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Eron Lenders
To the Lenders in Project # 1127
2nd Mortgage on Emerald Estates
Borrower: Endeavour Developments Ltd.
Lender update
November 5, 1997
As indicated in our letter to lenders dated October 22, 1997 we will be providing information to lenders through regular project updates. Unfortunately, due to the poor quality of Eron's accounting and lender records we are presently unable to answer all the questions you may have. However, based on our initial findings we can address the frequently asked questions set out below. We stress that the information available to us is subject to verification and accordingly our findings are subject to change as more information becomes available.
Eron was paying me a good rate of return on my money, why was it closed down ?
In many instances payments to lenders were being financed by money received from new lenders or lenders to other projects. Few of Eron's projects were actually producing a return on investment. Our investigations to date indicate that many lenders will incur substantial losses because of these practices. Clearly this situation could not be allowed to continue.
What is the current status of the project?
This project pertains to the development of a 300 lot mobile home park near Comox, B.C. The project comprises two phases, Phase 1 being the completion of 100 lots and Phase 2 being 200 lots. Neither phase is presently completed.
In September, 1997 Mr. Ian Wragge, an investor, and employee of the project engineer Quadra Pacific, estimated the costs to complete Phase 1 to be $2.15 million and Phase 2 to be $4.6 million, exclusive of financing costs.
Money was advanced through 493461 BC Ltd. and was used to acquire an existing mortgage from D M L Investments Inc. in March, 1995. The mortgage was originally made by Eron Mortgage Corporation in September, 1993, assigned to Unger Investments Ltd. and York Ventures Ltd. in December , 1993, assigned to D M L Investments Inc. in August, 1994, then to 493461 BC Ltd. in March, 1995.
When will you know where my money went ?
It will be at least two months before we are able to account for all funds received by Eron
What security was taken on the project ?
A second mortgage on the property bearing interest at 20% is on the property. The balance outstanding under the mortgage is calculated to be $2,284,054 as at September 19, 1997. This figure includes compound interest since advances were made but also includes significant renewal, broker and lender fees arising from subsequent extensions and turnover of participants in this mortgage. These charges may not be enforceable against subsequent mortgagees. This will be the subject of further scrutiny.
Are there any mortgages or other loans in priority to the project security ?
A 1st mortgage in favour of Pacific Playground Holdings Ltd. Pacific Playground Holdings Ltd. filed a notice of foreclosure on October 8, 1997 claiming an amount owed of $686,396 as at September 23, 1997 plus a per diem interest of $451.33.
What is the value of the project ?
We are commissioning a valuation report of the property, which is to be received by the end of November, we prefer not to speculate on the value, rather we will advise you of the result of this report.
Are there any other security or guarantees which might increase recovery on the project ?
The mortgage was guaranteed, without security, by Adolf Schiel, and A. Schiel Construction Ltd. and Bear Creek Sales Ltd. The value of these guarantees is not known.
Will I get my money back ?
In November, 1996 the Schiel group filed an action in the Supreme Court of British Columbia seeking an injunction against Eron to restrict any recovery or enforcement action and seeking a declaration that the loans were unenforceable on the basis that the charges were in excess of those permitted under the Criminal Code.
It is too early to tell definitively how much of your money will be recovered. However, at this early stage it appears unlikely that all funds invested in this project will be recovered.
When will I get any money back ?
It is likely to be many months before any money is available to investors.
We caution you that the information available to us is still incomplete and limited in scope. Nothing in the foregoing should be construed as guaranteeing any return of funds. We will keep you informed on a regular basis and will issue a further project update on or about November 30.
In the meantime if you have any further questions or information concerning the project please contact us in writing at the above noted address or by fax at (604) 688-6128.
Yours truly
Judicial Trustee
Eron Lenders
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