Fortress Syndicated Mortgages – Sutton, Orchard, Harmony Simcoe, Progress, Collier Centre - Sotos Class Actions
OVERVIEW

Fortress Syndicated Mortgages – Sutton, Orchard, Harmony Simcoe, Progress, Collier Centre

The Claim: We have joined forces with 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 a lawyer, Derek Sorrenti and his law firm, who provided legal advice about the SMLs, and also acted as a trustee and mortgage administrator for some of 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.

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 criminal proceedings are underway against the Fortress principals.

Three of the mortgage broker defendants, BDMC, FFM and FMP, are bankrupt or no longer carrying on business. The defendant, 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.

The Class: All persons in Canada who invested prior to January 30, 2015 in a syndicated mortgage in respect of the Collier Project No. 1, registered against title to lands located at 90 Collier Street and 55 Mulcaster Street, Barrie, Ontario, as Instrument SC1005953 (Collier Centre).

All persons in Canada who invested in a syndicated mortgage in respect of the Progress/Ten88 Project, registered against title to lands located at 1088 Progress Avenue in Toronto, Ontario as Instrument AT3101004 or AT3127137 (Progress Ten88).

All persons in Canada who invested in either of the syndicated mortgages in respect of the Sutton/The Link Project, registered against title to lands located at 5210, 5218, 5226, 5236 Dundas Street and 2500 Burloak Drive in Burlington, Ontario as Instrument HR1062915, HR1163239, or Instrument No. HR117424 (Sutton/The Link).

All persons in Canada who invested in a syndicated mortgage in respect of the Harmony Village Simcoe Project/The Kemp, registered against title to lands located at 51, 53, 55, and 75 Bradford Street, Barrie, Ontario as Instrument SC983678 (Harmony Village Lake Simcoe/The Kemp).

All persons in Canada who invested in a syndicated mortgage in respect of the Orchard Project registered against title to lands located at 602, 606, 610, 620, 624, 626 and 628th, Avenue S.E., in Calgary, Alberta, registered on title as 141 112 373 (Orchard Calgary).

Our Partners: MSTW Professional Corporation

Updates

The statements of claim in each action have been updated and amended.

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.

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 sold, and the debt is now secured against those other developments.

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.

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. BDMC’s insurer paid a lump sum of $8 million, inclusive of all interest and legal costs. In exchange, these defendants and their insurer received 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 were 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 have been sent to the affected investors by FAAN.

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 settlement with these defendants resulted in FFM’s insurer paying a lump sum of $2.375 million, inclusive of all interest and legal costs. In exchange, these defendants and their insurer received 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 have been sent to the affected investors by FAAN.

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 settlement approval motion will be held on January 27, 2025.

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 have been sent to the affected investors by FAAN.

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.

Documents
  • Second Fresh as Amended Statement of Claim (Collier Centre)
  • Second Fresh as Amended Statement of Claim (Progress Ten88)
  • Second Fresh as Amended Statement of Claim (Sutton/The Link)
  • Second Fresh as Amended Statement of Claim (Harmony Village Lake Simcoe/The Kemp)
  • Fresh as Amended Statement of Claim (Orchard Calgary)
  • RCMP Search Warrant Information
  • BDMC Settlement Agreement
  • FFM Settlement Agreement
  • FMP Settlement Agreement
  • FMP Condensed Form Notice of Hearing re: First Notice Approval (ENG) (Orchard)
  • FMP Short Form Notice of Hearing re: First Notice Approval (ENG) (Orchard)
Contacts

Margaret Waddell

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Karine Bédard

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Nancy Amaya

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Have questions about this case?

What is a class action?

A class action is a special form of lawsuit in which one plaintiff brings a claim against one or more defendants based on allegations which are common to a group, or class, of people. In order for the action to become a class action, it must proceed through a stage known as “certification”.


Who brings a class action lawsuit forward?

A statement of claim is issued on behalf of a “representative plaintiff”. The representative plaintiff’s role is to work with class counsel to bring the action forward and to represent the class members in court.


What is certification?

In order for an action to proceed on behalf of the entire class, a judge must decide (among other things) whether the members of the proposed class have common issues, and whether a class action is the preferred way to resolve the issues. The process to decide these issues is known as the “certification motion”. If the judge is satisfied that the case meets all of the requirements for certification, he or she will issue an order which certifies the action as a class action.


Do I have to do anything to “join” the lawsuit?

No. If the lawsuit is certified, and you are included in the class as defined, you are automatically included in the lawsuit.


Once I am part of the class do I have to do anything?

No. We will work primarily with the class representative.


What if I do not want to be included in the lawsuit?

Those who do not wish to remain in the class will be given the option to opt-out by sending an opt-out form at the appropriate time to us.


What are the benefits of proceeding as a class action?

Certification as a class action will enable us to prove the facts in a single lawsuit rather than in numerous individual lawsuits. This has obvious benefits to the class members and to the courts.


How long does it take for a class action to be resolved?

There is no timeframe. We will move the case forward diligently but it can take a considerable period of time to reach trial.


Can a class action lawsuit be settled without going to trial?

Many class actions settle and thereby remove the need for a trial. However, we cannot predict with any certainty whether or not there will be a settlement in a given action.


What are the chances of winning the action?

The chances of “winning” can never be accurately predicted.


Will be liable for any costs or legal fees?

Class action lawsuits are typically brought on a contingency fee basis. This means that the lawyers will only be paid if the action is successful at trial or results in a settlement in favour of the plaintiffs. Legal fees would then be paid out of the settlement or judgment proceeds as approved by a judge.

Disbursements (i.e. out-of-pocket expenses, including expert reports) may be dealt with in one of two ways.

Most commonly, the lawyers will absorb the cost of disbursements. The lawyers may seek funding assistance from the Class Proceeding Fund, which may provide funding for disbursements if granted.

In some cases, disbursements may be funded by the class members, including the class representative. This typically occurs in smaller class actions brought on behalf of an organization or network of individuals where each member of the class is easily identifiable and known to the representative plaintiff. If the class action is successful, amounts advanced for disbursements are re-paid from the proceeds of any judgment or settlement to class members (and others).


Will I be liable for costs of the action if it is unsuccessful?

Only the class representative may be liable for costs of the common issues portion of the action if it is unsuccessful.


When can I expect to receive a payout from this class action?

A “payout” or an award for damages is never certain.

The action may settle or it may proceed to trial, at which time a judge will determine the amount of damages, if any, to which the class members are entitled to. Regardless, the amount of “payout” cannot be predicted, and we cannot predict when the action may settle or when the trial will conclude.


How will counsel keep me updated on the progress of the case?

If the lawsuit is certified as a class action, you will receive a formal notice from the court explaining the nature of the case and providing you with the opportunity to opt out if you wish. General information about the lawsuit will be posted on Sotos LLP’s website at https://www.sotosclassactions.com.


Where can I send any documents that I have that may be relevant to a class action?

We ask that you keep a copy of any documents, correspondences, records, invoices, receipts, etc. that you feel might be relevant to your individual claim in the class action. If there is a “payout,” this documentation may be required in order to support your claim for compensation.

It is not required that you send any documents to us at this time.


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