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To the Lenders in Projects # 1128, 1129, 1131 and 1132
3rd, 4th, 5th and 6th Mortgages on Emerald Estates
Borrower: Endeavour Developments Ltd.
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, estimated the costs to complete Phase 1 to be $2.15 million and Phase 2 to be $4.6 million, exclusive of financing costs.
How much was supposed to be raised for the project ?
A total of $8,561,000 as follows:
Third Mortgage - $2,011,000 (Project 1128) Registration EG160578
Fourth Mortgage- $ 500, 000 (Project 1129) Registration EH109507
Fifth Mortgage- $3,550,000 (Project 1131) Registration EH134916
Sixth Mortgage- $2,500,000 (Project 1132) Registration EJ36021
According to Eron's records how much was actually raised for the project ?
As above.
According to Eron's records how much was advanced to the project ?
Our preliminary review indicates the amount actually advanced to the borrower on these mortgages was $3,870,760.61
What happened to the rest of the money ?
The balance of the money appears to have been used to pay fees to Eron Mortgage Corporation, legal fees, interest and lender fees to lenders.
How much does Eron show as being owed by the borrower?
The bare trustee for each of these mortgage investments is 490160 BC Ltd. We have calculated the total amount owed under these mortgages by the borrower to be $12,450,626 as at September 19, 1997.
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 ?
The bare trustee, 409160 BC Ltd. received 3rd, 4th, 5th, and 6th mortgages on the property.
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.
There is a 2nd mortgage in favour of 493461 BC Ltd., as bare trustee for a group of Eron lenders, which has an amount owing as at September 19, 1997 of $2,284,054. Included in this figure, aside from compound interest, are significant renewal, broker and lender fees which, while agreed to by the borrower, may not be enforceable against subsequent mortgagees. This issue will be the subject of further review.
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.
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 full recovery will be realized.
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
Price Waterhouse Limited
Judicial Trustee
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