The objective of this section is to find the disconnect between the documents and the lenders/investors who signed them. This is done by looking at the process involved in transacting the syndicate mortgage loans and the multiple parties involved.
The Disconnect Between the Documents and the Lenders/Investors
Each party had a role and duty of care in the transaction. Each lender/investor was represented by their own mortgage agent or broker, and each lender/investor, through their loan documents, were highly recommended to seek legal advice. Records reflect that 100% of syndicate mortgage lenders/investors had representation under an independent brokerage and over 99% of syndicate lenders/investors received legal advice prior to completing their investment.
The broker transparency review includes six sections with each providing further insight and details. Click on a section title to read more.
SECTION 1: Policies and Procedures
SECTION 2: Principal Mortgage Broker Acknowledgement
SECTION 3: FSCO document of Broker Duties
SECTION 4: Certifications and Declarations
SECTION 5: Understanding of Legal Advice
Clear and Extensive Disclosure
The documents lenders/investors sign clearly and extensively and repeatedly disclose the level of risk, fees, merits, terms, conflicts and the role of each lender/investor. These are items that the selling brokerage had a regulatory requirement to review and ensure each lender/investor understood. Sections 1, 2, 3 & 4 further illustrate these responsibilities, policies and procedures that were to be followed by brokers and agents while selling the mortgages to prospective lenders/investors.
Duty of Selling Broker
Each Selling Brokerage would have been aware of their requirements as a broker or agent as it is outlined extensively and clearly in the policies and procedure manual as well as on every Lender Disclosure Form, Relationship Memorandum of understanding and on a project by project and or lender by lender basis following a comprehensive review of A) the loan documents B) disclosure documents C) the due diligence packages and D) Webinars.
Project Webinars (Section 6) recorded by consultants, borrower brokers, borrowers and market experts were required for each principal broker to review, understand and disseminate to all licensed agents. These webinars include, however are not limited to: a complete review of all loan documents in detail, disclosure of risk, disclosure of the contracts, disclosure of fees being paid from proceeds by the borrower, disclosure of various roles and potential conflicts with in the relationships. These webinars also continuously cautioned and reminded selling brokers and agent of their responsibilities to their lender/investor. Webinars also included information on planning, zoning, market studies and other development related content.
After meeting with a licensed selling agent/broker, a prospective lender/investor would then schedule a meeting/conference call/video chat with one of 7 solicitors that were familiar with the project to provide them with advice”(Section 5).
Each solicitor (in good standing with the law society at the time) would be responsible to review all of the documents and provide their own opinion of the investment opportunity for each lender/investor. The solicitor fee was paid by the borrower. This is a common industry practice that all legal fees (on the lender/investor and borrower side) are paid by the borrower in mortgage and real estate transactions. Each solicitor is bound to their own fiduciary duty under the Law Society of Ontario.
Broker Transparency Review Findings
The responsibilities of the brokers and the agents selling these investments is clear. There were multiple points in the process where they signed off on direct policies and procedures required to execute the lender package. These included directions on FSCO forms, broker manuals as well as webinars. As evidenced in the sections above, there was a very clear role definition for brokers and agents involved in selling syndicate mortgages that funded Fortress projects. That role was to ensure proper disclosures were made to qualified and suitable lenders/investors.