Mortgage Broker

According to the Barrie Examiner, "Court documents show there was more than $60 million in debt owed on this project: $30 million to LBC [Laurentian Bank of Canada] alone, nearly $12 million in construction lien claims and $20 million to other creditors." is, Franklin points out, is exactly the trouble with syndicated equity development mortgages that are based on the best- case scenario of a completed, successful development. "If the project doesn't work, you've probably lost your money, unless it's a first mortgage, and then you may get back a portion of what you invested." Small investors within a syndicated development mortgage are oen near the back of the line when it comes to reclaiming their money from a defunct development. Franklin cites the example of a $5 million first mortgage for a project that pays an interest rate of eight per cent and then postpones to construction financing to build the development. "at becomes a second mortgage. Before you get to that stage, the developer has to do a lot of work on the project. Presales, marketing – all these expenses have to be paid," he explains. "Second-mortgage-to-construction lending is a risky business. Only professionals who know how to do that will do construction financing. ere is a lot of risk in construction financing: weather problems, strikes, a lot of delays, a lot of risk. If you run into a problem and the project goes into default while you're building it, you may need to call another general contractor in to finish the job. Meanwhile, the weather is setting in and it can destroy what has been done so far." At this point, the successful completion of the project would be in question. As in the case of the Mady Collier Centre, the syndicated investors' claims against the property were null and void. e equity available in the project was used to pay off other creditors who ranked ahead of the syndicated mortgage investors, including the major bank. "An eight per cent return is way too low for such a high risk," says Franklin, whose client invested $80,000 in the Mady Collier Centre because, as he contends, she didn't understand the real risks involved in the deal. Today, construction has resumed on the mixed-use building in Barrie, aer Fortress completed the acquisition of the project in November 2015, obtaining full financing from Morrison Financial. As of October 2016, the Fortress website noted construction was progressing well, with residential pre-delivery inspections scheduled for January 2017. Interest in leasing the retail units had also "picked up," according to Fortress. A class-action lawsuit filed on Aug. 8, 2016, asks for $25 million in general damages and $2.5 million in exemplary, punitive and aggravated damages, plus legal costs. It claims that "Fortress' marketing of its syndicated mortgages misleads investors with respect to the security of their investment." In a statement, a Fortress representative said the company is working to complete the Collier Centre project. Based on current projects, Fortress "anticipates there will be sufficient value in the projects to repay the original project's lenders, including the Mady Collier syndicated mortgage lenders." But although Fortress says it plans to repay the original syndicated investors, Franklin says the issue here is how these investments were promoted to would-be investors in the first place. "Look what happened. If all the [relevant] information had been disclosed, do you think anyone would have invested? What we have here is a regulatory failure." A Question of Regulation In Ontario, the Mortgage Brokerages, Lenders and Administrators Act requires mortgage brokerages, administrators, brokers and agents to be licensed with the Financial Services Commission of Ontario (FSCO). e government agency's purview includes the oversight of syndicated mortgages. On its website, FSCO notes it has "taken considerable action" to protect consumers who invest in syndicated development mortgages. Warnings on the website advise that these types of deals are considered high-risk, and are not as safe and secure as may be advertised. e agency provides tips for potential investors to help them evaluate a proposed transaction. On June 30, 2015, FSCO released a bulletin outlining the rules surrounding the promotion of syndicated mortgages. Among other things, the regulator reminded industry that any business providing information about syndicated mortgage investment opportunities must be a licensed mortgage brokerage. erefore, developers and project promoters are not allowed to attract or educate potential investors unless they are licensed and working on behalf of a licensed brokerage. Mortgage brokerages are also responsible for fully educating consumers about the risks associated with syndicated mortgages, According to the Barrie Examiner documents show there was more than $60 million in debt owed on this project: $30 million to LBC [Laurentian Bank of Canada] alone, nearly $12 million in construction lien claims and $20 million to other creditors." is, Franklin points out, is exactly the trouble with syndicated equity development mortgages that are based on the best- case scenario of a completed, successful development. "If the project doesn't work, you've probably lost your money, unless it's a first mortgage, and then you may get back a portion of what you invested." Small investors within a syndicated development mortgage are oen near the back of the line when it comes to reclaiming their money from a defunct development. Franklin cites the example of a $5 million

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