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To the Lenders in Project #1146
2nd Mortgage on Ucluelet Property
Borrower: Golden Horizon Resort Ltd.
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 project pertains to the acquisition and development of a site near Ucluelet, B.C.
How much was supposed to be raised for the project?
$3,000,000
According to Eron's records how much was actually raised for the project?
$3,074,698
According to Eron's records how much was advanced to the project?
The money was advanced through 509097 BC Ltd. pursuant to a mortgage registered (Victoria Land Title office, registration no. EJ133874) against the two lots owned by the borrower in Ucluelet, B.C.
Our initial review indicates that the borrower received $1,257,511 including $400,000 used to complete the purchase of the land.
What happened to the rest of the money?
While our review is not complete, it appears that $372,648 was paid to Eron Mortgage Corporation in fees, $49,326 were legal fees, and $21,050 was paid as fees to lenders in this syndication, and a great deal was paid in interest to investors (though we have not determined whether that was interest solely for this project or for other projects as well). We have identified $172,000 of interest and charges which was paid out in respect of the Emerald Estate and Paulson Road projects.
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 18% is on the property. The balance outstanding under the mortgage is calculated to be $2,498,179 as at September 26, 1997.
Are there any mortgages or other loans in priority to the project security?
A 1st mortgage in favour of the District of Ucluelet. Recent foreclosure documents drafted by the Village of Ucluelet indicate the District of Ucluelet is owed $3,852,574 as at September 14, 1997.
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, A. Schiel Construction Ltd., Endeavour Developments Ltd. and 470998 BC Ltd. Bear Creek Sales Ltd. guaranteed the repayment of the mortgage and granted a charge on the property known as the Nanaimo Business Centre.
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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