Former Epic Alliance employee says firm 'pushed' for higher appraisals of homes it sold to investors
Linda Ranks made the jump from retail to work for Epic Alliance in 2019.
Starting as a receptionist, Ranks says she was attracted to the Saskatoon company because of its origin story – two women with seemingly no expertise in the real estate market who amassed hundreds of homes in Saskatoon and North Battleford built largely on hard work and determination.
“What they were saying is that they wanted to take over the core neighbourhoods, which was their goal to buy out all of the core neighbourhoods eventually and fix (them)."
However, Ranks said when it came to renting out homes to tenants, it seemed like "the complete opposite."
"They just put anybody in there then they destroy the house and then the house would just sit there,” Ranks said.
A court-ordered investigation into the Epic group of companies found the homes managed under its "Hassle-Free Landlord" program often sat vacant or had tenants paying a lower amount than what was required for the property to turn a profit.
Under the landlord program, the investor would take out the mortgage on the home and Epic would take the responsibility for everything else, promising the investor a 15 per cent guaranteed rate of return.
The home purchased by the landlords, who typically lived out of the province, were sourced from another one of the company's lines of business — its "Fund a Flip" program where investors were promised interest for helping Epic company buy homes to renovate and resell.
However, Ranks said the renovations undertaken by Epic’s group of companies were often minor, such as small fixes like changes to light switches. Sometimes more valuable items such as air conditioners were removed from the homes, she said.
The houses would then be reappraised before they were offered to an investor interested in the landlord program.
According to Ranks and the court-ordered investigation, the firm relied on a single appraiser for all of its transactions.
“Once they would get the house they would push to have it appraised at a higher value, whether they did work or not,” she said.
“There was a few instances where I overheard conversations with the appraiser saying, 'That's a little low. We were hoping for this.' And then the appraiser would come back a little bit later with a higher number that was closer to what (they) were wanting,” Rank said.
Epic Alliance was founded in 2013 by Rochelle Laflamme and Alisa Thompson. Attempts by CTV News to reach Laflamme and Thompson have been unsuccessful..
It quickly evolved into various other companies such as Epic Alliance Electrical, Epic Accounting and Bookkeeping, Epic Alliance Real Estate, Epic Holdings and EA Properties Inc.
The group of companies collapsed earlier this year. The court-ordered investigator found $211.9 million invested in the company appears to be mostly gone.
According to Ranks’ affidavit filed at Court of Queen’s Bench and the investigator's report, Epic Alliance exclusively dealt with one appraiser.
The inspector listed an example property which was transferred from investors from its Fund a Flip Program to investors in its Hassle-Free Landlord Program at a significantly higher value than it was purchased for.
The example — described by the investigator as "typical" — told the story of a home appraised at $260,000 which was $62,000 above the original purchase price of $198,000 one year earlier.
The company spent $824 on materials to improve the house, according to the investigator's report.
“Specifically, the interior pictures of the kitchen and bathrooms showed outdated appliances, counter-tops, and cupboards which were not indicative of a renovation occurring,” Ernst and Young’s Peter Chisholm noted in his inspector’s report.
According to the report, two days after the date of the property appraisal — even though a buyer had already been lined up — a seller’s MLS (Multiple Service Listing) brokerage contract was signed between EA Real Estate and a real estate agent with an asking price of $265,000 to be listed through MLS.
The report said the company had stated publicly that the listings were posted on MLS to give the transaction the appearance of not being a private sale and to make it easier to obtain a mortgage.
The realtor received a fee of $1,700 for the listing. Epic Alliance homes were listed by one of two realtors the company consistently dealt with, according to the report.
Based on the available accounting records of Epic Alliance between 2019 and 2022, the investigator found the total monthly income generated on the property was $1,125 — $982 less than the monthly payments that Epic Alliance Real Estate Inc. was paying the hassle-free investor based on the lease agreement.
Mike Russell, the lawyer who argued on behalf of 121 investors to appoint the inspector, says these findings could have larger implications for the entire Saskatoon real estate market.
“If you look at the transaction and the example that the inspector gives in the report, you'll see that there is a nexus between the mortgage brokers, the appraiser, and then the realtors. And it's pretty clear from the example transactions and the description in the report that those parties were acting in concert to — if I'm putting it in the kindest way possible — manipulate the Saskatoon real estate market,” Russell said.
The investigator compared the total mortgage amount on each property to its city-assessed value and found that the average property has a mortgage $20,037 in excess of the city-assessed value.
“This implies that the average property has negative net equity,” the report said.
The investigator found that the average property received an appraised value of $11,325 in excess of the total mortgage amount.
Ranks didn’t realize how all the programs worked together until the Financial and Consumer Affairs Authority began investigating the company last October and issued a cease trade order — leaving the company unable to raise more capital.
“I would hear that we needed to push for more investors because we had too much that we needed to pay out to other investors for their monthly income for the property taxes and the utilities and stuff,” she said.
“Which we thought at the beginning, that's what the rent went to, but there wasn't enough houses that were actually rented to pull a profit with anything. There was probably 60 per cent of the houses that were vacant and unrentable.”
The company was unable to recover from the drought caused by the temporary cease trade order.
“We just couldn’t come back from the cease-trade order. The FCAA f***ed us, so that’s it," Laflamme said during a Jan. 19 Zoom call with investors.
The Saskatoon Police Service economic crimes unit is investigating the Epic Alliance group of companies, based on a complaint from an Ontario investor.
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