Nedaneg Financial Corporation v. Talebzadeh, 2025 ONSC 848, offers important guidance for real estate lawyers on when courts will grant certificates of pending litigation (CPLs) in cases involving alleged fraudulent conveyances. The decision highlights how judges must balance traditional equitable factors against evidence of schemes to defeat creditors.
Background: A Pattern of Strategic Asset Placement
Following a mortgage default on a Toronto property, Nedaneg Financial Corporation obtained a consent judgment against Pedram Talebzadeh for approximately $3.7 million. After commencing power of sale proceedings, a shortfall of $536,807 remained. What happened next illustrates a common creditor avoidance strategy that real estate lawyers should be keenly aware of.
After the judgment, Talebzadeh’s wife, son, and a non-arm’s length company purchased several development properties, collectively worth substantially more than the shortfall. However, despite the development properties being registered in the wife, son, and company’s names, the evidence suggested that Talebzadeh remained the true beneficial owner, conducting all mortgage negotiations and making payments himself.
The Appeal: Correcting the Test for CPLs in Fraud Cases
The Associate Judge initially dismissed Nedaneg’s CPL motion, focusing solely on traditional equitable factors without analyzing the substantial evidence of fraudulent conveyances. On appeal, Justice Papageorgiou identified this as a fundamental error and allowed leave to Nedaneg to register a CPL on the development properties.
The Correct Legal Framework
The court clarified that while Claireville Holdings Ltd. v. Botiuk, 2015 ONSC 694, requires consideration of equitable factors even in fraudulent conveyance cases, judges must still analyze the strength of the fraud allegations as part of the overall assessment. The court found that, while a discretionary decision is owed great deference, it may be set aside where the discretion was exercised on wrong principles or misapprehended evidence, such as the present case.
Prima Facie Evidence of Fraud
The court found compelling evidence that Talebzadeh had orchestrated a scheme to place assets beyond creditors’ reach:
- Timing: All properties were purchased after the consent judgment
- Control: Talebzadeh negotiated all mortgages and made payments despite not being the registered owner
- Admissions: Multiple lenders testified that Talebzadeh told them he was the beneficial owner
- Corporate manipulation: Related corporations were incorporated after the judgment specifically to hold these properties
- Flexible arrangements: Charges could be moved between properties “at will,” inconsistent with separate ownership
Key Takeaways for Transactional Lawyers
1. Recognizing Red Flags in Family Transactions
Real estate lawyers should be alert to transactions involving:
- Recent judgment debtors as guarantors or controllers
- Properties purchased by family members shortly after judgments
- Complex corporate structures with family members as nominal owners
- Unusual financing arrangements between related parties
2. The Fraudulent Conveyances Act’s Broad Reach
The court emphasized that “conveyance” under the Act includes more than simple transfers. It can encompass arrangements where non-arm’s length parties purchase properties in trust for a debtor to defeat creditors’ interests. This broad interpretation means that seemingly legitimate purchases by family members may still be vulnerable if the debtor retains beneficial ownership.
3. Tracing Fraudulent Transfers
The decision confirms that creditors can trace fraudulently conveyed funds into real property. When a debtor gifts money to family members who then purchase real estate, those properties may be subject to creditor claims. This principle applies even when the original transfer appears to be a legitimate gift.
4. The Balance of Convenience in Fraud Cases
Traditional equitable factors must be assessed differently when fraud is alleged. Factors like “damages would be adequate” carry less weight when the debtor has allegedly arranged their affairs to avoid having attachable assets. The court recognized that granting monetary damages would be meaningless if the debtor continues restructuring assets to remain judgment-proof.
Practical Implications
For Creditors’ Counsel
This decision provides a roadmap for obtaining CPLs in fraudulent conveyance cases. Key strategies include:
- Gathering evidence of the debtor’s continued control over allegedly transferred assets
- Documenting admissions by the debtor regarding beneficial ownership
- Demonstrating patterns of asset manipulation designed to defeat creditors
- Moving swiftly once suspicious transactions are discovered
For Property Purchasers and Their Counsel
The case serves as a warning about transactions involving judgment debtors. Purchasers should consider:
- Conducting judgment and execution searches against all parties involved in the transaction
- Ensuring genuine arm’s length dealings with proper consideration
- Avoiding arrangements that give judgment debtors continued control over purchased properties
- Maintaining clear documentation of the source of purchase funds
Conclusion
Nedaneg v. Talebzadeh reinforces that courts will look beyond formal legal ownership to examine the substance of property transactions. While legitimate family transfers remain protected, arrangements designed to place assets beyond creditors’ reach will face scrutiny. For transactional lawyers, the case underscores the importance of understanding the broader legal context surrounding their clients’ property acquisitions and ensuring that transactions can withstand challenges from creditors seeking to pierce through artificial ownership structures.
The decision also highlights the procedural importance of properly analyzing all relevant evidence when courts exercise discretion in CPL matters. Judges must consider the full context, including evidence of fraudulent schemes, rather than applying equitable factors in isolation.
