Mortgage Syndicate Required To Repay Funds To Investor Due To Breach Of Subscription Agreement

• Published date: 07 September 2021
• Law Firm: Gardiner Roberts LLP
• Author: Mr James R.G. Cook

Mortgage syndicates may offer individual investors the opportunity to realize high rates of return by participating in real estate developments and other projects. However, notwithstanding that the funds invested may be secured by way of a mortgage, the pooling of money with other investors and the role of the intermediary agents and trustees in controlling the funds creates risks that are not usually associated with a conventional mortgage. Participation in a mortgage syndicate usually involves a "subscription agreement" between the individual investor and the party to whom they pay their share of the funds for the project. Such agreements have received relatively little consideration by the courts to date.

In Khwaja v. Jinnah, 2021 ONSC 4614 (CanLII), the plaintiff was a homemaker who had invested $100,000 in a mortgage syndicate. In November 2007, she and her late husband were encouraged by an individual they met through a mutual friend to participate in an investment opportunity for a development project in Richmond Hill, Ontario, for the construction of 118 residential homes by a builder/developer known as Silver Streams Homes.

A corporation known as "53 Puccini" was incorporated to provide a vehicle for lenders to the project through a mortgage syndicate to be held in trust by 53 Puccini. The mortgage would be registered against title to the land registered to a numbered company, 214 Ontario. During the term of the loan, investors would receive monthly interest payments. Investors were to be repaid in full from the sale of the proceeds of completed homes.

On December 3, 2007, the plaintiff paid...