According to a report from a court-appointed receiver, lenders connected to Fortress Real syndicated mortgages are at risk for significant losses.
The receiver, FAAN Mortgage Administrators Inc., appointed in April, just released its first update and says some of the largest loans in the Fortress fiasco are imperiled by senior lenders trying to foreclose on properties. One of them is Brookdale, in which negotiations have stalled.
“At this time, it is unclear what the outcome for the Brookdale project will be due to the existing defaults under senior loans in excess of $23mln and the numerous additional construction liens that have been asserted,” FAAN was reported as saying in the Globe and Mail.
Investors owed $14.4mln in a Georgetown project called Halton Hills are also at risk for major losses.
Yet another is the Collier Centre in Barrie, for which lenders provided $53mln and claim their priority supersedes other lenders’ priorities.
However, FAAN is in discussions for proceedings of a different nature, one of which is converting the Collier Centre into a residential development from a commercial one.
The FAAN report stated, “However, the trustee notes that despite its efforts, a sale of the property could result in significant losses to the investors.”
Curiously, the figures provided in the report—that more than 11,000 investors, mostly from Ontario, invested $560mln in a syndicated mortgage to Building and Development Mortgages Canada Inc. for the financing of 44 projects for Fortress Real and its partners.
“We know what’s happened to Fortress Real, but BDMC is saying it’s $530mln from 11,000 investors,” lawyer David Franklin told MortgageBrokerNews.ca “Now that is on the books and record, did Fortress only raise $530mln, or is it the balance left over from the $920mln?”
It is worth noting that BDMC—Fortress Real’s principal mortgage broker—is owned by Ildina Galati, who forfeited her broker license in a settlement deal with the Financial Services Commission of Ontario earlier this year in with looks like similar leniency shown to Dominic Ha.
Financial and time constraints could compromise FAAN’s work. It says it needs to do more appraisals of the projects in order to promote the best solutions for the syndicated mortgage investors, whose claims often appear no higher than third in priority.
“It sounds like they’re asking the court to pay the trustee’s expenses and they want to a court order to Chaitons LLP to represent the investors,” said Franklin. “That’s the firm that is involved with Paramount Equities. They’re a law firm that’s done a lot of this kind of legal work. They have the expertise to do this. FAAN is saying ‘We’re getting a lot of calls from investors; we tell them to go get independent legal advice.’ But because they’re getting so many calls, they want to represent a court order to get Chaitons to represent the investors.”
The news isn’t all bad, though. According to FAAN, a Bowmanville development will be refinanced with new senior lenders, but $5.3mln in loans are outstanding and will be subordinated to the new lenders.
A Victoria development has been sold and all investors in the project were repaid in full, but FAAN would like to repay them only half the monies owed so that the remainder can be put into a reserve account.