A former Prince George woman is at the centre of a class action lawsuit over whether her lender was entitled to charge customers a penalty for paying off their mortgage early.
In certifying the action against CIBC Mortgage Inc., B.C. Supreme Court Justice Jeanne Watchuk ruled that Erin Sherry is a "very appropriate" representative plaintiff.
Sherry received a doctorate in natural resources and environmental studies from UNBC and worked for two years as a post-doctoral fellow in the school's ecosystem science and management program before becoming the manager of the Northern Aboriginal Research and Development Alliance, an initiative of the Northern Land Use Institute.
She was hit with a $47,868.91 prepayment fee when she paid off her mortgage in full and her lawyer, Kieran Bridge, is arguing the contract's clauses concerning a "discretion to calculation" and a "discretion as to comparison rate" are "void for uncertainty and unenforceable."
Even if the prepayment clauses weren't void or unenforceable, Bridge contends the maximum penalty that could have been charged should have been three months' interest and that the interest rate differential was miscalculated and overcharged.
In 2005, Sherry and her then husband obtained a closed, 10-year fixed-rate mortgage from FirstLine, a brand owned by CIBC Mortgage Inc. which, in turn is owned by CIBC, to buy a home in Prince George.
Almost three years later, the couple notified FirstLine that they wanted to discharge the mortgage and arrange new financing so they could buy property in Victoria.
FirstLine then offered a 5.89-percent closed mortgage on a seven-year term and as part of the arrangement, the company was willing to waive any fee for early prepayment on the mortgage linked to the Prince George home.
On the advice of their mortgage broker, Sherry and her husband discharged the mortgage on their Prince George home, paid the prepayment charge set out in the agreement and then obtained a closed 10-year mortgage at a higher interest rate - 6.2 percent - from FirstLine.
"Closed ten-year fixed rate terms are relatively rare because the borrower is committed to a lengthy term," Watchuk wrote. "However, they are attractive to some borrowers because they offer the certainty of a known interest rate for an extended period of time."
But Sherry and her former spouse parted ways and as part of reaching a financial settlement, she needed to pay out her mortgage on the Victoria property with FirstLine and did so in October 2010. In the process, FirstLine charged the prepayment fee. The contract stipulated that fees could be charged for prepayments exceeding 20 percent of the principal in any given year and the lender would calculate the amount owing.
CIBC Mortgage's lawyer, Herman Van Ommen, had also countered that the actual penalty should have been $58,379.18 but as a gesture of goodwill, it allowed Sherry to make a $60,000 charge-free prepayment before discharging her mortgage, lowering the penalty by $10,510.27.
Sherry obtained a new mortgage loan from a third party, Macquarie Financial, on a five-year term with a variable interest rate of prime minus 0.65 per cent and starting at 2.35 per cent.
As a result of borrowing at the significantly lower rate, Sherry recouped the entire prepayment charge by July 2013 and if interest rates remain at current levels, she "will continue to realize interest savings in the years to come," Watchuck said.
CIBC revealed to the court that between 11 percent and 15 percent of mortgages involved prepayments each year between 2008 and 2011.
In certifying the claim, Watchuk found Sherry has come up with a "reasonable litigation plan" that shows how the action may proceed in an orderly manner.
Reached Thursday, Bridge said the lawsuit remains in its early stages and must still be tried on its merits. He said those interested in participating in the class action can scan and e-mail their mortgage documents to kieran@kieranbridgelaw.com or fax them to 1-888-665-7448.
