Case Overview
Waddell Phillips has joined forces with Mitchell Wine, MSTW Professional Corporation in prosecuting five proposed class actions relating to syndicated mortgage loans (SMLs) promoted by Fortress Real Developments Inc. and Fortress Real Capital Inc. (together “Fortress”). The actions relate to the SMLs registered on five different real estate developments:
- Collier Centre – Barrie, ON (only with respect to the 2012 SML)
- Progress Manors Ten88 – Toronto, ON
- Sutton/The Link – Burlington, ON
- Harmony Village Lake Simcoe/The Kemp – Barrie, ON
- Orchard Calgary – Calgary, AB
The claims are brought against the Fortress companies, the mortgage brokers who sold the SMLs to class members, including Building & Development Mortgages Canada Inc. (“BDMC”), property valuators, and the lawyer, Derek Sorrenti and his law firm, who provided legal advice about the SMLs, and also acted as a trustee and mortgage administrator for the SMLs.
In each action, the plaintiffs allege, among other things, that the Investors were misled about the actual value of the property on which the SML would be registered; the true risks involved in participation in the SMLs; how the mortgage proceeds would be used by the developer and Fortress; and, that the SMLs would qualify to be held in registered accounts, when they did not.
The Facts
The facts relating to each development are somewhat different, and are detailed in each statement of claim, which can be reviewed under the “Documents” Tab.
In general terms, the real estate developers entered into agreements with Fortress whereby Fortress committed to raising a certain amount of money to be used by the developer to cover the pre-construction “soft costs” associated with the development. The funds were to be raised through syndicated mortgages.
A syndicated mortgage is a mortgage where two or more people jointly lend the funds to a borrower through a single charge on title. Here, the lenders were typically unsophisticated retail investors, many of whom invested their retirement funds in the SMLs, and relied upon the representations that these were safe, fully secured, short-term loans that would generate a high rate of return.
Each of the SMLs in respect of the 5 developments in these actions went into default, and the investors have lost some or all of their investments. The claims seek to recover the investors’ losses from the named defendants.
On February 1, 2018 the Financial Services Commission of Ontario issued orders against each of the mortgage brokerage firms involved in selling the Fortress SMLs totaling $1.1 million in penalties, and revoked the licenses of several of the individual mortgage brokers.
On September 9, 2020 a further administrative penalty in the amount of $250,000 was issued against Fortress Real Developments Inc.
An RCMP investigation was commenced in 2018, and is ongoing with respect to alleged mortgage fraud against Fortress.
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We want to hear from you if you, or someone you know invested in one of these five syndicated mortgage loans.
Case Overview
Waddell Phillips has joined forces with Mitchell Wine, MSTW Professional Corporation in prosecuting five proposed class actions relating to syndicated mortgage loans (SMLs) promoted by Fortress Real Developments Inc. and Fortress Real Capital Inc. (together “Fortress”). The actions relate to the SMLs registered on five different real estate developments:
- Collier Centre – Barrie, ON (only with respect to the 2012 SML)
- Progress Manors Ten88 – Toronto, ON
- Sutton/The Link – Burlington, ON
- Harmony Village Lake Simcoe/The Kemp – Barrie, ON
- Orchard Calgary – Calgary, AB
The claims are brought against the Fortress companies, the mortgage brokers who sold the SMLs to class members, including Building & Development Mortgages Canada Inc. (“BDMC”), property valuators, and the lawyer, Derek Sorrenti and his law firm, who provided legal advice about the SMLs, and also acted as a trustee and mortgage administrator for the SMLs.
In each action, the plaintiffs allege, among other things, that the Investors were misled about the actual value of the property on which the SML would be registered; the true risks involved in participation in the SMLs; how the mortgage proceeds would be used by the developer and Fortress; and, that the SMLs would qualify to be held in registered accounts, when they did not.
The Facts
The facts relating to each development are somewhat different, and are detailed in each statement of claim, which can be reviewed under the “Documents” Tab.
In general terms, the real estate developers entered into agreements with Fortress whereby Fortress committed to raising a certain amount of money to be used by the developer to cover the pre-construction “soft costs” associated with the development. The funds were to be raised through syndicated mortgages.
A syndicated mortgage is a mortgage where two or more people jointly lend the funds to a borrower through a single charge on title. Here, the lenders were typically unsophisticated retail investors, many of whom invested their retirement funds in the SMLs, and relied upon the representations that these were safe, fully secured, short-term loans that would generate a high rate of return.
Each of the SMLs in respect of the 5 developments in these actions went into default, and the investors have lost some or all of their investments. The claims seek to recover the investors’ losses from the named defendants.
On February 1, 2018 the Financial Services Commission of Ontario issued orders against each of the mortgage brokerage firms involved in selling the Fortress SMLs totaling $1.1 million in penalties, and revoked the licenses of several of the individual mortgage brokers.
On September 9, 2020 a further administrative penalty in the amount of $250,000 was issued against Fortress Real Developments Inc.
An RCMP investigation was commenced in 2018, and is ongoing with respect to alleged mortgage fraud against Fortress.
Contact Us
We want to hear from you if you, or someone you know invested in one of these five syndicated mortgage loans.
The statements of claim in each action have been updated and amended, and can be viewed under the “Documents” Tab.
The Defendant BDMC is subject to a Trusteeship order, as is Sorrenti Law’s mortgage administration business. The Trustee for both is FAAN Mortgage Administrators Inc. FAAN has a comprehensive website with information about the current status of each of the Fortress Developments that were being administered by Sorrenti or BDMC. Its website can be accessed here.
Two other mortgage broker defendants, FFM and FMP, are bankrupt. The defendants, Ildina Galati has died, and her Estate is bankrupt. The plaintiffs in the actions where these defendants are named have obtained court orders allowing these actions to proceed against the Galati Estate, FFM and FMP in order to pursue claims that would be covered under the insurance policies that these entities had in place when the actions were started.
Partial Settlements of the Actions Have Been Reached
1. Sutton/The Link Settlement – June 1, 2023
In 2021, FAAN Mortgage Administrators Inc. (“FAAN”) started an action against the developer borrower, Adi Development Group Inc. (“Adi”) and its parent company that had guaranteed that the syndicated mortgages. Once that action was commenced, the class action had been voluntarily stayed against the Adi Defendants, so that efforts would be focused on the FAAN proceeding. A settlement has now been reached in that action, with the input of stakeholders including our Class Counsel team. On June 1, 2023, the Ontario Superior Court of Justice approved the settlement.
Under the settlement investors will be paid $18,297,216 less legal and administrative fees, which is approximately 91% of the capital invested. The payments will be made over time as other Adi developments are built out, and the debt is now secured against those other developments. The first installment of $2.6 million will be paid out in short order.
The net settlement funds will be allocated between both groups of Sutton SML investors proportionately based on the principal amount of individual investments. More information about the settlement, and the distribution of funds, can be found on FAAN’s website here.
On July 5, 2023, Class Counsel will be seeking approval of the class action judge to discontinue the Sutton Action as against the Adi Defendants. The Sutton Class Action will continue against the remaining defendants who have not settled, including the Sorrenti and Fortress Defendants.
2. Settlement with BDMC and Ildina Galati Estate – January 13, 2023
The plaintiffs in all five actions have been successful in negotiating a settlement with BDMC and the Galati Estate. The settlement calls for the actions to be certified as class proceedings as against BDMC and Galati’s Estate for settlement purposes only. BDMC’s insurer will pay a lump sum of $8 million, inclusive of all interest and legal costs. In exchange, these defendants and their insurer will receive a full and final release from the Classes and the Classes will limit their ongoing claims against the remaining defendants to the remaining defendants’ proportionate share of liability.
The net settlement funds will be allocated between the five actions “pari passu” based on the original total amount of the principal of the syndicated mortgage loans granted on each development. Within each development, the net settlement funds for that action will then be divided “pari passu” among the investors based upon the principal amount of their investment.
Notices about the proposed settlement are available under the “Documents” Tab, and will be sent to the affected investors by FAAN.
The settlement was approved by the Court on January 13, 2023, with Reasons for Decision to follow. The Court also approved Class Counsel’s legal fees in the amount of $2 million, plus HST and disbursements, to be paid from the settlement fund. Class Counsel have been prosecuting these actions since 2016 on a contingency fee basis, and have borne all the expenses related to prosecuting these actions. The fees, exclusive of HST and disbursements, equal 25% of the Settlement Fund.
3. Settlement with FFM, Rosalia Spadafora, and Saul Perlov – January 13, 2023
FFM, Rosalia Spadafora and Saul Perlov were named as defendants in the actions relating to 3 developments: Collier Centre, Sutton/The Link, and Orchard.
The plaintiffs in these three actions have been successful in negotiating a settlements with FFM, Rosalia Spadafora and Saul Perlov. The settlement calls for these three actions to be certified as class proceedings as against FFM, Rosalia Spadafora and Saul Perlov for settlement purposes only. FFM’s insurer will pay a lump sum of $2.375 million, inclusive of all interest and legal costs. In exchange, these defendants and their insurer will receive a full and final release from the Classes and the Classes will limit their ongoing claims against the remaining defendants to the remaining defendants’ proportionate share of liability.
The net settlement funds will be allocated between the three actions “pari passu” based on the original total amount of the principal of the syndicated mortgage loans granted on each development. Within each development, the net settlement funds for that action will then be divided “pari passu” among the investors based upon the principal amount of their investment.
Notices about the proposed settlement are available under the “Documents” Tab, and will be sent to the affected investors by FAAN.
The settlement was approved by the Court on January 13, 2023, with Reasons for Decision to follow. The Court also approved Class Counsel’s legal fees in the amount of $593,750, plus HST and disbursements, to be paid from the settlement fund. Class Counsel have been prosecuting these actions since 2016 on a contingency fee basis, and have borne all the expenses related to prosecuting these actions. The fees, exclusive of HST and disbursements, equal 25% of the Settlement Fund.
4. Settlement with FMP, Tonino Amandola, Michael Daramola, and Graham McWaters
FMP, Tonino Amandola, Michael Daramola, and Graham McWaters were named as defendants only in the Orchard (Calgary) action. FMP is bankrupt.
The plaintiffs in this action have been successful in negotiating a settlement with these defendants. The settlement calls for the Orchard action to be certified as a class proceeding for settlement purposes only as against these defendants. FMP’s insurer will pay a lump sum of $3 million, inclusive of interest and legal costs. In exchange, these defendants and their insurer will receive a full and final release from the Classes and the Classes will limit their ongoing claims against the remaining defendants to the remaining defendants’ proportionate share of liability.
The net settlement funds will be allocated among the Orchard class members “pari passu” based upon the principal amount of their investment in this development.
Notices about the proposed settlement are available under the “Documents” Tab, and will be sent to the affected investors by FAAN.
The settlement has not yet been approved by the Court. The hearing to approve the settlement and payment of Class Counsel’s fees will be held on January 9, 2025.
Class Counsel will be asking the court to approve fees in the amount of $750,000 + disbursements and HST. They have been prosecuting these actions since 2016 on a contingency fee basis, and have borne all the expenses and risks related to prosecuting these actions. The fees requested, exclusive of HST and disbursements, equal 25% of the Settlement Funds.
Additional updates will be posted as the action progresses.
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