A judge has ordered a trustee to take over the operations of the lead mortgage broker for beleaguered real estate developer Fortress Real Developments Inc., just a week after the RCMP raided Fortress’s Toronto-area offices as part of a syndicated-mortgage-fraud investigation.
Lawyers for the Financial Services Commission of Ontario (FSCO) appeared before Superior Court Justice Glenn Hainey on Friday to argue that the broker, Building & Development Mortgages Canada Inc. (BDMC), was in default of a February settlement with the Ontario regulator, which came after FSCO launched its own probe into risky syndicated-mortgage investments.
Syndicated mortgages are pools of money provided by private investors to finance real estate-development projects. More than $600-million has been invested in BDMC’s syndicated-mortgage loans, by 11,000 investors, with most of the investments related to real estate development projects across the country involving Fortress.
In an affidavit filed with the court on Friday, Brendan Forbes, an Ontario government lawyer working with FSCO, said BDMC was in default of its settlement with the regulator, in which it had been ordered to pay $1.1-million in penalties and had its mortgage-brokerage licence revoked. BDMC had also agreed to an arrangement that would see another firm, FAAN Mortgage Administrators Inc., oversee its syndicated-mortgage loan-administration business.
However, Fortress and another related company, Canadian Development Capital & Mortgages Services Inc. (CDMC), have failed to provide FAAN with required records related to the relevant development projects, Mr. Forbes says in his affidavit, and BDMC has also failed to hand over access to its e-mail accounts. Meanwhile, BDMC is in “financial distress” and has failed to make payroll and rent payments, the documents say.
On April 13, Mounties searched Fortress’s head office in Richmond Hill, Ont., which shares an address with BDMC. In the wake of the RCMP raid, questions from investors have “increased exponentially,” Mr. Forbes says, and FAAN now says it needs full court authority as a trustee to manage BDMC’s business.
FAAN has “lost all confidence” in BDMC’s ability to comply with the previous management agreement, and is concerned about its own compliance with regulations for mortgage administrators, which requires them “not to take or omit to take any action that facilitates dishonesty, fraud, crime or illegal conduct,” the affidavit reads.
Fortress was founded in 2002 by chief executive officer Jawad Rathore and chief operating officer Vince Petrozza, who was also authorized to deal in mortgages on behalf of BDMC. As part of its February settlement with BDMC and other related companies, FSCO revoked Mr. Petrozza’s mortgage-broker licence.
David Ullmann, a Toronto restructuring lawyer with Blaney McMurtry LLP who is not involved in the case, called it unusual for the regulator step in this way: “This application was likely put together very quickly. ... As such, I would not expect that we have all the information yet.”