IN THE MATTER OF the Mortgage Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c.29, as amended (the “Act”), in particular sections 18, 21, 38, and 39;

AND IN THE MATTER OF Forest City Funding Inc. and William Handsaeme

MINUTES OF SETTLEMENT AND UNDERTAKING

PART I – INTRODUCTION

Forest City Funding Inc. (“FCF”) is licensed as a Mortgage Brokerage under the Act (licence #10671).
William Handsaeme (“Handsaeme”) is licensed as a Mortgage Broker under the Act (licence #M08000225).
Solidity Group Management Corporation (“Solidity Group”) is licensed as a Mortgage Administrator under the Act (licence #12202).
During the relevant time, Handsaeme was the President, Principal Broker, and sole director of FCF, and the President and one of two directors of Solidity Group.
On April 8, 2024, the Director, Litigation & Enforcement (the “Director”), by delegated authority from the Chief Executive Officer of the Financial Services Regulatory Authority of Ontario (“FSRA”), issued a Notice of Proposal in respect of FCF and Handsaeme (the “NOP”).
FCF and Handsaeme disputed the allegations and, on or about April 18, 2024, requested a hearing before the Financial Services Tribunal (the “Tribunal”) in respect of the NOP.
FCF, Handsaeme, and the Director, by delegated authority from the CEO, (collectively the “Parties”) wish to resolve this matter on consent and without a hearing before the Tribunal.

PART II – AGREED FACTS

From 2022 to 2023, and pursuant to subsection 30(1) of the Act, FSRA conducted an examination of FCF (the “Examination”). The Examination took place in two phases.

A. Examination Phase One

The first phase of the Examination involved a review of five transactions in which FCF had arranged a second mortgage (the “Transactions”). In all five of the Transactions:
1. FCF also arranged the first mortgage; and
2. Solidity Group was the lender for the second mortgage.
In all five of the Transactions, FCF assisted the borrower in obtaining a second mortgage that contravened the terms and conditions of the first mortgage.
In all five of the Transactions, the standard terms of the mortgage commitment for the first mortgages contained a term that explicitly prohibited secondary financing. FCF assisted the borrowers in obtaining second mortgages. In doing so, FCF facilitated the borrowers violating the terms of the first mortgages.
FSRA also determined that in four of the five Transactions, the second mortgage was used to pay back supposedly “gifted” down payments, in contravention of the terms of the first mortgage commitments.
All of the first mortgage commitments contained a requirement that any funds provided for a down payment be gifted and not repayable. In these four Transactions FCF submitted a “gift letter” to the first lender stating that the funds for the downpayments were non-repayable.
In addition, the Examination determined that in one of these four Transactions, the FCF mortgage agent loaned funds to be used for the downpayment.
In all five Transactions, FCF presented the second mortgages issued by Solidity Group as being a default-insured mortgage product. FCF and Solidity Group named this mortgage product “Premium Plus”, a reference to mortgage insurance premiums. The second mortgage commitments signed by the borrowers had a fee titled “premium”.
Additionally, all five Transactions contained a signed “Disclosure to Borrower” document (the “Disclosure Documents”) that was also required to be signed by the borrowers.
In all five Transactions, the Disclosure Document disclosed a fee titled “Insurance Premium”. However, Solidity Group is not an approved default-insured mortgage lender. In reality, these “Insurance Premiums” were lender fees for the second mortgages in all five Transactions.
Additionally, in four of the five Transactions, including the one for which Handsaeme signed the Disclosure Documents, the Disclosure Documents indicated there is an amount due which was represented to be a tax on the “Insurance Premium”. This “tax” was in fact an additional lender fee for the second mortgage.

B. Examination Phase Two

Following the first phase of the Examination, FSRA sent Handsaeme and FCF a letter describing the concerns identified above (the “Correspondence”).
Subsequently, and to determine if Handsaeme had brought FCF into compliance with the Act, FSRA requested and reviewed ten additional secondary mortgage transactions that had closed after receipt of the Correspondence. Only one of these secondary mortgage transactions had the same characteristics as the first five Transactions, i.e., FCF also arranged the first mortgage, and Solidity Group was the lender for the second mortgage.
FSRA determined that this transaction contained two of the three concerns that had previously been communicated to Handsaeme:
1. The issuance of the second mortgage contravened the terms and conditions of the first mortgage that prohibited secondary financing; and
2. The second mortgage was used to pay back a supposedly “gifted” down payment, in contravention of the terms and conditions of the first mortgage commitment.
However, FCF no longer included an “Insurance Premium” fee on the Disclosure Document and instead properly described these fees as ”Lender Fees”.

C. Subsequent Leadership and Governance Changes by FCF

Since FSRA’s Examination of FCF and the issuance of the NOP, FCF has taken steps to change its leadership and governance.
On May 12, 2024, Dominion Lending Centres Inc. (“DLC”) and FCF entered into an agreement for DLC to purchase a majority interest in FCF, which became effective May 23, 2024. On May 16, 2024, DLC replaced FCF’s board of directors. The new board of directors immediately replaced FCF’s management and Principal Broker.
As a result of these changes, Handsaeme has been removed from FCF’s board of directors and removed as Principal Broker. In addition, Handsaeme no longer holds a majority interest in FCF.
FCF has also made significant changes to its compliance department to address the issues identified in the Examination and articulated in the NOP. In particular, FCF has:
1. Appointed a new compliance officer (February 2024);
2. Implemented monthly compliance audits (commenced in March 2024);
3. Revised its Policies and Procedures Manual based on the Canadian Mortgage Brokers Association Ontario template, with specific additions related to mortgage investment corporation representation (published for FCF agents and posted on FCF’s website in October 2023 (currently under review for additional changes);
4. Improved its review of Solidity Group deals, including the addition of conflict-of-interest language to all deals and review of disclosure for accuracy prior to signing any commitments (July 2023);
5. Revised and added compliance forms, including Exit Strategy (added July 2023), Material Risk (added December 2023), and KYC/Suitability (anticipated completion June 2024);
6. Revised its annual percentage rate resources (published for FCF agents and posted on FCF’s website in October 2023; updated in January 2024; and currently under review with plans for a significant training program for FCF agents in Summer 2024); and
7. Developed compliance resources including a blog and additional resources on FCF’s website (January 2024).

PART III – NON-COMPLIANCE WITH THE ACT

By engaging in the conduct described above in Part II, FCF admits and acknowledges that it breached the Act as follows:
1. FCF failed to take reasonable steps to ensure that any mortgage or investment in a mortgage that it presented for the consideration of a borrower, lender or investor, as the case may be, was suitable for the borrower, lender or investor having regard to the needs and circumstances of the borrower, lender or investor, contrary to subsection 24(1) of Ontario Regulation 188/08;
2. FCF failed to disclose in writing to a borrower, lender or investor, as the case may be, the material risks of each mortgage or investment in a mortgage that the brokerage presented for the consideration of the borrower, lender or investor, contrary to subsection 25(1) of Ontario Regulation 188/08;
3. FCF failed to disclose in writing to a borrower, lender or investor, as the case may be, any conflict of interest or potential conflict of interest that the brokerage or any broker or agent authorized to deal or trade in mortgages on its behalf may have in connection with a mortgage or a trade in a mortgage that the brokerage presented for the consideration of the borrower, lender or investor, contrary to subsection 27(1) of Ontario Regulation 188/08; and
4. FCF gave, assisted in giving or induced or counselled another person or entity to give or assist in giving any false or deceptive information or document when carrying on the business of dealing in mortgages in Ontario or the business of trading in mortgages in Ontario, when carrying on business as a mortgage lender in Ontario or when carrying on the business of administering mortgages in Ontario, contrary to subsection 43(1) of the Act.
By engaging in the conduct described above in Part II, Handsaeme admits and acknowledges that he did or omitted to do acts that might reasonably be expected to result in the brokerage on whose behalf he is authorized to deal or trade in mortgages to contravene or fail to comply with a requirement established under the Act, contrary to section 3 of Ontario Regulation 187/08.

PART IV – TERMS OF SETTLEMENT

FCF and Handsaeme admit the facts contained in Parts I and II.
FCF and Handsaeme acknowledge and agree that they have been given the opportunity to seek independent legal advice and have done so (or have waived the right to do so) and are entering into these Minutes of Settlement and Undertaking (“Minutes”) voluntarily, understanding the consequences of doing so.
FCF and Handsaeme acknowledge that these Minutes are an undertaking within the meaning of the Act, and that failure to comply may result in immediate regulatory action including, but not limited to, the issuance of a Notice of Proposal to revoke the licence, a Notice of Proposal to impose an administrative penalty, or a prosecution under the Provincial Offences Act.

(a) Issuance of Orders

FCF and Handsaeme acknowledge that, upon execution of these Minutes by all Parties, the Orders attached as Schedule “A” to these Minutes (the “Orders”) will be issued, pursuant to which:
1. FCF will pay ten Administrative Penalties totalling $75,000;
2. Handsaeme will pay an Administrative Penalty of $7,500; and
3. Handsaeme’s license will be suspended for a period of one year.
Handsaeme also undertakes and agrees that following his suspension, if Handsaeme becomes re-licensed conditions will be placed on Handsaeme’s license pursuant to which:
1. Handsaeme will be prohibited from being designated as a Principal Broker of any mortgage brokerage in Ontario for a period of three years;
2. Handsaeme will be prohibited from signing any “Disclosure to Borrower” document for a period of three years; and
3. Handsaeme will be prohibited from acting in any supervisory role while not designated as a Principal Broker.

(b) Process for Execution of Settlement

FCF and Handsaeme acknowledges that these Minutes are not binding on the Director until signed by the Director.
These Minutes may be executed in counterparts, and may be executed and delivered by facsimile or e-mail, and all such counterparts and facsimiles or e-mails, as applicable, shall together constitute one and the same agreement.
Upon receiving an executed copy of these Minutes from FSRA, FCF and Handsaeme will withdraw their Request for Hearing (Form 1) in respect of the NOP before the Tribunal by completing a Withdrawal/Discontinuance (Form 5) and filing it with the Registrar at the Tribunal within two business days.
Upon confirmation from the Tribunal that the Request for Hearing has been withdrawn and the hearing has been cancelled, the Parties agree that the Director will issue the Orders in the form attached as Schedule “A” to these Minutes.
The Parties accept and understand that these Minutes and any rights within the Minutes shall enure to the Parties and to any successors or assigns of the Parties.

(c) Disclosure of Minutes and Orders

The Parties will keep the terms of these Minutes and the Orders confidential until the Orders are issued, except that:
1. The Director shall be permitted to disclose the Minutes and the Orders within FSRA; and
2. The Parties shall be permitted to inform the Tribunal.
If either of the Parties do not sign these Minutes or the Director does not issue the Orders:
1. These Minutes, the Orders, and all related discussions and negotiations will be without prejudice to FSRA, FCF, and Handsaeme; and
2. FSRA, FCF, and Handsaeme will each be entitled to all available proceedings, remedies and challenges, including proceeding to a hearing of the allegations contained in the NOP. Any proceedings, remedies and challenges will not be affected by these Minutes, the Orders, or any related discussions or negotiations.
Upon issuance of the Orders:
1. FCF and Handsaeme agree that these Minutes and the Orders form part of their administrative record for the purposes of any future licensing decision or as an aggravating factor in respect of a future administrative penalty or prosecution against them or any affiliated entities;
2. FCF and Handsaeme acknowledge that these Minutes and the Orders are public and will be published by FSRA on its public website (or that of its successor) along with a press release that summarizes these Minutes and the Orders; and
3. The Parties agree not to make representations to any member of the public or media or in a public forum that are inconsistent with these Minutes or the Orders.

(d) Further Proceedings

Whether or not the Orders are issued, FCF and Handsaeme will not use, in any proceeding, these Minutes or the negotiation or process of approval of these Minutes as the basis for any attack on FSRA’s jurisdiction, alleged bias, alleged unfairness, or any other remedies or challenges that may be available.
Upon issuance of the Orders:
1. FCF and Handsaeme waive all rights to a hearing before the Tribunal regarding the NOP;
2. FCF and Handsaeme waive all rights to a judicial review or appeal of the Orders;
3. The Director agrees that FSRA will not take any further proceedings against FCF or Handsaeme arising solely from the facts contained in Part II of these Minutes, unless facts not disclosed by FCF or Handsaeme come to the attention of FSRA that are materially different from those contained in Part II of these Minutes or FCF or Handsaeme fail to comply with any term in the Orders; and
4. FCF and Handsaeme agrees that should they fail to comply with any term in these Minutes or the Orders, FSRA is entitled to bring any proceedings available to it.

DATED July 12, 2024 in the City of Calgary, Alberta.

Original signed by

James Bell
Director
Forest City Funding Inc.

Original signed by

Lauren Bell
Barrister and Solicitor
Name of Witness

DATED July 15^th, 2024 in the City of London, Ontario.

Original signed by

William Handsaeme

Original signed by

Carolyn Walsh
Name of Witness

DATED July 17^th, 2024 in the City of Toronto, Ontario.

Original signed by

Elissa Sinha
Director, Litigation and Enforcement
Financial Services Regulatory Authority of Ontario

By delegated authority from the Chief Executive Officer

APPENDIX A

IN THE MATTER OF the Mortgage Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c.29 (the “Act”), in particular sections 18, 21, 38, and 39;

AND IN THE MATTER OF Forest City Funding Inc. (“FCF”) and William Handsaeme (“Handsaeme”)

ORDER TO IMPOSE ADMINISTRATIVE PENALTIES AND SUSPEND LICENSE

FCF is licensed as a Mortgage Brokerage under the Act (licence #10671). Handsaeme is licensed as a Mortgage Broker (licence #M08000225) under the Act.

On April 8, 2024, and by delegated authority from the Chief Executive Officer of the Financial Services Regulatory Authority of Ontario (the “Chief Executive Officer”), the Director, Litigation & Enforcement (the “Director”) issued a Notice of Proposal to:

Impose administrative penalties on FCF for failure to comply with subsection 43(1) of the Act and subsection 14.2 of O. Reg. 188/08;
Impose an administrative penalty on Handsaeme for failure to comply with section 3 of O. Reg. 187/08;
Suspend the license of Handsaeme for one year; and
Upon the expiration of the suspension, impose conditions on the license of Handsaeme.

A Request for Hearing (Form 1) was delivered to the Financial Services Tribunal (the “Tribunal”) on April 18, 2024, in accordance with section 39(5) of the Act respecting the Notice of Proposal.

On [date], FCF and Handsaeme withdrew the Request for Hearing, and, on [date], the Tribunal closed its file in respect of this matter. Therefore, pursuant to sections 21(7) and 39(7) of the Act, the Director makes the following Orders.

ORDER

Five administrative penalties in the total amount of $75,000 are hereby imposed on Forest City Funding Inc. for breaching subsection 43(1) of the Act, for the reasons set out in the Minutes of Settlement and Undertaking.

TAKE NOTICE THAT the Financial Services Regulatory Authority of Ontario will deliver an invoice to Forest City Funding Inc. with information as to where and how to pay the administrative penalty. Forest City Funding Inc. must pay the administrative penalty no later than thirty (30) days after the date of this Order or as otherwise agreed with the Financial Services Regulatory Authority of Ontario.

If Forest City Funding Inc. fails to pay the administrative penalty in accordance with the terms of this Order, the Chief Executive Officer may file the Order with the Superior Court of Justice and the Order may be enforced as if it were an order of the Court. An administrative penalty that is not paid in accordance with the terms of an Order imposing the penalty is a debt due to the Crown and is enforceable as such.

DATED at Toronto, Ontario,

Elissa Sinha
Director, Litigation and Enforcement
Financial Services Regulatory Authority of Ontario

By delegated authority from the Chief Executive Officer

Si vous desirez recevoir cet avis en français, veuillez nous envoyer votre demande par courriel immediatement a : contactcentre@fsrao.ca.

ORDER

An administrative penalty in the amount of $7,500 is hereby imposed on William Handsaeme for breaching section 3 of O. Reg. 187/08, for the reasons set out in the Minutes of Settlement and Undertaking.

TAKE NOTICE THAT the Financial Services Regulatory Authority of Ontario will deliver an invoice to Handsaeme with information as to where and how to pay the administrative penalty. William Handsaeme must pay the administrative penalty no later than thirty (30) days after the Order is issued or as otherwise agreed with the Financial Services Regulatory Authority of Ontario.

If Handsaeme fails to pay the administrative penalty in accordance with the terms of this Order, the Chief Executive Officer may file the Order with the Superior Court of Justice and the Order may be enforced as if it were an order of the Court. An administrative penalty that is not paid in accordance with the terms of an Order imposing the penalty is a debt due to the Crown and is enforceable as such.

DATED at Toronto, Ontario,

Elissa Sinha
Director, Litigation and Enforcement
Financial Services Regulatory Authority of Ontario

By delegated authority from the Chief Executive Officer

Si vous desirez recevoir cet avis en français, veuillez nous envoyer votre demande par courriel immediatement a : contactcentre@fsrao.ca.

ORDER

The Mortgage Broker licence (licence #M08000225) issued to William Handsaeme is hereby suspended for a period of one year, for the reasons set out in the Minutes of Settlement and Undertaking.

DATED at Toronto, Ontario,

Elissa Sinha
Director, Litigation and Enforcement
Financial Services Regulatory Authority of Ontario

By delegated authority from the Chief Executive Officer

Si vous desirez recevoir cet avis en français, veuillez nous envoyer votre demande par courriel immediatement a : contactcentre@fsrao.ca.

Last Updated: July 31, 2024. These minutes of settlement, originally issued on July 30, 2024, contained an incorrect spelling of James Bell's surname. The correction has been applied. FSRA is committed to transparency. We have also undertaken an internal review of our processes.