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Construction - Liens. Prasher Steel Ltd. v. Pre-Eng Contracting Ltd.
In Prasher Steel Ltd. v. Pre-Eng Contracting Ltd. (Div Court, 2024) the Divisional Court dismissed a Construction Lien Act appeal [under CLA 71(1)] (the case pre-dates the new Construction Act), here finding that upon the expiration of lien rights that an order could still be made that 'personal judgment' (damages) issue:[9] ... The trial judge erred in law in finding that separate claims for lien must be registered in respect to separate subcontracts between the same parties for the same improvement. Liens arise upon the provision of services or materials to an improvement, and the time to claim a lien expires based on the date of last supply of services or materials to the improvement. Absent certification of substantial performance or completion, it matters not whether a subcontractor provides its services or materials under one subcontract or multiple subcontracts – the subcontractor lien arises upon first supply and persists until expiry following the date of last supply of services or materials.
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[14] The trial judge then went on to conclude that the lien claims under the Structural Steel contract were not timely (paras. 100-101, 419[3]) and ordered that the judgment in respect to the Structural Steel contract is enforceable as a personal judgment only (para. 421).
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(b) Issue (e): personal judgment pursuant to s. 63 of the Act
[19] Pre-Eng argues that the trial judge could not, in law, grant personal judgment against it in respect to the Structural Steel contract because the lien claims respecting those claims failed. Pre-Eng also argues that the trial judge ought not to have exercised his discretion under s. 63 of the Act to grant personal judgment on the Structural Steel claims.
[20] I do not accept either of these arguments.
[21] Section 63 provides:Subject to paragraph 3 of subsection 36(4) (sheltering), the court may award any lien claimant a personal judgment, whether the claimant proves the lien or not, upon any ground relating to the claim that is disclosed by the evidence against any party to the action for any amount that may be due to the claimant and that the claimant might have recovered in a proceeding against that party. [22] The discretion afforded by s. 63 applies “whether the claimant proves the lien or not.” In this case, the ground “relating to the claim” was a contract claim inherent in the lien claim. There is no argument available to Pre-Eng that the judgment ordered under the Structural Steel contract was not “disclosed by the evidence”.
[23] Pre-Eng cites one case in support of its position: Tilar Roofing Ltd. v. John Boddy Developments Ltd., (1986), 20 CLR 161 (Master Sischy). Tilar is clearly distinguishable. At para. 6 of that decision, the learned Master stated:... the exercise of a discretion in granting personal judgment may differ, depending on whether it is determined prior to trial that the plaintiff is not entitled to a lien, or whether this is only discovered after all the evidence has been heard. [24] In the case at bar, it was in the trial judgment that the court ordered that the claim for lien in respect to the Structural Steel contract was out of time – “after all the evidence ha[d] been heard.” In Tilar, this finding was “determined prior to trial.”
[25] Section 63 exists to address the situation that arose on the trial judge’s analysis in this case – where Prasher had a valid claim in contract, that was proved at trial, but its lien failed because it was not preserved and perfected in time. The trial judge properly applied s. 63 of the Act; I would not give effect to this ground of appeal.
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[35] The Supreme Court of Canada’s decision in Rocky Mountain was based on the language of The Mechanics Lien Act, RSA 1942, c. 236, s.22, which expressly provided for termination of lien rights 35 days after “completion or abandonment of the… subcontract.” The Legislature of Ontario chose to change this language when the CLA was enacted in 1983, and no Ontario court has followed Rocky Mountain to find expiry of subcontracts on a subcontract-by-subcontract basis since that time.
[36] Rocky Mountain does continue to be applied in Ontario in respect to prevenient arrangements, to permit claims under multiple separate contracts to expire on the basis of the date of last supply where there is an arrangement to this effect between the parties: Wood Lumber Co. (Ontario) Ltd. v. Eng, 1999 CanLII 15030, paras. 18-21 (Div. Ct.); Oaks Precast v. G.L. Trenching Ltd., 28 CLR (2d) 312, paras. 14-19 (OCJ (Gen. Div.)); Larochelle Group Corporation v. Cabral, 2000 CanLII 2452, paras. 16-19 (ON SC); Ramers Builders Supplies (Toronto) Ltd. v. Roitman, 2004 CanLII 1281, paras. 31-34 (ON SC); Riddell Contracting Ltd. v. 2004778 Ontario Inc., 2003 CanLII 16397, paras. 53-57 (ON SC). Aside from cases involving prevenient arrangements, Rocky Mountain does not apply to the expiry of subcontractor lien claims.
[37] On the plain language of s. 31(3)(ii), Prasher’s lien rights in respect to all of the services and materials it supplied to the improvement expired 45 days after the date of its last supply of services or materials to the improvement. The trial judge found as a fact that the date of last supply was August 12, 2012, and thus that the claim for lien was timely. The trial judge erred in concluding that the claims respecting the Structural Steel subcontract had to be preserved separately and earlier than the claims under the Miscellaneous Metals subcontract, and that aspect of the judgment must be reversed. . MGW Homes Design Inc. v. Pasqualino
In MGW Homes Design Inc. v. Pasqualino (Div Court, 2024) the Divisional Court allows a JR from an order that voided Construction Act s.13.20 adjudication determination court enforcement steps, here for failure to give notice of this step to the respondent [under CA s.13.20(3)].
Here the court contrasts the older lien claims system with the newer 'adjudication determination' [CA s.13] provisions:(b) Enforcement of Prompt Payment Decisions Is Not Analogous to Strict Compliance Requirements for Lien Claims
[19] The motion judge correctly noted that (a) a lien claimant must strictly comply with the requirements for filing a claim for lien under the Act; and (b) a judge has no discretion to relieve from this strict compliance. However, the motion judge erred in drawing an analogy between enforcement of adjudicators’ determinations and the filing of lien claims under the Act. The requirements for lien claims and the requirement to give notice of filing an adjudicator’s determination are both found in the Construction Act, but there is no other basis for drawing an analogy between the two.
[20] A claim for lien initiates a claim and secures the claim against land. The Act provides for the creation of the lien by following a prescribed process – including prescribed time periods (Construction Act, ss. 31 - 38). Various stakeholders are entitled to rely on the state of the land’s title – including the absence of lien claims – in (among other things) making payments, securing loan advances, and releasing Construction Act holdbacks. Strict compliance with the time periods prescribed for lien claims is necessary for stakeholders to be able to rely upon the state of title in making payments under the Act, and is expressly provided in s. 31(1) of the Act, which states:Unless preserved under section 34, the liens arising from the supply of services or materials to an improvement expire as provided in this section. [21] By contrast, an Adjudicator’s payment determination comes into existence following a process that includes notice, an opportunity to make submissions, and then a decision by an adjudicator. The Act requires that payment be made in accordance with the direction, and this obligation does not require that the direction be filed and a court order obtained to be effective. The Act provides for no appeal from a payment direction, and only a right to seek judicial review if leave to apply for review is granted by this court. The grounds for such a review are narrowly circumscribed in the Act. The direction is not stayed pending a motion for leave to seek to judicial review or pending judicial review (if leave is granted), unless this court directs otherwise. As this court has stated previously, compliance with the payment direction is usually required before leave to seek judicial review is granted, and where payment is stayed pending judicial review, the court usually requires the disputed funds paid into court. The Act provides, and this court has held, that a payment determination requires payment promptly. There is no provision in the Act that a determination “expires” if notice is not given that the determination has been filed with the court.
[22] The process for initiating claims for lien requires strict compliance because of the relationship between those requirements and the overall scheme of rights and obligations governed by the Act. The prompt payment provisions of the Act have as their goal the swift interim determination of payment disputes, and prompt payment in accordance with those determinations so that money may flow down the construction ladder and work will continue.
[23] Only when a party has breached their obligation to make payment in accordance with an adjudicator’s determination should there be a need to file the determination with the court – the purpose of which would be to enforce in the face of the payor’s breach of its payment obligation. This context explains why the Act does not prescribe a motion on notice or a motion to oppose confirmation of an arbitrator’s determination. The adjudicative process is complete, the payor has a positive obligation to make payment, and the payor has defaulted on its statutory obligation to make payment.
[24] The importance of prompt payment, in this context, is made all the clearer by the Legislature’s choice that notice of filing the determination with the court need not be given for up to 10 days after the determination may be enforced. The notice requirement is more properly seen as a statutorily required courtesy than a strict condition that must be met before enforcement. . Gandhi v. Mayfield Arcadeium Holdings Ltd.
In Gandhi v. Mayfield Arcadeium Holdings Ltd. (Div Court, 2023) the Divisional Court considers construction liens:[17] A declaration that a lien has expired pursuant to s. 45 of the Act is a final order, as the declaration is irrevocable and an expired lien cannot be revived: Mobilinx Hurontario Contractor v. Edge 1 Equipment Rentals Inc., 2023 ONSC 5885 at para 12. In addition, an order releasing funds held in counsel’s trust account as an alternative form of security in lieu of a claim for lien is a final order: Heinrichs at paras 12 and 18-20.
[18] In this case, the Judgment declared that the claim for lien had expired, cancelled the Lien Bond, and ordered its return to Mayfield. Having regard to the above-noted authorities, I accept that the Judgment is final and may be appealed to the Divisional Court under ss. 71(1) of the Act. . Infinite Construction Development Ltd. v Chen
In Infinite Construction Development Ltd. v Chen (Div Court, 2023) the Divisional Court considered the difference in lien registration procedures by a 'contractor', as opposed those by a 'subcontractor':[19] The Associate Justice found that, if Infinite was a “contractor” within the meaning of the Construction Act, there was a triable issue as to whether its claim for lien was timely. If Infinite was a “subcontractor”, however, its claim for lien was registered out of time (Decision, para. 55). These conclusions flow from the different tests that apply for a “contractor” and for a “subcontractor” for registering a claim for lien (see ss. 31(2)(b) and 31(3)(b) of the Act). The Associate Justice’s statement of the law on this point is correct, and his findings of fact bearing on this point disclose no palpable and overriding error. . Infinite Construction Development Ltd. v Chen
In Infinite Construction Development Ltd. v Chen (Div Court, 2023) the Divisional Court considers the 'discharge of a lien' provisions of s.47 Construction Act:Motions Pursuant to s. 47 of the Construction Act
[11] The Associate Justice began his analysis (Decision, para. 10) by summarizing, correctly, s. 47 of the Construction Act, which provides:General powers of the court
Power to discharge
(1) The court may, on motion, order the discharge of a lien,
(a) on the basis that the claim for the lien is frivolous, vexatious or an abuse of process; or
(b) on any other proper ground.
Power to vacate, etc.
(1.1) The court may, on motion, make any of the following orders, on any proper ground:
1. An order that the registration of a claim for lien, a certificate of action or both be vacated.
2. If written notice of a lien has been given, a declaration that the lien has expired or that the written notice of the lien shall no longer bind the person to whom it was given.
3. An order dismissing an action.
Conditions
(1.2) An order under subsection (1) or (1.1) may include any terms or conditions that the court considers appropriate in the circumstances. [12] The Associate Justice then correctly set out the test for a motion under s. 47, following this court’s decisions in Maplequest (Vaughan) Developments. Inc. v. 2603774 Ontario Inc., 2020 ONSC 4308 and R&V Construction Management Inc. v. Baradaran, 2020 ONSC 3111 (Decision, paras. 11, 15 and 16). The Associate Justice concluded that R & V Construction and Maplequest govern and are to be preferred to dicta in GTA General Contractors Ltd. v. 2566213 Ontario Inc., 2019 ONSC 7370 (SCJ) (Decision, paras. 13 – 18).
[13] The Associate Justice correctly evaluated the authorities binding upon him on this issue. R & V Construction and Maplequest are panel decisions of the Divisional Court. To the extent that any dicta in GTA General Contractors is inconsistent with these cases, R & V Construction and Maplequest govern. That said, the motion judge in GTA General Contractors correctly found that a motion pursuant to s. 47 “is similar to the test on an R. 20 summary judgment motion” (para. 17). The motion judge did not have the benefit of R & V Construction and Maplequest and his decision does not call into question the principles stated in R & V Construction and Maplequest.
[14] Having reviewed these authorities, the Associate Justice stated as follows (Decision, para. 18):In my view, the principles set out in GTA General Contractors remain applicable, but as guidance on appropriate considerations for s. 47 motions where discharge or dismissal is sought on the merits. There is no language in s. 47 limiting the court’s discretion to assess and decide what is “a proper ground” to discharge a lien or dismiss an action in the particular circumstances of a particular case. Nevertheless, in deciding a s. 47 motion, there are times when a genuine issue could be resolved on a motion, but it is nevertheless more fair, just, and appropriate in the circumstances for that issue to be decided at trial. I substantially agree with this statement. Section 50(3) of the Construction Act provides that “[t]he procedure in an action shall be as far as possible of a summary character, having regard to the amount and nature of the liens in question.” This provision guides the interpretation and application of motions under s. 47: proportionality is a core principle in proceedings under the Construction Act, and the Associate Justice correctly found that “a proper ground” to discharge a lien or dismiss an action turns on “the particular circumstances of a particular case.” The exercise of discretion in applying the principle stated in s. 50 (3) in the context of a motion pursuant to s. 47, will be reviewed in this court on a deferential standard. . Lazi Ventures Inc. v. Carter
In Lazi Ventures Inc. v. Carter (Div Court, 2023) the Divisional Court set out 'hallmarks' of frivolous and vexatious proceedings [here under Construction Act s.47(1), to discharge a lien], and makes the useful point that an otherwise meritorious cause of action can still be frivolous and vexatious (and an abuse of process):[30] The Appellant’s argument, in essence, is that a potentially meritorious claim cannot be dismissed as vexatious and an abuse of process. This is incorrect. In Re Lang Michener and Fabian (1987), 1987 CanLII 172 (ON SC), 59 O.R. (2d) 353, [1987] O.J. No. 355 (H.C.), at para. 20, Henry J. summarized the “hallmarks” of a vexatious proceeding as follows:(a) the bringing of one or more actions to determine an issue which has already been determined by a court of competent jurisdiction constitutes a vexatious proceeding;
(b) where it is obvious that an action cannot succeed, or if the action would lead to no possible good, or if no reasonable person can reasonably expect to obtain relief, the action is vexatious;
(c) vexatious actions include those brought for an improper purpose, including the harassment and oppression of other parties by multifarious proceedings brought for purposes other than the assertion of legitimate rights;
(d) it is a general characteristic of vexatious proceedings that grounds and issues raised tend to be rolled forward into subsequent actions and repeated and supplemented, often with actions brought against the lawyers who have acted for or against the litigant in earlier proceedings;
(e) in determining whether proceedings are vexatious, the court must look at the whole history of the matter and not just whether there was originally a good cause of action;
(f) the failure of the person instituting the proceedings to pay the costs of unsuccessful proceedings is one factor to be considered in determining whether proceedings are vexatious; and
(g) persistently taking unsuccessful appeals from judicial decisions can be considered vexatious conduct of legal proceedings. [31] It is implicit in paragraph (e) above, that a proceeding could be vexatious even where there was originally a good cause of action. The existence of a good cause of action originally does not, after considering the whole history of the matter, preclude a proceeding from being found vexatious.
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[38] In A.J. (Archie) Goodale Ltd. v. Risidore Brothers Ltd. (1975), 1975 CanLII 516 (ON CA), 8 O.R. (2d) 427 (C.A.) at p. 432, the Court of Appeal found that, “where it is apparent at any early stage that the plaintiff has no basis for a lien claim, it would be an abuse of process to allow the summary procedures to be used as a subterfuge for processing a personal claim in summary fashion.” As the Respondent notes, but for the lien claim, the action would be within the jurisdiction of the Small Claims Court. . Scott, Pichelli & Easter Limited v. Dupont Developments Ltd.
In Scott, Pichelli & Easter Limited v. Dupont Developments Ltd. (Ont CA, 2022) the Court of Appeal considered a priority dispute involving mortgages and provisions of the Construction Act:[7] This appeal turns on a question of law relating to the interpretation of s. 78 of the Construction Act, R.S.O. 1990, c. C.30, as amended by the Construction Lien Amendment Act, S.O. 2017, c. 24. More specifically, the question is whether the priority that the prior mortgages have over lien claims extends to arrears in interest, fees, charges, and expenses that relate to the mortgage and its enforcement, under s. 78(3) of the Construction Act.
[8] The interpreter’s task in statutory interpretation is to discern the legislature's intention in order to give effect to it. The interpreter must attend to text, context, and purpose, to which I now turn: Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, [2019] 4 S.C.R. 653, at paras. 117, 118-124.
[9] The purpose of the Construction Act is to protect lien claimants by ensuring that they are compensated for the increase in the value of a property to which their work contributed. But this purpose is hedged about with exceptions. One exception is for mortgages. The policy orientation of the Act can be seen in s. 78(1) and the mortgage exception is found in s. 78(3):Priority over mortgages, etc.
78 (1) Except as provided in this section, the liens arising from an improvement have priority over all conveyances, mortgages or other agreements affecting the owner’s interest in the premises.
Building mortgage
(2) Where a mortgagee takes a mortgage with the intention to secure the financing of an improvement, the liens arising from the improvement have priority over that mortgage, and any mortgage taken out to repay that mortgage, to the extent of any deficiency in the holdbacks required to be retained by the owner under Part IV, irrespective of when that mortgage, or the mortgage taken out to repay it, is registered.
Prior mortgages, prior advances
(3) Subject to subsection (2), and without limiting the effect of subsection (4), all conveyances, mortgages or other agreements affecting the owner’s interest in the premises that were registered prior to the time when the first lien arose in respect of an improvement have priority over the liens arising from the improvement to the extent of the lesser of,
(a) the actual value of the premises at the time when the first lien arose; and
(b) the total of all amounts that prior to that time were,
(i) advanced in the case of a mortgage, and
(ii) advanced or secured in the case of a conveyance or other agreement. [10] The appellants urge this court to apply literally the language of s. 78(3)(b)(i), which protects only amounts that were “advanced in the case of a mortgage”. The appellants present their arguments in two forms.
[11] The appellants’ most radical argument is that a vendor-take-back mortgage is not a mortgage in which an advance of cash has taken place. Accordingly, the entire mortgage amount is subordinated to the interests of lien holders. The appellants argue that a vendor-take-back mortgage is the equivalent of a collateral mortgage where the subordination of the collateral mortgagee’s interests is accepted law: XDG Ltd. v. 1099606 Ontario Ltd. (2002), 2002 CanLII 22043 (ON SC), 41 C.B.R. (4th) 294 (Ont. S.C.), aff'd (2004), 2004 CanLII 15997 (ON SCDC), 1 C.B.R. (5th) 159 (Ont. Div. Ct.). I would reject this argument. Giving effect to it would impair the use of vendor-take-back mortgages in the real estate market. In my view, a vendor-take-back mortgage is the equivalent of an advance for the purposes of the Construction Act.
[12] Both parties invoke the Supreme Court’s decision in M. Sullivan & Son Ltd. v. Rideau Carleton Raceway Holdings Ltd., 1970 CanLII 21 (SCC), [1971] S.C.R. 2, but take different views of its impact. The Supreme Court decided that principal and interest are equally secured by a mortgage:This legislation has been in force for a long time. Until the issue was raised in these proceedings, there was no case which drew any distinction between the rights of the mortgagee to priority for principal and his rights to priority for interest.
Both the trial judge and the Court of Appeal in this case have rejected any such distinction and I agree with them. Principal and interest are equally secured under the mortgage. The right to interest is an essential, inseparable, constituent part of the advance made on account of the mortgage. Without such a right no building loans would ever be made in a commercial way. The registration of a claim for lien or notice in writing of such a claim cannot stop the running of interest or affect the mortgagee's priority for continuing interest on advances validly made under s. 13(1) of The Mechanics' Lien Act. [Emphasis added.] [13] The appellants’ second argument, which hearkens back to Sullivan, is that interest and other costs are not advances of funds to the mortgagor and are accordingly not given priority over liens under the Construction Act.
[14] The appellants submit that this expansive language was appropriate in Sullivan because at issue there was a building loan, which is a different thing than an ordinary mortgage, as in this case. Section 78(2) of the Construction Act affords better protection to building loans.
[15] I do not agree with the appellants’ approach. Instead, I would accept the approach taken by Wilton-Siegel J. in Re Jade-Kennedy Development Corp., 2016 ONSC 7125, 72 C.L.R. (4th) 236, at para. 49:M. Sullivan & Son and XDG Ltd. demonstrate that the concept of an "advance" is not limited to the principal amount advanced under a mortgage. It includes all amounts which the mortgagor is contractually obligated to pay in respect of any such principal amount advanced, including interest and the costs of registration, perfection and enforcement of the mortgagee’s security for the advance irrespective of when incurred. As the Supreme Court noted, without such a right, building loans and other commercial loans would not be made in a commercial manner. [Emphasis added]. [16] I would reject the appellants’ argument that Sullivan’s application is restricted to building loans, for three reasons. First, this argument has no support in the precedents. The practice has developed in accordance with the approach in Sullivan to extend beyond building loans, as Wilton-Siegel J. noted. The Supreme Court in Sullivan did not expressly limit its findings to building loans. In Jade-Kennedy Wilton-Siegel J. observed that without such priority, even “other commercial loans would not be made in a commercial manner.”
[17] It would be unwise to interfere with settled practice. The Sullivan approach has already been followed by Ontario courts in the context of mortgage priority over construction liens. In 830889 Ontario Inc. v. 607643 Ontario Inc. (1990), 43 C.L.R. 181 (Ont. Gen. Div.), Hoolihan J. held that because principal and interest are equally secured under a mortgage, and “advances” or “money advanced” include interest, interest payments with respect to two non-building mortgages had priority over a construction lien. This finding has been accepted by text writers to stand for the principle that a mortgagee’s “priority include[s] a continuing claim to interest”: Harvey J. Kirsh & Matthew R. Alter, A Guide to Construction Liens in Ontario, 3rd ed. (Toronto: LexisNexis Canada, 2011), at § 10(B)(vi). It seems to be settled practice that a mortgagee’s “priority also extends to any interest on an advance that is paid on account of a mortgage”: Halsbury's Laws of Canada, “Real Property”, (Toronto: LexisNexis Canada, 2021 Reissue), at HRP-99.
[18] I note that the Report of the Attorney General’s Advisory Committee on the Draft Construction Lien Act (Toronto: Ministry of the Attorney General, April 1982), which led to the enactment of the Construction Lien Act, does not comment on the specific question of the priority of interest and other expenses. The Committee commented, at pp. 180-181, only on the relative priorities of prior and subsequent advances under what was then s. 80(3), now s. 78(3):“[P]rior” interests are generally accorded priority over the lien. However, under subsection 3 the priority of those interests is limited in the case of advances made prior to the commencement of the improvement of the actual value of the premises at the time when the making of the improvement commences. Where advances are made in respect of those interests after this date, they are entitled to priority in respect of those advances in accordance with much the same rules as apply under subsection 6, in respect to advances under subsequent interests. [19] Second, the appellants were not able to point to textual support for the proposition that the statutory language in the Mechanics’ Lien Act is sufficiently different than the statutory language in the Construction Act such that the interpretation of the former in Sullivan does not apply to the latter. Section 13(1) of the Mechanics’ Lien Act used the language of “payment or advances made on account of any conveyance or mortgage”. Section 78(3)(b)(i) uses the language of “advanced in the case of a mortgage”.
[20] Nor does the contrast between the subparagraphs (i) and (ii) of para. 78(3)(b) of the Construction Act assist the appellants. They submit that mortgage interest is “secured” by a mortgage but is not “advanced” under it, in the words of s. 78(3)(b)(i). They argue that the Construction Act makes the relevant distinction by using the words “advanced or secured” in relation to a conveyance “or other agreement” in s. 78(3)(b)(ii). I disagree. The “other agreement” language in subsection (ii) seems to refer only to a vendor’s lien on property. The appellants were not able to provide any other examples of the operation of the language in subsection (ii). A vendor’s lien is clearly not an advance.
[21] Third, the effect of adopting the novel interpretation that the appellants propose is not entirely clear, but it would impose additional risk on purchase money mortgagees, who might then be required to actively monitor properties to ensure that improvements made by owners did not deplete the mortgagee’s entitlement to payment for interest. (The argument that an improvement might increase the equity to the mortgagee’s ultimate advantage is not much comfort to a mortgagee.) The appellants’ proposed approach would introduce a sea change in risk assessment by mortgage lenders that is simply not warranted by the legislative history or long-standing practice. The possibility of inadvertently doing harm is very much present.
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