For the purpose of this exculpatory review, we have selected four projects to complete a factual analysis of the loan and disclosure documents. Two of the projects exited and all lenders were paid out completely. The two other projects faced challenges that were outside the circumstance of the documents used for the mortgage. The analysis provided shows all generations of documents being covered, while displaying that the documents are not the basis for when a project succeeded or faced challenges.
- East Fifty Five – A residential condo in Toronto, ON
- Trafalgar Square – A residential condo in Oakville, ON
- Harmony Village Sheppard – A residential condo in Scarborough, ON
- SkyCity Winnipeg – A mixed-use development in Winnipeg, MB
Purpose of Disclosure Review
This section is to identify disclosure in documents provided to syndicate mortgage lenders/investors, specifically disclosure of fees, risks, terms of contracts and the roles of each party involved. Disclosure of fees, risks, relationships and roles has always been included as part of the documentation provided to lenders/investors by the brokers involved in the transaction. These documents were signed by the lender/investor, their mortgage agent, the principal broker of their agent’s brokerage, the person who referred the lender/investor (when applicable) and the mortgage administrator.
Following is a list of all the various documents that were included in a loan package. The list shows the name of the document, who executed the document and a descriptor of what terms and disclosure can be found within that particular document.
|The Investment Authority Form 9D||Lender/Investor & Notary||The Investment Authority Form 9D contains the terms, merits, parties, fees and risks of the investment. This form is reviewed with each lender/investor during their legal advice session.|
|Form 1 – Investment/Lender Disclosure Statement for Brokered Transactions||Lender/Investor & Principal Broker||The series of “FSCO” documents provided to lenders/investors contain disclosure of the mortgage, the project, the parties and the costs associated with the loan and the project. It also contains an outline of the responsibility of the brokers and administrator acting on the transaction along with cautions to lenders/investors choosing to participate in the investment.|
|Form 1 – Investment/Lender Disclosure Statement for Brokered Transactions – Addendum for Constructions and Development Loans||Lender/Investor & Principal Broker||Same description as above|
|FSCO Schedule Version 2||Lender/Investor||Same description as above|
|Investment/Lender Disclosure Statement for Brokered Transactions||Lender/Investor & Principal Broker||Same description as above|
|FSCO Schedule Version 1||Lender/Investor||Same description as above|
|Loan Agreement||Administrator & Borrower||The Loan Agreement is a legal contract between the Administrator as Lender/Investor and the Borrower. It outlines all the terms, conditions, provisions and requirement from both the Lender/Investor and the Borrower. The Confirmation of Lenders interest is a document that directly ties each lender/investor and their respective loan percentage to the Borrower and reiterates the provisions of the loan contract.|
|Confirmation of Lenders Interest||Lender/Investor, Administrator & Borrower||Same description as above|
|Loan Commitment||Lender/Investor & Borrower||Same description as above|
|Lender Acknowledgement and Consent||Lender/Investor, Borrower Broker, Administrator, Trustee and Fortress Real Developments||The series of agreements between the Administrator and/or the Trustee of the loans include documents that set out the role and responsibility of each party. They also provide confirmations, instructions, consents and indemnities from the lenders/investors to the Administrator and/or Trustee for the transaction and all future decisions with in perimeters on behalf of lenders/investors.|
|Mortgage Indemnity and Direction||Lender/Investor||Same description as above|
|Declaration of Bare Trust||Lender/Investor & Administrator||Same description as above|
|Participation and Servicing Agreement||Lender/Investor & Administrator||Same description as above|
|Memo Sales vs Referral||Not Applicable||The series of agreements between the Selling Broker/Agent include documents that set out the responsibility and obligation of the selling or referring party, they describe disclosure, risks and fees.|
|Mortgage broker call or visit sample||Not Applicable||Same description as above|
|Licensed agent-broker sign-off||Lender/Investor, Referral, Mortgage Broker||Same description as above|
|Proforma||Not Applicable||The proforma outlines a budget of costs and projection for revenue.|
|The Fact Sheet||Not Applicable||The Fact sheet describes the project, the terms of the mortgage, the proposed development, the parties and risks.|
The disclosure within documents can be characterized as having three distinct generations. Each generation improved upon their disclosure based on regulatory requirements, industry standards and expert advice. Each generation was used across all projects that raised funds at that time, using consistent language in accordance with the Mortgage Brokerages, Lenders and Administrators Act (MBLAA). As regulators updated the act, policies and procedures, the relevant documents were updated and used across all projects. Whenever regulatory requirements prompted a new generation of documents to be created, the goal was to adhere to best practices rather than minimum requirements. There are three generations of documents as a result of evolving requirements.
Types of Disclosure
The disclosure of fees paid to various parties from the funding of the syndicate mortgage loan is outlined in multiple sections of the loan document package signed by the lenders, the principal mortgage broker, the mortgage agent, referral source (if applicable) and the mortgage administrator. This disclosure includes fees paid to the lender broker/agent, the borrower’s brokerage, legal fees, the mortgage administrator and the development consultants.
Disclosure of Risks associated with investing in syndicate mortgages: potential loss, material disclosures, revenue shortfalls, delays, partial investor discharges, lack of market for investments in syndicate mortgages, reliance upon a mortgage brokerage, development risk, cost over runs, lack of liquidity, interest shortfalls, no interest at all, real estate cycle and economy, value, developer, lack of presales, syndication, high risk, dependent on successful completion, conflict, cautions on risk and inexperienced investors are not advised to invest, advised to obtain independent legal advice.
Disclosure of terms of the contracts: Method of Value, increase of charge, use of funds, postponements, standstill, funding shortfalls, tax implications, Loan to Value, Term, Term extensions, Force Majeure Clauses.
Disclosure of each party, their role, responsibility duty, relationship, potential conflicts.
A review of documents related to the syndicate mortgage loan that funded in part a project known as East Fifty Five. The review shows where fees, risks and terms of the loan are disclosed as well as explanations of who certain parties are and what their role is. This loan had disclosure from generation 2 and generation 3 mortgage documents.
A review of documents related to the syndicate mortgage loan that funded in part a project known as Oakville and later named Trafalgar Square. The review shows where fees, risks and terms of the loan are disclosed as well as explanations of who certain parties are and what their role is. This loan had disclosure from the earliest version of documents, generation 1.
A review of documents related to the syndicate mortgage loan that funded in part a project known as Harmony Village Sheppard. The review shows where fees, risks and terms of the loan are disclosed as well as explanations of who certain parties are and what their role is. Through the life of this loan, three different generations of documents were used which progressively improved on disclosure.
A review of documents related to the syndicate mortgage loan that funded in part a residential project in Winnipeg, MB that was marketed as SkyCity Winnipeg. The analysis shows where fees, risks and terms of the loan are disclosed as well as explanations of who certain parties are and what their role is. This loan… Read more
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