Class Actions

Fortress Syndicated Mortgages Class Actions —

Five proposed class actions have been commenced relating to Fortress’ syndicated mortgage loans on the developments called (1) Collier Centre – in respect of the 2012 syndicated mortgage loan only; (2) Progress Manors Ten88; (3) Sutton/The Link; (4) Harmony Village Lake Simcoe/The Kemp; and (5) Orchard Calgary – only in respect of the charge registered as Registration No. 141 112 373.

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.

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. Settlement with BDMC and Ildina Galati Estate

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.

2. Settlement with FFM, Rosalia Spadafora, and Saul Perlov

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.

Important Information About the Settlements

Notices about the proposed settlements are available under the “Documents” Tab, and will be sent to the affected investors by FAAN. Please direct any questions about the Notices and the Settlements to Class Counsel, and not to FAAN.

The Settlements were approved by the Court on January 13, 2023, with written reasons to follow.

The Court also approved Class Counsel legal fees in the amount of $2 million, plus HST and disbursements for the BDMC Settlement and $593,750 plus HST and disbursements for the FFM Settlement be paid from the Settlement Funds.

Class Counsel 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.

If any Class Member does not want to be included in the Class Actions, does not want to be bound by the results in the Class Actions, and does not want to receive part of the settlement funds in exchange for a release to be given to the BDMC and FFM Defendants, they have the right to “opt out” or exclude themselves from the proceedings. The details about how to opt out are set out in the Notices under the Documents tab. Do not opt out if you wish to receive part of the settlement funds, and any future recovery that may be achieved from any of the remaining defendants. Because several of the defendants are bankrupt or insolvent, we highly recommend that you do not opt out without speaking to Class Counsel or your own lawyer first, so that you understand the consequences that will flow from taking that step.

More information about the Settlements, and how they will impact investors in these developments is available in the Long Form Notices posted under the “Documents” Tab.


Additional updates will be posted as the action progresses.

 

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