale about creative but unsupported defenses to mortgage enforcement. When the documentary evidence, correspondence, and conduct of the parties all point in one direction, courts will not entertain eleventh-hour recharacterizations of the relationship, particularly when the borrower is a sophisticated industry professional who was legally advised.
For transactional lawyers, the case underscores the importance of clear documentation, proper advice, and ensuring your clients understand that mortgage commitments are serious obligations that cannot be easily unwound when financial circumstances deteriorate.
Here, Youhanan’s motion was dismissed, and Cannect remains free to proceed with its power of sale remedies. This serves as a reminder that once validly granted and properly registered, mortgage security will generally be enforceable according to its terms.
