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Mortgage Investments Consumer Advisory

FSCO - April, 1999

FSCO Consumer Advisory - Mortgage Investments

Below is a Consumer Advisory dealing with mortgage investments in East Gwillimbury and Oshawa. It is being issued by the Financial Services Commission of Ontario (FSCO) for the information of consumers. FSCO is an arm-length's agency of the Ontario Ministry of Finance that is responsible for the regulation of insurance, pension, credit unions/caisses populaires, trust and loans, co-operatives and mortgage brokers.

This Consumer Advisory provides an update of an earlier Consumer Advisory on the same subject that FSCO issued on September 10, 1998.

ONTARIO COURT RESOLUTION FOR INFORMATION
TO INVESTORS IN MORTGAGED PROPERTIES
An Ontario court has approved a resolution requiring the developers and owners of mortgaged properties in Oshawa and East Gwillimbury (near Newmarket) to provide the mortgage investors with information on the findings of an investigation on these investments by the former Registrar of Mortgage Brokers.

The Court-approved arrangement requires JAAS Holdings Inc. and JAAS (Northwood) Inc. to provide the information to persons who had invested their RRSP (Registered Retirement Savings Plan) funds in mortgage loans on the properties. The JAAS companies are required to send a letter to inform investors of both the purchase price and the mortgage amount of each property. This information will enable investors to determine the extent to which the mortgage in which they invested was higher than the purchase price of the property.

The resolution approved by Mr. Justice Blenus Wright of the Ontario Court General Division was reached after Laurentian Trust Company, the trustee of the two mortgages for the RRSP investors, requested the court's permission to notify the investors of the price information on the properties.

Approximately 400 persons invested more than $7 million in the properties through Realty Lynks Ltd. and Suzana Milovanovic. Both surrendered their registrations as licensed real estate brokers in October, 1997.

The investigation by the Registrar of Mortgage Brokers, whose duties are now carried out by the Superintendent of Financial Services, found that mortgages were higher than the purchase price of the land; investors had received out-of-date appraisals; and the property values in Oshawa and East Gwillimbury had depreciated since the mortgages were first taken out.

To ensure that non-RRSP investors were also informed of the mortgage and purchase prices of the Newmarket and Oshawa properties, FSCO gave the information to Arnie Goldstein, a lawyer, who is the trustee for non-RRSP investors, with a request that he redirect the information to these investors. In the event that non-RRSP investors have yet to receive this information from the trustee, FSCO is providing the information by attaching copies of the Court-approved letters to the RRSP investors (see attachment).

Laurentian Trust Company also agreed to notify all the RRSP investors in the Newmarket and Oshawa properties that two RRSP investors wanted to discuss the circumstances and status of their investment with their co-investors. Laurentian's notice to all the RRSP investors was to indicate that the lawyer representing the two investors is Julian R. Nawrocki of the Toronto law firm of Feige, Nawrocki
(tel. (416) 366-8833, extension 231. )

Laurentian's notice to all the RRSP investors about the inquiry of two of their co-investors was a resolution of another court proceeding arising from this matter. The issue was whether the Court could order Laurentian to disclose the names and addresses of some investors to other investors who had concerns about the mortgage investments. Laurentian was concerned that it had an obligation of confidentiality not to disclose the names and addresses of its clients to anyone. The resolution balanced Laurentian's concerns about confidentiality with the desire of the two RRSP investors to contact their co-investors, by having Laurentian provide its investors with the name of the lawyer representing the two investors, so that the RRSP investors could contact the lawyer if they wished.

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The following is the text of two letters that were approved by the Ontario General Division Court, as part of the court resolution. Note: Other information such as the status of development applications, etc. appear in brackets "[ ]" because the information is only available to the JAAS owner corporations.

[Letterhead of JAAS Holdings Inc.]
Re: Woodbine property
NOVEMBER 6 1998

We write to give you a status report on this project. As you know, the property was purchased on September 23rd, 1991. The purchase price was $2.6 million and our mortgage, for the RRSP investors (administered by General Trust, and now the Laurentian Bank of Canada) and non-RRSP investors (administered by Arnie Goldstein, Barrister & Solicitor) was placed on the property in the principal amount of $3.9 million.

JAAS has been and continues to be working diligently to develop this project in order that the investments can be paid out as soon as possible.

As you know, the Woodbine Estates project was being developed into a cemetery and the Town denied our application in such a way that we believe it was an abuse of process. We enclose copies of previous updates for your summary and reference. Unfortunately, despite the opinions and evidence of our expert witnesses, we were not successful at the Ontario Municipal Board hearing. We have appealed this decision to the Divisional Court, which appeal remains outstanding. We will advise you of the outcome of the appeal which it is heard.

We believe that had the Town of East Gwillimbury adhered to its own planning rules, our project should have been approved for cemetery purposes within the first few years, and the land would have significantly increased its value as it would have been improved from raw land into developed land. We enclose a copy of the site plan and an article which reflected the need for additional cemetery lands and their value at about the time our application should have received approval.

Some investors have asked whether the lands can be sold now and what is the value of the land. In our opinion, this is not the right time to sell. Until a site plan is approved, the lands will not be as valuable as they could be.

The ups and downs of the land values are similar to the stock market. You are probably aware of the current situation with many mutual fund and stock market investments in that the stock markets have seen a substantial reduction in value in the last while. Values fluctuate and go in cycles. That is why this investment was set over the long term. We thank you for your patience.

We are looking forward, as I am sure you are, to the early and successful completion of this project.

You may recall that Realty Lynks Ltd. and Ms. Suzana Milovanovic acted as a broker in connection with this project. In October 1997, Realty Lynks Ltd. And Ms. Milovanovic cancelled their registrations as brokers. Ms. Milovanovic is not well, and for health reasons is unable to carry on an active business through Realty Lynks Ltd., and there being no reason to keep the registrations, cancelled them.

If you have any questions about the project, please contact JAAS at (905) 629-8322, rather than Realty Lynks Ltd., which is no longer involved in the project.

***** [Letterhead of JAAS (Northwood) Inc.]
re mortgaged property in Oshawa, Ontario
[DATE UNKNOWN]

We write to give you a status report on this project. As you know, the property was purchased on May 12th, 1992. The purchase price was $1.735 million and our mortgage, for the RRSP investors (administered by General Trust, now the Laurentian Bank of Canada) and non-RRSP investors (administered by Arnie Goldstein, Barrister and Solicitor) was placed on the property in the principal amount of $3.5 million.

JAAS has been and continues to be working diligently to develop this project in order that the investments can be paid out as soon as possible.

As you know, we have been reviewing and defining the scope of work required to obtain the highest and best use for the Northwood lands. Certain of the studies are complete, and other reports and studies mentioned in our last update are ongoing.

We believe that the Town will soon give direction to its decision as to what the zoning of the lands will be. The region's designation is "employment area", which would suggest industrial. We are continuing to monitor the situation with a view to acquire the best and highest use for the lands. We enclose copies of previous updates for your summary and reference.

Some investors have asked whether the lands can be sold now and what is the value of the land. In our opinion, this is not the right time to sell. Until a site plan is approved, the lands will not be as valuable as they could be.

The ups and downs of the land values are similar to the stock market. You are probably aware of the current situation with many mutual fund and stock market investments in that the stock markets have seen a substantial reduction in value in the last while. Values fluctuate and go in cycles. That is why this investment was set over the long term. We thank you for your patience.

We are looking forward, as I am sure you are, to the early and successful completion of this project.

You may recall that Realty Lynks Ltd. And Ms. Suzana Milovanovic acted as a broker in connection with this project. In October 1997, Realty Lynks Ltd. and Ms. Milovanovic cancelled their registrations as brokers. Ms. Milovanovic is not well, and for health reasons is unable to carry on an active business through Realty Lynks Ltd., and there being no reason to keep the registrations, cancelled them.

If you have any questions about the project, please contact JAAS at (905) 629-8322, rather than Realty Lynks, which is no longer involved in the project.