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Have you been working with real estate deals financed using syndicated mortgages? If so, it may be time to re-evaluate.
Syndicated mortgages are investments where a developer finds several private lenders to invest money in a property, instead of getting a loan through a bank.
Syndicated mortgages have been linked to mortgage fraud, including more than 120 people in the Greater Toronto Area who allegedly lost millions during a syndicated mortgage deal in 2017, as reported by the CBC.
In February of 2018, the Financial Services Commission of Ontario (FSCO) issued $1.1 million in fines as part of a settlement with four mortgage brokerage companies involved with syndicated mortgages tied to real estate projects for Fortress Real Developments Inc. and revoked five broker licenses.
The Government of Ontario has created new regulations to hopefully minimize these types of occurrences. As of July 1, 2018, provincial regulatory changes to syndicated mortgage transactions in Ontario are in effect under the Mortgage Brokerages, Lenders, and Administrators Act. Under the new rules, non-qualified syndicated mortgages will have to comply with expanded requirements.
What is a qualified syndicated mortgage?
Let’s first look at what counts as a qualified syndicated mortgage:
A syndicated mortgage that secures a debt obligation incurred for the construction or development of property is not qualified.
As of July 1, 2018, mortgage brokerages dealing with non-qualified syndicated mortgages (anything not complying with the list above) will be required to:
What real estate sales professionals can do
If you are aware of a deal being financed with a syndicated mortgage, do your due diligence. Make sure that it’s compliant with the above regulations.
You can also independently verify the property value. For example, our GeoWarehouse tools make it easy to validate that information and more.
View the full text of the new FSCO regulations here: https://www.fsco.gov.on.ca/en/mortgage/Pages/smi-amendments.aspx
With the FSCO cracking down on syndicated mortgages, it’s more important than ever to exercise due diligence. GeoWarehouse can help.
Learn more about how our tools can help detect mortgage fraud. Visit www.geowarehouse.ca.