INVESTOR ALERT

back to list

  Mortgage Loan Investments for RRSPs

Many people have lost their RRSPs when they were sold mortgage backed investments that offered a guaranteed rate of return. The promoters of the scheme often purchase real property funded by First Mortgages from institutions and Second Mortgages funded by RRSP savings. The RRSP accounts can be administered by the same institution that provides the funding for the first mortgage.
The involvement of a bank or trust company gives an air of legitimacy to the scheme, and the promoters are quick to show that this is a money making scheme with real property as a guarantee. 

What Can Go Wrong?

The price paid for the properties may have been higher than a realistic market value resulting in over mortgaged properties.
The revenue for the project may be less than that projected to make the project workable, resulting in a shortfall to pay the the taxes, the first mortgage, the management fees, the ongoing project costs, and a return to all of the investors. 
The project expenses may have been underestimated which can result in insufficient cash flow to make the project viable.
These very real problems can arise from either incompetence or a willful intent to defraud. Often it is simply incompetence because the promoters did not have any prior experience in running a successful project or a successful business. However, sometimes there is willful intent to use the project as a means of generating profit for the perpetrators of the scheme.
In either case, the net result is the same - the investor loses all of his money.

How Can You Protect Yourself?

1. - Don't invest in any project unless you fully understand how the project works and are satisfied that it is well founded and being run by professionals that have previously run successful projects.
2. - Make sure there is appropriate documentation available and that you have the opportunity to check with the regulators before you make a decision or commit any money to the project.
3. - f you are obliged to make a quick decision say "NO!"
4. - Do not commit all of your savings to a project. If you do invest you should not use more than 20% of your savings.
5. - If you are considering investing in a mortgage backed investment read the Consumer Advisory on this website in which the perpetrators were ordered by the court to write to the investors saying "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." In plain English these investors paid $1.00 for 50 cents worth of real estate!

Sometimes the Projects are little more than Scams

Any project does not come with a 100% guarantee. There are many factors that can cause a project to fail even when the managers are honest and competent. Changes in the economy can sometimes have a devastating effect on a project that is quite workable if none of the conditions change.
Unfortunately some projects are set up to make money for the promoters and there is little hope for the investors to even get their initial investment back. Many projects are over valued and over financed so that the second mortgages sold to people for their RRSPs have little or no value backing them.
The Banks or Trust Company that holds your RRSP money and provides the monthly statement accepts no responsibility for the validity of the investment even though you may believe that because they are involved it must be a fair investment.