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To the Lenders in Project # 1145
First Mortgage, Paulsen Road
October 29, 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 raw land near Comox, B.C.
How much was supposed to be raised for the project ?
The principal amount of the mortgage is $360,000.
According to Eron's records how much was actually raised for the project ?
We have identified funding totalling $556,053.
According to Eron's records how much was advanced to the project ?
The borrower received $150,000 paid directly by investors and $219,300 in advances from Eron Mortgage Corporation as trustee. In addition, legal and other fees totalling $18,955 were paid and charged to the borrower. The present principal and interest owing under this mortgage is calculated to be approximately $380,430.
What happened to the rest of the money ?
The existing first mortgage of $36,620 was paid out, Eron Mortgage Corporation was paid $36,856 in broker fees, lenders were paid fees of $14,405 and administration fees of $4,654.
Eron Mortgage Corporation was paid an additional $78,068 "towards interest expense, development costs and other project expenses".
What security was taken on the project ?
A 1st mortgage in favour of Eron Mortgage Corporation in the face amount of $360,000.
Are there any mortgages or other loans in priority to the project security ?
It would appear that there are no prior mortgages on the property. However, we have learned that property taxes of $5,908 must be paid by December 1, 1997 or the property will forfeit to the Crown.
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.
A November, 1994 appraisal indicated the property would have a gross sale value of $498,500 if developed into a 5 lot subdivision with lots ranging from 1.02 to 2.35 acres each. No estimate of development expenses was provided.
Are there any other security or guarantees which might increase recovery on the project ?
The mortgage was guaranteed, without security, by Adolf Schiel, A. Schiel Construction Ltd., Bear Creek Sales Ltd. and Endeavour Developments Ltd.
The value of these guarantees is not known, we anticipate gathering this information by the end of November.
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 advanced to 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
Price Waterhouse Limited
Judicial Trustee
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