An Ontario court has transferred $100-million of syndicated mortgage loans related to troubled Fortress Real Developments Inc. to the control of an independent trustee after the Law Society of Ontario raised concerns about a lawyer who was overseeing the investments.
The Law Society said it is investigating Derek Sorrenti, a lawyer based in Concord, Ont., who was acting as a trustee for $100-million of syndicated mortgage loans provided by 3,000 investors for 10 large real estate development projects in Ontario.
The Law Society applied for a court order, which was granted earlier this week, transferring oversight of the loans to FAAN Mortgage Administrators Inc., a trustee, and removing them from Mr. Sorrenti’s control.
In a court filing, the Law Society said it has been contacted by investors who complained that they have been unable to get any information or updates on unpaid loans because Mr. Sorrenti did not respond to their e-mails and phone calls. As a result of the complaints, the Law Society said it has “initiated investigations into Mr. Sorrenti’s conduct arising out of his mortgage administration practice.”
Nadia Musclow, manager of trustee services at the Law Society, said in an affidavit filed in court that Mr. Sorrenti has paid himself fees for administering the mortgages that have not been disclosed to investors, and has not distributed all of an $18-million payment from a borrower to investors. She said the Law Society needed to act to protect investors.
“It appears that Mr. Sorrenti has neglected this aspect of his professional business without making adequate provision for the protection of investor interests,” Ms. Musclow said.
Mr. Sorrenti said Friday that he had no comment on the transfer of the mortgages. In its court filing, the Law Society said Mr. Sorrenti agreed with the application because it is “unsustainable” for him to continue to act as the administrator.
The Law Society said Mr. Sorrenti works with only one part-time employee, and that he told the regulator he couldn’t respond to investors who are seeking information.
In an e-mail filed in court as part of the application, Mr. Sorrenti responded to an investor seeking information by saying that it was not supposed to be his job to relay information to investors, and he cannot deal with the calls and drop-in visits he receives “each and every day.” He said mortgage brokers and agents who sold the syndicated mortgage loans to investors have “fallen by the wayside for various reasons after collecting their fat fees and commission cheques, leaving us to ‘clean up the mess.’ ”
FAAN has been administering $560-million of other syndicated mortgage loans related to Fortress projects since April, 2018, so the court ruling this week means the trustee will now oversee almost all of the outstanding syndicated mortgages for Fortress projects.
Fortress, based in Richmond Hill, Ont., is a real estate developer and consultant that helped builders raise $920-million in syndicated mortgage financing from more than 14,000 investors between 2009 and 2017. The company, headed by Jawad Rathore and Vince Petrozza, said it pioneered the practice of raising syndicated mortgage loans from regular retail investors.
However, some of the condominium and commercial building projects funded by the mortgages later fell into difficulty and were not completed, and investors in some projects have received none of their money back or recovered only partial repayment.
The RCMP launched an investigation into the company’s actions and searched Fortress’s offices in April, 2018. No charges have been laid in the case.
FAAN said it supported the latest transfer of mortgages from Mr. Sorrenti because it has had many inquiries from confused investors who did not understand that some of the Fortress loans were still under Mr. Sorrenti’s control.
In a report filed in court, FAAN said it contacted Mr. Sorrenti “on numerous occasions” to try to get information about mortgages, but he did not comply with the requests. FAAN got a court order in May requiring Mr. Sorrenti to provide information on outstanding mortgages, and he still did not comply, the report said.
FAAN said it is particularly concerned about his administration of a loan for the Residences of Bayview/Lotus condominium project.
The project borrower made an $18-million repayment on a mortgage loan this spring, which Mr. Sorrenti was supposed to distribute to syndicated mortgage investors beginning in May.
However, FAAN said distribution is still not completed. FAAN said its representatives met with Mr. Sorrenti on Sept. 26, and he reported that he was in the process of distributing the money but could not confirm how much he still had under his control.
The Financial Services Regulatory Authority of Ontario (FSRA), which oversees mortgage lending in the province, also supported the transfer of Mr. Sorrenti’s mortgages, saying it has received complaints from investors about his work but was unable to act because FSRA does not license lawyers who administer syndicated mortgages.