One of the loans to a lawsuit-plagued Langley condo project had fees and interest rates so high it was illegal, a judge has ruled.
Justice Shelley Fitzpatrick has been sorting through the foreclosure and receivership proceedings for Murrayville House, a 92-unit condo building near Langley Memorial Hospital.
The condos were built by a company controlled by local developer Mark Chandler. Construction was repeatedly delayed. Some pre-sale buyers had hoped to get their units in early 2016, but between slow construction and lawsuits, the units didn’t go on sale until mid-2018.
With a court-appointed receiver handling the sale of the units, it’s expected about $40 million will be raised. Creditors to the project are owed considerably more than that, and have been jockeying in court over who will be paid and how much.
But one of the mortgages to the builder crossed a legal line, Fitzpatrick ruled in a Feb. 25 judgment.
Interest and fees can’t exceed more than 60 per cent of principle under Canadian law.
The second mortgage on the Murrayville House project was originally to be for $10 million, with a 12 per cent annual interest rate. However, it also included $4 million in fees to be paid back directly to the lenders.
The money was issued to 098, the numbered company that owned the condo project, in several chunks starting in early 2015. By that point, the first mortgage was already in arrears and the builder needed more money to keep construction going, the judge noted.
Chandler’s lawyers argued he should not be liable for the full amount owing for the second mortgage because of the extremely high interest rates. A financial analyst submitted evidence for Chandler showing that the effective interest rate for the loan was 91.28 per cent.
The various parties argued for different interpretations of how much is still owed if the interest rate was more than 60 per cent.
Chandler argued that only $16.7 million is owed on the loan, with the $4 million on broker fees tossed out entirely.
Forjay, one of the lenders, agreed to drop the fees but argued for a higher interest rate and $20.6 million owed.
Other lenders who had put money towards the loan asked the judge to simply drop the interest rate to 60 per cent and calculate what was owed on that basis.
Fitzpatrick considered whether the lenders knew they were going beyond the legal limit on interest and fees. One of the lenders even testified that the fees were “huge” and “massive.”
“The circumstances also suggest that the criminal interest rate did not arise simply from inadvertence,” she wrote.
However, she also took issue with Chandler’s claim that he had few if any options to secure more loans in 2014 and 2015.
“He was a sophisticated developer who entered into these agreements with his eyes open,” Fitzpatrick wrote. “There is no evidence that 098 or Mr. Chandler attempted to negotiate the terms of the second mortgage so as to secure a lower interest rate, or a lower broker fee.”
Fitzpatrick ruled that half of the $4 million in broker’s fees should be eliminated, and the overall interest rate should be 18 per cent per year. She capped the maximum interest at 40 per cent of the total loan.
Chandler is still facing an attempt by the U.S. government to extradite him to face a fraud charge in California related to a failed development there dating to 2009. The Office of the Superintendent of Real Estate, the province’s real estate watchdog, is also planning to hold a hearing into alleged misconduct related to sales of Murrayville House condos.