The threat sent the Nazarian family, who owned the mall, on a frantic scramble to forestall the default but the needed repairs were never made.
"We were in desperate need of funds to fix the roof," testified Levon Nazarian, who worked closely alongside his father as an independent contractor and administrator.
"We were trying our best efforts to stop the leaks."
In the summer of 2008, the Royal Bank noted an inspection had revealed it would cost about $3 million to make the needed repairs.
The inspection found a "marked deterioration" over the previous year and severe leaking from the parking-deck roof had caused extensive water damage.
"Several tenants are threatening to leave the property or withhold payment," Jim Davis, a commercial mortgage specialist with the bank, wrote the Nazarians on Aug. 20, 2008.
"We are somewhat dismayed that the property has been allowed to deteriorate to this extent."
The Nazarian family had paid $6.2 million for the property in 2005, putting up $2 million in cash and taking out a $4.2-million mortgage.
In an effort to head off the bank, the Nazarians signed a deal with a purported contractor, who aimed to borrow $1.7 million to carry out the repairs.
Commission lawyer Peter Doody was incredulous.
"So the company that was going to do the work was going to borrow the money to pay itself?" Doody said.
"I don't understand how that makes any sense. It sounds like a great deal for the owner."
Nazarian said the family was making best efforts to find ways to do what was needed.
"We were exploring every possible option," he testified. "We wanted the roof leaks to end."
The contract was forwarded to the bank as evidence the repairs were being done but it was never executed.
Nazarian, 29, a real-estate broker, also said it was at his request that changes were made to an engineering inspection report done just weeks before the parking deck collapsed June 23, 2012, killing two women.
He said he wanted to make the report "more presentable" to the bank but denied the "irrelevant" changes were intended to mislead.
It was up to the engineer to accept the alterations, which included removing a reference to "ongoing" leaking and some photographs showing severe rusting, he said.
The engineer, Bob Wood, has previously testified he considered the mall "structurally sound."
Nazarian insisted he had no idea the mall had structural issues, and said his father was doing "everything within his power" to fix the leaking.
The inquiry also heard an accountant prepared various financial statements showing differing degrees of income for the mall.
Doody suggested the statements were tailored to specific purposes, such as obtaining a bank loan or a property tax rebate.
Nazarian blamed the accountant, who was fired.
"I'm not very fluent with financial statements," Nazarian said.
Much of the community's anger over the tragedy — the result of decades of water and salt penetration that rotted the steel supporting the garage — has been directed at the Nazarians.
The family made $10 million profit through a series of property development deals over several years but Nazarian testified the mall was bleeding money.
Nazarian's father, Bob Nazarian, 67, of Richmond Hill, Ont., is due to testify later this week or next. He bought the mall through his company, Eastwood Mall Inc., from its second owner in 2005.
His son told the inquiry his father was desperately trying to off-load the property.
Two offers in 2009 and 2010, one for $10 million and another for $7.7 million, fell through after the would-be buyers drilled down on the state of the mall, its finances, and its unhappy tenants.
In response to one buyer's question about the state of the roof repairs, Levon Nazarian wrote "perfect." He admitted that was false.
Nazarian continues testifying on Tuesday.Suggest a correction