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To the Lenders in Project # 1203
2nd Mortgage on Mariner Ridge, Cowichan Bay, B.C.
Borrowers: 470469 B.C. Ltd., Robert Alan Smith, Donald Arthur Owens and Patricia Hazel Owens
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 is an uncompleted subdivision on Cowichan Lake, B.C.
How much was supposed to be raised for the project ?
$1,092,858
According to Eron's records how much was actually raised for the project ?
Approximately $1,092,858.
According to Eron's records how much was advanced to the project ?
$889,375 was paid to retire prior 2nd mortgage held by 521384 B.C. Ltd. the Bare Trustee, a brokerage fee of $68,000 was paid to Eron Mortgage Corporation, $128,984 was paid to Eron Mortgage Corporation as an interest reserve and $6,499 was paid in legal fees.
What security was taken on the project ?
A 2nd mortgage was granted to 521384 B.C. Ltd., as bare trustee, in the amount of $1,092,858 registered on seven separate titles, including 3 strata lots and PID 023-079-134. A third mortgage on PID 000-831-760. A third mortgage on PID 000-231-401, and a second mortgage on PID 000-522-503.
Are there any mortgages or other loans in priority to the project security ?
The following mortgages appear to have priority:
- On the remaining three strata lots and PID 023-079-134, Affirmed Mortgage Group Ltd. have a prior mortgage.
- On PID 000-831-760, there appear to be two prior ranking mortgages in favour of Island Savings Credit Union.
- On PID 000-231-401 there appear to be prior ranking mortgages to Montreal Trust and CIBC.
- On PID 000-522-503 there appears to be a prior ranking mortgage in favour of Bank of Montreal.
We have written to these mortgagees but have not yet received a response.
What is the value of the project ?
We have commissioned 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 following additional security would appear to be available:
- We have frozen a bank account in the name of 521384 B.C. Ltd. which has a balance of $106,098.
- Image Construction Ltd. and the other borrowers provided general security agreements in support of the indebtedness.
- The value of this collateral is not yet known, we anticipate gathering this information by the end of November.
Will I get my money back ?
It is too early to tell definitively how much of your money will be recovered. However, at this early stage it appears possible that a significant portion of funds invested in this project may be recovered.
When will I get any money back ?
It is likely to be many months before any money is available to lenders.
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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