This document provides an overview of mortgage investing. It discusses what a mortgage is, the advantages of owning mortgages such as high returns and safety due to low loan-to-value ratios. It describes how wraparound mortgages can provide increased yields for investors by charging interest on both the underlying first mortgage and new funds. The document emphasizes that private mortgage lenders can make loans faster than banks, though borrowers pay higher interest rates for this speed. Overall security for investors comes from securing loans with real property that can be foreclosed on if needed.

2. Mortgage Investing
Page 2 BUILDING COMMUNITIES

3. Disclaimer
THIS BOOK IS AN EDUCATIONAL TOOL FOR INVESTORS INTERESTED IN
MORTGAGE INVESTING, LEARNING ABOUT THE REAL ESTATE
DEVELOPMENT INDUSTRY, AND THE ENZO GROUP OF COMPANIES.
WHILE INFORMATION IN THIS BOOK IS BELIEVED TO BE ACCURATE AT THE
TIME OF PRINTING, THE COMPANY RESERVES THE RIGHT TO MAKE
CHANGES AT ANY TIME FOR ANY REASON AND WITHOUT NOTICE. THE
READER SHOULD RELY ON THEIR OWN DUE DILIGENCE AND ENLIST THE
SERVICES OF COMPETENT PROFESSIONALS WHEN MAKING INVESTMENT
DECISIONS.
THIS BOOK IS NOT INTENDED TO BE AN OFFERING OF SECURITIES NOR A
SOLICITATION TO PURCHASE SECURITIES. OFFERS OF SECURITIES CAN
ONLY BE MADE PURSUANT TO AN OFFERING MEMORANDUM DELIVERED
TO QUALIFIED OFFEREES. INTERESTED PARTIES SHOULD DIRECT
INQUIRIES TO:
Enzo Financial Group
2109 – 4TH Avenue SE (PO Box 5561)
High River, Alberta
403.668.7720
info@enzofinancial.com
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4. Mortgage Investing
PART ONE MORTGAGE INVESTING
Preface
Knowledge is Power
After reading this book, you will have a clear understanding of what mortgage-based
real estate investments are, what the advantages are to owning them through
Real estate investment in a fund, and what methods are employed to protect the investment.
backed This knowledge will inspire confidence in a sound investment product with high
mortgages returns and minimal risk.
consistently
provide some of Purpose of This Book
the highest This book is written in a quick-reference format that will help you as you are
returns contemplating the inclusion of mortgage-backed real estate investments as part of
from one of the your investment portfolio. It is designed to give you an easy-to-read overview of the
safest Enzo Mortgage Investment Fund business model, including its altruistic side
investments regarding its target market of borrowers. It should be read with the understanding
available that it is not a complete treatise on real estate, but raises issues, good and bad, that
in the investor commonly occur with the purchase of mortgage-based real estate investments.
marketplace
The Fundamentals
today.
The fundamentals of mortgage investments begin with a discussion of what a
mortgage is, described in the sections "Mortgage Investments" and "Mechanics of a
Mortgage", then discusses the advantages of mortgages in the sections "Advantages
of Owning Mortgages" and "Why Mortgages Pay a High Rate of Return". Security is
discussed in the chapter "Loan-to-Value."
Increased Yield and Safety
The section "The Magic of the Wraparound Mortgage" details the use of the
wraparound mortgage to improve yield and safety in mortgage investments and
provide the means of achieving high yields.
Mortgage Provider
The sections "Direct Participation Mortgage Programs" and "Investor Relations"
point out the advantages of making an investment in a fund designed to be secured
by a portfolio of many mortgages, rather than an individual investing in single
mortgages.
Investment Considerations
The details involved with contemplating mortgage investments are discussed in the
sections "Loan Underwriting” and "Loan Servicing and Collection". Enzo Fund
Management Services Inc. is responsible for all mortgage lending details.
Page 4 BUILDING COMMUNITIES

5. Mortgage Investing
Wouldn’t it be great if . . .
You could invest in stocks at sixty, seventy, or even eighty percent of their market
value? Would you feel like you had some breathing room if the company didn’t
perform as planned? Of course you would. You could quickly sell your shares at
current market value without taking a loss. Fantastic!
Unfortunately, that’s not the way the system works. You buy into the stock at 100%
of market value. Any gains you might achieve along the way can quickly evaporate
before you know what hit you. Where is the cushion if things go wrong? And what
about your initial investment, the principal? That’s certainly at risk, too!
For some investors the stock market is too volatile and risky so they go the opposite
way and forego the possibility of high returns for a safe investment in GIC’s, Canada
Savings Bonds, insured savings accounts, etc. The problem is the interest rates are
not very attractive and they get taxed on the earnings to boot! Obviously, the
marketplace offers many alternatives for the investor’s dollars. The differences lie in
the level of risk and reward with each investment vehicle.
Now for the good news . . .
There is an alternative for your investment dollars that is both safe and profitable.
Many investors have discovered the advantages of making short-term real estate
mortgage loans, just like a bank or mortgage company. (Do you think a bank would
do it if it wasn’t profitable and safe?)
Real estate-backed mortgages consistently provide some of the highest returns from
one of the safest investments available in the investor marketplace. For some
investors the
High Rate of Return
stock market is
In addition to the security of real property, there is also the advantage of higher
too volatile and
returns for the mortgage investor. The reason for this higher rate of return is that
risky so they go
many borrowers are willing to pay a higher-than-normal interest rate in exchange
the opposite way
for the flexibility and speed of private loans. Private investors are not limited by the
and forego the
traditional rules of bank-made loans and, therefore, loans can be made quickly and
possibility of high
efficiently.
returns for a safe
Loan-to-Value investment in
Mortgages are safe investments because borrowers are typically good risks for a GIC’s, Canada
couple of reasons. One, they could lose their property if they default on the loan. Savings Bonds,
Two, if the proper research has been performed by the lender, the investment will insured savings
have a more than adequate loan-to-value ratio, or LTV, meaning the loan amount is accounts.
exceeded by the value of the property.
Mortgages
A mortgage is used to secure a loan on property. Foreclosure is a highly efficient way
to enforce the terms of a mortgage secured by real estate. The borrower has no
redemption rights once the foreclosure has occurred.
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6. Mortgage Investing
Secure Investment
As the examples in this book show, mortgages provide a simple and efficient
foreclosure process by which to recover investment dollars, while generally being
secure. Although foreclosure is unlikely, the possibility gives a borrower great
incentive to quickly and fully pay monies that are due. If the lender does have to
resort to foreclosure, they will usually profit from the process.
Advantages of Owning Mortgages
Mortgage ownership is one of the most misunderstood and safest investments in the
marketplace today. Many investors are under the misconception that only banks
and other institutional lenders are allowed to make a mortgage loan. Actually,
anyone can make a loan on property, secured by a private mortgage (meaning the
mortgage is owned by a non-institutional lender).
There are a myriad of investments being offered in the marketplace for the
investor's dollars. Mortgages should be included in every serious investor's
diversified portfolio. They may not have the sizzle associated with the volatile stock
market but they are safe, stable and yield steady, above-market income. Other
advantages include:
1. Mortgages establish a passive income stream through interest payments
received from the borrower.
2. The ROI rate earned is much higher than rates paid by institutional products
such as CDs, money market accounts, or government notes.
3. Mortgages are liquid and relatively easy to sell.
4. Mortgages can be traded.
5. A lender can use their mortgages as security for another loan. This is called
collateralizing or hypothecating.
6. In the case of a discounted mortgage, the financial statement shows the full face
value of the mortgage, not the discounted amount. The investor is, therefore,
automatically worth more unless there is a reason to write down the mortgage
due to questions as to collectability.
7. As a lender, there is no upkeep, repair, maintenance, painting, gardening, or
plumbing, as is the case with property ownership.
8. A lender's protection increases each month if the loan amount is being lowered
through amortization.
9. Many mortgages do not carry to full term. This is because the notes have an
acceleration clause which requires them to be paid in full if they or the collateral
property are sold.
10. In general, the longer a mortgage is held the safer and more valuable it
becomes. This occurs because the equity builds as the property increases in
value because value is added to the land (engineering, design, architecture, land
use zoning, etc.) and the principal is paid down (amortization). The borrower
has an increasing incentive to protect his property. In cases where the investor
Page 6 BUILDING COMMUNITIES

7. sells the mortgage, the price may not have to be discounted as much because the
length of steady payments, equity, and reduced payoff time have made it more
valuable than less seasoned loans.
Wraparound Mortgage
The wraparound mortgage is an investment vehicle that can generate high returns
with minimal additional risk to the lender. It is one of the best methods available to
obtain high yields on investment. A wraparound mortgage is subordinate (junior) to
the existing first mortgage on a property, just like a second mortgage. This type of
loan will "wrap around" the current debt and will include any new funds advanced.
The following example illustrates the mechanics of the wrap loan.
Wrap Borrower's Position
The owner of a property valued at $700,000 is in need of a quick $100,000 second
mortgage loan. There is an existing first mortgage of $400,000 on the property at
7% interest. Rather than refinancing $500,000 or obtaining a second mortgage
through an institutional lender (which can easily take many weeks or months with
considerable red tape), the borrower finds a private lender willing to extend the
$100,000 he needs. However, because the private lender will be in a subordinate
position, he wants assurance the payments on the first mortgage are being made in a
timely manner. He also is looking for an above-market yield on his investment. To
accomplish both, the lender insists on holding a wraparound mortgage of $500,000
at 9% interest, and advances the needed $100,000 when the borrower agrees.
In a wrap mortgage the borrower makes only one monthly payment to the wrap
lender, which includes the payment due on the first mortgage. The wrap lender will
then make the payment to the first mortgage holder. This way the wrap lender
knows the first is being paid on time every month. If the borrower defaults, the wrap
lender can make the payments on the first mortgage to protect its interest, and move
to foreclose on the property.
Wrap Lender's Position
There are strong financial benefits for an investor when taking the wrap mortgage
position. In this example, the wrap lender is only advancing $100,000 of "new"
money, and is also receiving the 2% interest rate "point spread" (the difference
between 7% on the existing first mortgage and 9% on the wrap mortgage) on the
$400,000 first mortgage. The interest received on the wrap loan is $45,000 per year
(9% of $500,000) and the payments made on the first loan is $28,000 per year (7%
of $400,000). This $17,000 difference is the yield on the $100,000 of new money
advanced. Dividing the $17,000 by $100,000 translates to a 17% annual yield on the
new money.
A property owner is willing to do this when he needs the money fast, is in financial
trouble or is having difficulty qualifying for conventional financing. The reasons
could be one of many. For instance, he may be unable to prove income because he is
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8. Mortgage Investing
self-employed, has a low credit score or needs to bail out of possible foreclosure. Or,
if he is an investor, he may need the money fast to take advantage of a great
opportunity.
In any case, the transaction looks like this:
Existing 1st Loan $400,000
Interest Rate 7%
Annual Interest Payments $ 28,000
Existing 1st Loan $400,000
The wraparound New Money $100,000
mortgage lender Wrap Mortgage Balance $500,000
has the advantage
Interest Rate on Wrap 9%
of the point
Annual Int. Pmts. Received on Wrap $ 45,000
spread between
the interest Less Annual Payments Made on 1st Loan $ 28,000
charged on the Difference in Payments $ 17,000
underlying senior Annual Effective Yield on New Money 17%
debt and the Since the new money advanced is wrapping around the existing first mortgage loan,
interest charged the wrap lender will also enjoy the benefit of principal reduction as the first loan is
under the wrap. paid down through amortization. Using a wrap mortgage is a great way to reduce
the risk while maximizing yield.
If the borrower fails to make the payment on the wrap, foreclosure ensues. The wrap
lender can continue to make payments on the first mortgage loan while foreclosing
the wrap loan. The wrap lender can also pay off the first loan, thereby automatically
moving the wrap mortgage into first position.
T he Power of Leverage
The principle benefits of a wraparound mortgage for the Fund’s investors are:
Increased Security
The loan is very safe because the combined senior and junior debt on the property is
under 65% LTV. Also, the senior lien cannot default without the wrap holder's
knowledge.
Increased Yield
The wraparound mortgage lender has the advantage of the point spread between the
interest charged on the underlying senior debt and the interest charged under the
wrap. When combined with the point spread on the 1st mortgage, the yield on the
new money climbs from 9% interest to 17% interest, nearly doubling. By using the
leverage structure of a wrap mortgage, the small amount of new money relative to
the overall debt earns much higher returns. Also, in addition to the closing costs
incurred when making the loan, the wrap lender will charge the borrower points and
fees on the wrap mortgage amount for advancing the new money.
Now, that's some powerful leverage!
Page 8 BUILDING COMMUNITIES

9. High Rate of Return
Why would anyone pay a private mortgage lender an interest rate that is higher than
conventional rates when they can go to a bank for a lower rate? There are several
reasons:
• Banks take too much time to commit to a loan
• The loan sought is not the type of loan typically made by a bank.
• Some borrowers do not wish to be scrutinized by the bank loan process or
provide the substantial amount of paperwork requested.
• The borrower may not qualify for traditional bank financing.
The Private Mortgage Lender is Protected by a Low Loan-to-Value (LTV) Ratio
The reason a private lender will make such a loan is because the concerns of private
mortgage investors are not usually the same concerns that banks have. LTV is the
most important factor to private lenders. It may not matter what the borrower's
credit history may be since the principal is well secured by the property. The loan is
primarily based on the value of the property. If a person does not have stellar credit
but has a great deal of equity in his property, he will usually find a way to make the
monthly payments. Of course, this does not guarantee that a borrower will not
default, but in that instance EFG is designed to address defaults through
foreclosure, which is intended to have sufficient underlying equity to enable the
Fund to be made whole (absent a significant decline in the value of the property).
Quick Loans Cost More
A private mortgage
Time is also a consideration. Banks and their government regulators have created rules,
lender can usually
policies and ratios that make lending on real property difficult and slow. Common sense and
make a loan in a
customer service are not always pervasive in the lending industry.
week or two, or
A private mortgage lender can usually make a loan in a week or two, or even in a few days if even in a few days if
necessary, rather than the months it often takes through a bank. This speedy process is necessary, rather
attractive to a borrower who is willing to pay a premium through up-front fees and higher than the months it
interest rates. often takes through
a bank. This speedy
Loan-to-Value
process is attractive
This is one of the most important sections of this book and investors need a clear to a borrower who
understanding of its implications. is willing to pay a
premium through
Mortgage lending is one of the safest ways to invest while earning a high yield with up-front fees and
good security. The reason for this security is the principle of loan-to-value (LTV). higher interest
Loan-to-Value means to loan an amount of money that is less than the actual value rates.
of the property. This is the most important facet of lending on real estate. With an
adequate LTV, the original investment is protected and a cushion of equity remains
to pay any unexpected costs, absent a meaningful decline in the value of the
property.
Page 9

10. Mortgage Investing
In the game of Monopoly, the most sought after piece of property is Boardwalk
because of its high value and high rent. To purchase this dark blue card, the cost is
$400. However, to mortgage this card a player receives only $200 from the banker.
The loan was $200 and the value $400. The LTV is $200 divided by $400, or 50%.
To illustrate through a common experience: a homeowner is seeking a home loan
secured by his residence. His property is worth $500,000 and he would like to
borrow $300,000, secured by a new mortgage. The ratio is $300,000 (loan) to
$500,000 (value) or 60%. This is a safe loan for a lender because the loan only has a
60% LTV and the borrower still has $200,000 (40%) equity in the property.
LTV at 65%
As a lender, the goal is to try to keep the loan-to-value at the lowest possible
number. The LTV should usually not exceed 65%, which would include a
combination of all financing on the property. For instance, there may be an existing
first mortgage on the property of 50% of its value, leaving 15% equity which can be
safely used as collateral for a new second mortgage or "wraparound" (all-inclusive)
mortgage loan.
The graphic illustrates the safety margin due to the equity cushion remaining after
placing a low loan-to-value mortgage loan on the property. There is still an adequate
equity cushion, or safety margin, in the property to assure the lender(s) will receive
a return of principal and interest if it becomes necessary to foreclose on the
property. This is why it is vital that an accurate, independent appraisal is obtained
before closing so that the proper LTV is
calculated.
The primary goal of the mortgage lender should
be to preserve their principal, safeguarded by a
low LTV. Risk is greatly reduced when the
mortgage lender loans less than the full value of
the collateral real estate. The LTV ratio should
be low enough for the lender to know their
principal is well covered by the borrower's
remaining equity, insuring it against falling real
estate values and unforeseen problems. EFMS
usually caps the loan amount at 65% of value
and will go over that amount only if there are
special circumstances that warrant such an increase.
Loan Underwriting
The most important aspect of mortgage investing is the underwriting discipline of
the lender. Underwriting is the process the lender goes through to qualify a
borrower for a loan and to ensure the loan is structured and documented correctly.
The most important part of the underwriting process is determining the loan-to-
value ratio. The LTV is usually determined by comparing the loan amount to the
appraised value of the collateral securing the loan.
Page 10 BUILDING COMMUNITIES

11. Equity Protects the Lender
When loans are properly underwritten, there tend to be fewer problems for the
duration of the transaction. If there are problems, borrowers are motivated to fix
them in order to protect their equity in the property. Most problems can be solved;
it is usually just a matter of cost. Should the borrower fail to solve the problems, the
margin of equity in the property allows the lender to absorb the cost of solving
whatever problems there may be.
When there are underwriting weaknesses, however, there is a higher likelihood of
problems. The borrower is less likely to solve the problem, which then becomes the
lender's problem. Multiple problems tend to have a compounding effect, making
collection of the loan in full even more difficult.
A simple example should illustrate the point. If someone is lent $500,000 on a
property that is worth $400,000 (125% LTV) and encounters financial difficulties, it
is less likely he will find a way to make the payments than if he borrowed $200,000
(50% LTV) on that same property. The options available in the second case include
selling the property or refinancing with another lender. These options are available
because the borrower is motivated to protect his $200,000 equity in the property.
These options are much less attractive, or even impossible, in the first example
where there is no equity.
Appraisals Determine LTV Ratios
Most lenders rely on appraisals to determine LTV in analyzing a loan situation.
Lenders should employ a formal process of ordering and reviewing appraisals for
loan underwriting purposes.
Many lenders have an in-house appraisal review department. Licensed appraisers
are required to pass certain tests and meet educational and experience
requirements. An appraisal is not an absolute guarantee of value for a particular
piece of real estate, nor a guarantee that a property will continue to hold its value
with time, but it is an important tool for the lender when assessing risk.
Appraisals generally look at value using three different approaches. They are the
income approach, the replacement cost approach and the sales comparison
approach. The income approach looks at the value of real estate based on the
income stream the property can generate. This is generally used for commercial
properties such as apartment buildings and shopping centers. The cost approach
looks at the hard costs it would take to replace the property, including a developer's
profit. This approach can be used for any improved property. The sales comparison
approach looks at the prices for which similar properties have sold. The value of
residential property is determined primarily by sales comparisons.
The appraisal summarizes each of these three approaches or explains why one or
more is not relevant for the situation (e.g., the income and replacement approaches
are not valid approaches for raw land). The appraiser then makes a final
reconciliation of value in which each approach is considered and reconciled for a
Page 11

12. Mortgage Investing
final value estimate. All of these valuation methods and the underlying assumptions
must be scrutinized.
The sales comparisons for a property must be looked at carefully to assure that they
are truly comparable. To be a true comparable, a property should be zoned the same
as the subject property, of similar size, and have similar features such as waterfront
location. The appraiser then makes value adjustments for the differences.
The cost approach should be based on development of a similar project or
construction of a similar building. Most important in new construction, a review of
An individual the appraisal comparing the costs used by the appraiser to the costs proposed by the
looking for borrower should reveal whether there are any deficiencies in the appraisal that need
investment to be taken into consideration.
opportunities Whenever the income approach is used, a key assumption is the rent or lease
should carefully income the project may generate compared to similar properties with similar
consider all the amenities. The income approach is used for income-producing properties such as
elements of warehouses, apartment buildings, offices and shopping centers. This approach is
investor usually not used for single family residential property, unless the property is rented.
relationships
before making an Borrower Qualifications
investment choice. An important consideration in the underwriting process is how the borrower plans
to refinance the property within the term of the loan. The lender should take a close
look at the likelihood that a borrower will perform the obligations as stated in the
terms of the note, and be aware that the likelihood can be affected by the structure
of the loan.
Loan Servicing And Collection
Although any lender can look after their own loan servicing and collection, the
process can be arduous, expensive, and time consuming. Loan servicing and
collection is one of the biggest reasons why mortgage lenders make their mortgage
investments through Participation Mortgage Programs. Discussion of loan servicing
and collection can be found in the next section: Participation Mortgage Programs.
Foreclosure: Investment Recovery
Mortgage investing is a lucrative and relatively safe vehicle by which to obtain what
can be a great return on the investment dollar. But what happens when the
borrower defaults on his debt? The process is called foreclosure. In general, it is the
process by which the property is sold to satisfy the debt owed.
Whether investing in mortgages or loaning money on real property as security, the
documents to secure an investment are the same: the promissory note and
mortgage. The note will show the original amount owed with the terms and
conditions for repayment of the mortgage. The mortgage secures the repayment of
monies owed under the terms of the note and becomes a lien on the property.
The parties on the loan documents are the borrower (mortgagor) and the lender
Page 12 BUILDING COMMUNITIES

13. (mortgagee).
Reasons for Foreclosure
Foreclosure can be initiated for a variety of reasons, monetary or non-monetary.
The monetary defaults include:
1. Nonpayment of a monthly amount due.
2. Nonpayment of a balloon payment when due.
3. Advancements per the provisions of the mortgage for taxes or insurance.
4. Advancements per the provisions of the mortgage for nonpayment of a senior
lien that would jeopardize the position of the foreclosing mortgage .
A non-monetary default could include the acceleration clause due to the borrower
transferring title or encumbering the property in violation of the provisions of the
mortgage or the borrower destroying the property by not keeping it in good
condition and repair, or by removing or demolishing buildings.
The fund’s manager is responsible for handling all foreclosure actions and any other
problems that may arise. The fund's investors should never be involved.
Weathering Bankruptcy
When lending on real estate, the lender should consider the possibility the borrower
will file for bankruptcy in an attempt to discharge his mortgage debt. As a rule, the
amount of equity over the mortgage will determine if a lender's loan and secured
position in that loan will weather bankruptcy. This excess value also increases the
lender's chances of recovering accrued interest, collection costs, advances, and legal
fees.
The most
There are many problems involving a borrower's bankruptcy that can be avoided by important part of
the careful drafting of the note and mortgage deed in the beginning. It is necessary the underwriting
to enlist the help of an experienced, persistent attorney who will eventually prevail process is
in recovering the property. determining the
loan-to-value
Conclusion
ratio. The LTV is
Today, mortgage investing remains one of the safest and most secure ways usually
determined by
to increase wealth and/or contribute to a retirement portfolio. Mortgage
comparing the
investing is designed to provide an excellent return on investment without
loan amount to
the volatility experienced in the stock market or the low yield realized by the appraised
conventional banking investments such as CDs and Money Market value of the
accounts. collateral
securing the loan.
Page 13

14. Mortgage Investing
PART TWO P ARTICIPATION M ORTGAGE P ROGRAMS
There are alternatives available to an individual interested in mortgage-backed real
estate investments. One such alternative is to purchase an interest in a participation
mortgage program (referred to in this book as a "fund") that invests in mortgages.
Generally, these funds are structured as flow-through entities either in the form of a
limited partnership or trust. All profits or losses for tax purposes are passed directly
through to the fund's investors.
The purpose of a fund is to allow the individual investor to purchase an interest in
the fund rather than invest in a single mortgage. In essence, as a result of an
investment in the fund the investor owns a small piece of each mortgage in which
the fund has invested. A primary factor when considering a fund is to review the
fund's investment objectives and the diversity of the fund's loan portfolio. The
principal objective should be to produce revenue from the interest income on the
loans, to provide monthly cash distributions to the investor and to preserve and
return the investor's capital contribution.
Diversity and Safety
Mortgage investors who loan their money on a single piece of property run a greater
risk to their principal if a problem develops. Their money can possibly be tied up for
many months without payments if a default occurs. A fund comprised of a number
of individual loans will barely notice the impact of a single loan that falls into
trouble. The fund's management will be responsible to take proper corrective action
on behalf of the fund and the individual investor will not have to deal with the
problem.
Disclosure
In a fund's offering memorandum there must be disclosures as to the types of loans
that can be made, lending practices, suitability of investors, and the rights and
obligations of its investors. The fund manager has a fiduciary duty to the fund for
the safekeeping and use of the fund's money and assets.
In looking at various funds, it is important to determine the fees the manager will
receive for overseeing and administering the fund. The percentage of capital
invested in mortgages should be substantial, with adequate reserves set aside for
unforeseen events. The fees the manager receives from the fund reduce the return to
the investor and, as such, the investor should look for a fund with minimal fees.
In addition, the investor should determine whether a promotional fee is being
received by the manager. A promotional fee is a percentage of the fund being
received by the manager for the services being performed. Yield is generally
enhanced to the extent promotional fees are minimized.
Evaluating a Fund
When evaluating a fund, an investor should review the factors used for selecting
loans and the quality control guidelines to be followed. Each mortgage loan should
Page 14 BUILDING COMMUNITIES

15. require the fund to obtain an independent appraisal and suitable insurance. The
mortgage loan investments should be diversified over many properties so that the
default of one particular loan will not have an untenable impact.
Types of Loans
The investor should review the offering memorandum to determine the types of
loans that are permitted by the fund and should look for a fund that emphasizes
loans with a low loan-to-value. The fund should be well diversified with loans on
several different properties. An important key to safely investing in a fund is wide
diversification of the collateral securing the loans made by the fund.
The investor should take a hard look at funds that invest in loans “away from home”
since the laws of each jurisdiction may vary significantly and may affect the
collateral securing the loan..
Customer Service
An individual looking for investment opportunities should carefully consider all the
elements of investor relationships before making an investment choice. When
investing with a fund, customer service ranks high on an investor's list of working
relationship qualities. Clear, honest and timely communication is usually at the top
of the list of the investor's concerns. Management should treat the relationship as a
long-term commitment and understand that investors will have myriad concerns
and questions when it comes to their money. Management dedicated to customer
service will make it imperative to ensure a pleasant and rewarding investment
experience.
The second element of customer service involves the product and services provided
by the fund. The investor should have a clear understanding of the fund's business
model and strategies, what the investment entails, a thorough assessment of the
risks and rewards involved, and what to expect by way of regular communication
with management in terms of written materials. Investors should always be able to
talk directly with a member of management that has the authority to address the
investor's concerns.
Management should always be ready to answer honestly and completely any
questions the investor will pose. Most of the questions will focus on the security of
their investment, always of primary concern. Investors need to be assured with
straight answers regarding diversification of quality mortgage loans, default
possibilities and any other concerns involving the loans the fund will make.
A primary concern is interest or cash distributions to be paid on the investment. The
amount to be paid is determined by the interest income from the borrowers of the
fund's money. The rewards should be in line with the real or perceived risks of the
investment and the payment of interest should be made at least quarterly.
Questions on interest rates and distributions are followed by questions regarding a
delay in posting the investor's cheque because of the time necessary for the cheque
to clear. Cheques should be posted immediately and earnings should commence the
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16. Mortgage Investing
first day of the month immediately following receipt of the cheque. In summary,
when it comes to investor relations, a quality fund should offer the following:
• experienced and successful management team
• high priority placed on customer service
• clear communication regarding the fund's business model and strategies
• diversity of the mortgage loans to protect against loss
• open discussion of risks
• immediate credit on investment funds
• timely commencement of interest payments
Mortgage
• payment of interest made monthly or quarterly
investing is a
lucrative and
Loan Servicing and Collection
relatively safe
Loan servicing is a great service to individual investors. It is an efficient means of
vehicle by which
collecting on a note and mortgage on behalf of the investor by a mortgage manager.
to obtain what
Loan servicing is provided by a fund's mortgage manager and is paid for by the
can be a great
borrower so there is no cost to the fund or its investors. The success of a real estate
return on the
loan is greatly enhanced if a mortgage manager offers a strong and streamlined loan
investment dollar.
servicing department. Not only does this simplify the process for the investor but it
sends a strong signal that the lender and its collection and servicing department will
vigilantly protect the interest of the investors. It is the fund manager's responsibility
to provide excellent loan servicing through the mortgage manager.
The responsibility of the mortgage manager is to enforce the terms of the loan
agreement with respect to timely and proper performance by the borrower. It is best
to have an experienced third party collect on a loan, especially when dealing with a
problem borrower. The fund investor is far removed from the collection process and
interaction with the borrower.
A fast and sure response to delinquent payments makes borrowers understand that
the mortgage manager will not tolerate non-performance. Foreclosure action should
commence very quickly following a default on a loan. Knowing this, most borrowers
will make every effort to avoid foreclosure because it is costly to them and could
damage their credit. Reliable payment and performance are greatly enhanced by
strict, consistent, and sure enforcement by the mortgage manager. Fund investors
are completely insulated from the process of collection of the borrower's monthly
payments, or with any other problem that may develop.
Summary
The goal of management is to recognize the investor's needs, which always include
protecting the fund's assets. Management must continually measure the level of
customer service through direct feedback from investors. Regular written
communications are an important aspect of customer service. After all, the investor
has his money at risk and wants to stay up to date on the condition of the fund. The doors to top
management should be always open and fund investors can expect to be supplied with phone
numbers of management to insure those lines of communication.
Page 16 BUILDING COMMUNITIES

17. PART THREE ENZO G ROUP OF C OMPANIES
This book has been written both as a primer for the new investor wishing to learn
more about the process of mortgage or equity fund investing, and as a reference for
the experienced investor as well. While this text represents an outline for the
mortgage lending process, it is by no means a substitute for the prudent
underwriting and review of each and every investment contemplated. With the
information contained in this book, an investor will know what should be expected
from their mortgage loan investments and can make informed decisions about the
mortgage fund in which they wish to place their money.
We take this opportunity to introduce you to our group of companies with a
highlight on Enzo Financial Group which provides investor relations services to the
Enzo Mortgage Investment Fund, a Western Canadian open-end investment trust
that provides land development and construction financing to real estate
developments in Western Canada. Enzo Financial Group (EFG) is the group of
associated companies required to ensure the success of EMIF. EFG is based in
Alberta, with Associates across Western Canada. Our team is made up of
management professionals, expert mortgage underwriters, and senior developers,
all of whom bring extensive knowledge and expertise to the table.
**********
Enzo Mortgage Investment Fund
Enzo Mortgage Investment Fund (the "Fund") was formed for the purpose of
Today, mortgage
acquiring and holding mortgages on real estate property primarily in Western
investing remains
Canada. The Fund is a mortgage pool of capital funded by the contributions of many
one of the safest
investors. The head office of the Fund is in High River, Alberta.
and most secure
The Fund is especially appealing to investors who take comfort in having their ways to increase
investment dollars work responsibly while seeking safety, high monthly income, low wealth and/or
management fees and diversification within their investment portfolios. The Fund’s contribute to a
experienced management team is readily available to its investors and is mindful of retirement
their interests while helping them reach their financial goals. portfolio.
General Fund Information
• Distributions are made quarterly
• Distributions can be reinvested
• Investors receive a quarterly newsletter featuring general interest articles,
upcoming events, market information, and updates on financed projects
• Minimum investment is $500. Additional investments may be made in
increments of $100
• Investments will soon be RRSP and TFSA eligible through Self-Directed
RRSP Programs
Page 17

18. Mortgage Investing
Mortgage Investment Criteria/Strategy
• Each mortgage loan meets the necessary guidelines designed to mitigate as
much risk as possible, while maintaining high yields.
• Sufficient equity in collateral property. Loan-to-value is limited to 65% of the
property’s value
• Appraisals and independent value confirmation
• Loans are short term, ranging from 6 to 30 months with no prepayment penalty
• Collateral is land having a large equity cushion and upside potential
• Loans are underwritten at 12%-15% interest
The Fund is
especially The investment strategy is to focus on the following market segments of the
appealing to mortgage industry:
investors who • Development Mortgages, including land acquisition, pre-development and
infrastructure mortgages
take comfort in
• Construction Mortgage for the construction of multi-family residential or
having their
commercial developments
investment
• Term Financing Mortgages allowing the owner of completed or substantially
dollars work completed revenue property to defer arranging long term financing until
responsibly while conditions are favourable.
seeking safety,
high monthly Features and Benefits for Investors
income, low
Safety
management fees
Mortgages are structured to minimize risk by limiting loans to 65% loan-to-value
and diversification
ratio of the property. Risk is greatly minimized when there is sufficient equity
within their
remaining above all financing placed on the collateral property.
investment
portfolios. Diversification
Investments are made in many different mortgages on many different properties in
many different locations.
Quarterly Payments & Investor Communications
Distribution cheques are mailed quarterly, with newsletters reporting interesting
related news and a calculation of the annualized return on investment. Quarterly
and annual reports detail the financial condition and investment activities for the
period.
Low Volatility
Mortgage investing is safe, predictable and dependable since the value of the
mortgage and the interest received is fixed and not subject to wild market swings.
Minimum Investment
The minimum investment is $500 and there is no maximum. Investment may be
increased at any time.
No Hold - No Float
The investment is eligible to receive distributions the first business day of the month
following receipt of the paperwork and cheque.
Page 18 BUILDING COMMUNITIES

19. Low Management Fees
Enzo Financial Group, manager of the Limited Partnership, is paid an annual
management fee. All other fees earned by EFG are paid by the borrower.
Investment Vehicles Other than Cash
Self-directed traditional RRSPs and TFSAs will soon be able to invest.
Experienced Management and Track Record
The management team has a broad range of construction, finance, and investor
relations experience spanning over thirty years of real estate investing.
The Fund Manager
The Fund is managed by Enzo Financial Group Ltd. (EFG), the General Partner of
the Enzo Mortgage Limited Partnership. EFG (an Alberta corporation) receives a fee
for managing all of the business of the Fund and the limited partnership.
Mortgages are managed by Enzo Fund Management Services Ltd. (EFMS), the
Mortgage Manager. All compensation paid to EFMS comes from the borrowers,
except in connection with the disposition of properties, if any, acquired through
foreclosure.
What Investors Receive
Investors receive Units the Fund. Investors receive cash distribution payments on a
quarterly basis.
Reserve and Investment Dollars
EFMS is mindful of the need for reserves. An interest bearing cash reserve account
has been established to deposit 4% of all investor capital; the reserve may be drawn
on to pay for unforeseen events and emergency expenses that may arise as well as to
fund start-up costs. The remaining 96% of the investment capital is scheduled to go
directly into making mortgage loans.
Management
The Trustees and management the Enzo Financial Group and its affiliates have
specialized in Alberta and BC residential, recreational, and commercial property
investments, including land development and construction. They have been
responsible for the acquisition, funding, and development of over $32 million of
properties.
The Private Mortgage Advantage
Mortgage loans are made to borrowers who are in need of a quick closing and who
are willing to pay a premium for the service. Conventional financing at times can be
too slow and cumbersome, with its red tape and regulations, and many great deals
would be lost without the speed and versatility of the private mortgage investor. For
this speed and flexibility, certain borrowers are happy to pay interest that is three or
four points over rates charged by more conventional sources.
Page 19

20. Mortgage Investing
Property Profile
EFG invests in mortgages secured by land. Investments are made in acquisition and
development (A&D) loans to developers for new construction, or bridge loans for
investors who need quick cash to take advantage of a great deal. These are loans to
businesses which at times are secured personally by the principals. In addition to
earning interest, the Fund may participate in the profits of borrowers' projects.
An A&D loan is used to provide equity for the purchase of property and pre-
construction costs of development such as architectural, engineering, professional
fees, permitting fees, etc., in preparation of obtaining a construction loan. A bridge
loan is used between the termination of one loan and the expected beginning of
another. Investors use bridge loans as a temporary fix to acquire property while
obtaining permanent, low-cost financing. The Fund only makes mortgage loans
and does not directly own property unless it is taken as a result of foreclosure.
The Underwriting Process
The screening process employed by EFG is designed for investors to have confidence
in its solid investment security. Properties are appraised and a maximum loan-to-
value is determined that will protect the Fund if the market turns down. Prior to
closing, the properties are thoroughly inspected.
After inspection of the property, the loan goes before the loan committee, which is
made up of Trustees and senior officers of the company. Property values and loan
viability are reviewed through comparable market analysis performed by third party
experts, and contemplates a worst-case scenario before a loan amount is calculated.
This is important because it is critical to loan the correct amount relative to the
value of the collateral and other factors affecting the property. Any issues with the
borrowers will also be taken into account.
By lending conservatively, the committee attempts to increase the margin of safety.
Loans may be made up to 65% of a property's value and will include all financing on
the property, unless there are extenuating circumstances that dictate otherwise. A
65% LTV is usually more than adequate to ensure a return of all principal, interest
and costs, and even a profit, in the event of a problem developing.
Each loan is thoroughly documented by both staff and outside professionals. In the
process, a title search and report is obtained and reviewed on each property and, at
closing, a promissory note and mortgage is executed by the borrower. The mortgage
is promptly recorded at Land Titles so that the world is put on notice that the Fund
has a security interest in the property.
It is the mandate of EFG to assemble many satisfied investors. Expertise and
experience are used to lower risk to a minimum with the same eye toward prudence
and safety that has made its principals and affiliates a success.
The Mechanics
The specifics of the loan are written in a promissory note and a mortgage which is a
pledge of real property that serves as the security or collateral for the loan. The
Page 20 BUILDING COMMUNITIES

21. mortgage is recorded at Land Titles so that anyone checking the title to the property
will see that it has been pledged as security for a loan.
The borrower (mortgagor) signs the note and mortgage, which is then recorded.
Possession of the property is retained by the borrower, with the right to use it,
encumber it, or sell it. EFG (mortgagee, lender) holds the mortgage to the property
with the power of sale until all the conditions of the loan are fulfilled. If the
borrower has fulfilled his obligations, the lien is removed from the property. The
mortgage lien is the legally recognized hold or claim of the investor on the property
until the loan is repaid. If the borrower defaults on the loan, a foreclosure is
instituted by the lender.
Once the loan is repaid in full, EFG issues a Satisfaction of Mortgage as proof that
the loan has been repaid.
Enzo Fund Management Services Ltd.
Mortgage Manager
As Mortgage Manager, Enzo Fund Management Services Ltd. will source mortgages
either directly or through intermediaries such as mortgage brokerages, banks, trust
companies, lawyers, and accountants. The Mortgage Manager’s experience in the
business of sourcing and underwriting mortgages enables the Mortgage Manager to
make prudent investment decisions and identify sound investment opportunities.
Enzo Financial Group Ltd.
General Partner, Enzo Mortgage Limited Partnership
The Fund is managed by Enzo Financial Group Ltd. This is the company that
handles the administration of the fund including accounting, tax reporting and legal
considerations. Enzo Financial Group is responsible for developing crucial resources
in the areas of finance, investor relations and networking, joint venture
partnerships, management, and marketing expertise all geared toward future
expansion. Our short-term activities are supportive of The Enzo Group of
Companies long-term vision of growth and profitability. Our collective goal is to
continue building on a solid foundation that will ensure a future of prosperity and
growth for ourselves, our investors, partners, and the communities we serve and
improve. http://www.enzofinancial.com
Enzo Developments Inc.
Developer
Enzo Developments is a privately owned real estate development company. A
primary component of the Fund’s success will be the synergies developed by
utilizing Enzo Development’s expertise to source and manage projects. EDI has
been active in the ownership and development of Western Canadian residential,
commercial, and recreational property since 2002. The company is well established
Page 21

22. Mortgage Investing
as a knowledgeable and creative real estate developer.
A major component of every Enzo project is to make sure each one serves a strategic
purpose such as gaining a foothold in a new market, enhancing its portfolio or
strengthening a bond with a joint venture partner. EDI is committed to rock-solid,
steady and long term growth through carefully selected alliances with companies
that complement its investment model of acquiring and developing value-added
projects.
EDI provides in-house project management, asset management, and construction
Enzo Financial services for all of its projects. Management believes that nobody takes better care of
Group is an asset than the owner, and attention to detail regarding all aspects of real estate
responsible for investment and development is best kept close to home.
developing crucial
Our business model is straightforward. To qualify for acquisition, properties
resources in the
(including land) must have significant upgrading possibilities and superior location
areas of finance,
in a strong, growing market area. EDI upgrades and adds value to these properties
investor relations
and in doing so significantly increases their market value.
and networking,
joint venture Investment Strategies
partnerships,
management, and Growth and Market Opportunity
marketing EDI has positioned itself to take advantage of the many opportunities being
expertise all presented in the marketplace due to the current recession/depression in the real
geared toward estate industry. Much the same as the real estate recessions of the 1990’s and again
future expansion. at the turn of the century, the timing is right to invest contrary to impatient and
scared money currently exiting out of real estate. Like the earlier real estate
recessions, it is times like these when fortunes are made.
Creative Solutions for Complex Problems: Distressed Properties, Distressed Sellers
Enzo Developments is an opportunistic investor, focusing on acquiring land or
existing properties that is undervalued or is distressed due to mismanagement or
mismarketing. Owners may be experiencing issues such as retirement, adverse
health or family matters, or financial pressures due to negative cash flow,
bankruptcy, taxes, etc. EDI uses its collective problem solving expertise to take
advantage of such situations, while offering the seller a solution to the problem.
Circumstances like these create opportunities. Enzo Developments is a streamlined
real estate development company that has positioned itself to take advantage of
such situations. EDI can move with great speed to take a problem property off a
grateful owner’s hands. EDI has the experience to recognize opportunities and
specializes in creative problem solving, resulting in a win-win transaction.
Risk/Reward Factor
Enzo Developments Inc. is an operating company. The properties we purchase are
assigned to a separate, wholly-owned affiliate, which insulates each of them from
liability the others may incur. More importantly, and to further mitigate risk and
reap the greatest rewards, Enzo Developments seeks out and purchases recreational,
industrial, and commercial properties in superior locations at prices below market
Page 22 BUILDING COMMUNITIES

23. rate. When EDI buys and improves the land/property, it substantially increases
equity values.
The speed and flexibility of EDI's quick access to capital to move a project from start
to sale or refinance in the shortest time possible acts to further minimize the risk
inherent in taking an unnecessarily protracted period of time to complete a project.
In the event of refinance, conservative leverage (low loan-to-value, LTV) is used to
keep debt service to a minimum and cash flow to a maximum. When these strategies
are strictly adhered to, risk is reduced to acceptable levels.
Joint Ventures & Partnerships
Enzo Developments seeks to partner with equity investors on some of its projects.
EDI will provide acquisition and management expertise, arrange financing and
contribute its own cash to close the deal. Keeping debt to a minimum helps to make
the most of cash flow and enhances the property's security.
Market Cycles and Counter-cyclical Purchasing
The real estate market is cyclical, with periods of growth and contraction. The four
distinct phases of the cycle are Recession, Recovery, Expansion and Contraction,
and they move in that order. If you know where we are in the current cycle, and
where we've been, you can accurately predict where we are headed. While the
market is now in the Recession Phase of the current cycle, the timing is perfect to
reap big profits down the road, in the expansion and contraction phase. One thing is
certain, cycles will repeat – that’s why they are called cycles. Those with the
discipline to invest contrarian, like Enzo Developments, will reap the rewards.
When the market is down, what is the direction it is most likely to go? Likewise,
Enzo
when the market is up, what is the direction
Developments is
it is most likely to go?
an opportunistic
Value-added Investing investor, focusing
EDI searches for possible acquisitions only on acquiring land
in situations where values can be greatly or existing
enhanced by creative project planning, properties that is
zoning changes, engineering, etc. or making undervalued or is
changes to the existing project’s physical
distressed due to
structures, management or marketing. This
mismanagement
is known as value-added investing.
or mismarketing.
Business Principles
Enzo Developments expects and delivers the highest levels of performance in all of
its dealings, whether with individuals or corporate entities. Our basic principles are:
Commitment to Integrity
At Enzo Developments we take seriously our responsibilities of honest dealings,
fairness and integrity. Our reputation of offering a fair, open and honest personal
and corporate culture is the key to our success, and it will continue to be the bedrock
of our future growth.
Page 23

24. Mortgage Investing
Highest and Best Use of Assets
EDI’s management constantly reviews and analyzes our assets and resources,
whether company owned, affiliate owned or joint ventured. Periodic scrutiny of the
properties in our control assures they will achieve their highest and best use. EDI
makes a point to stay abreast of current and future market trends, which allows us
to make the highest and best use of our assets.
Maximization of Returns
Every property/project is carefully analyzed before purchase to create a post-closing
plan to reduce risks, make the best use of resources and maximize future returns. A
carefully planned exit strategy is an essential ingredient of each property we decide
to develop.
Agility and Flexibility
Agility and preparation pave the way for the quick response necessary to take
advantage of the best opportunities as they appear. EDI is prepared to quickly
analyze a possible transaction and make a go, no-go determination. This is a
necessary attribute in a fiercely competitive and unforgiving business environment.
We know from experience that flexibility is key to overcoming obstacles. Life often
deals a hand that forces us to look at situations in a different light. EDI has the
creativity to parry its way to suitable outcomes, resolving problems as they arise.
Open-door Communication
Enzo Development’s management has an open-door policy with employees,
investors and other business contacts. All opinions are valued – everyone is
encouraged to offer their insight and no topic is off limits. Management understands
that innovation and a fresh look can provide the seeds for healthy growth.
**********
What have your investments done for you recently? Have you built your nest egg?
Have you been able to live your life? With the ups and downs of the stock market
and poorly paying GICs, have your savings taken you where you really want to
go? Enzo Financial Group may provide the solution to the problem. Our
Unitholders earn substantial returns paid out in cash every three months,
providing them with an alternative income stream they can enjoy … now.
Request more information … complete the next page ——>
To express interest in the Enzo Mortgage Investment Fund (EMIF), please
complete and email or mail the following page. We will send you a Subscription
Agreement and the Offering Memorandum for your review ... any questions
you have will be answered prior to subscribing. We encourage you to read the
agreements thoroughly. To save you time, we will send you the forms pre-
completed with the information you supply here.
Page 24 BUILDING COMMUNITIES

25. 1. Name: _______________________________________ 2. Referred by: _______________________________
3. I wish to use ___RRSP ___non-RRSP ___TFSA funds ___ Cash for this investment.
4. Number of dollars (rounded to nearest $100 you wish to reserve for EMIF units: $ _____________
Legal name of individual(s) or corporate entity that you wish to appear on the Unitholder records. This information will
be used to generate a customized subscription form ready for your approval. SIN number will be kept on record to
generate a tax slip.
5. First Name: First Name: Corporate Name:
6. Last Name: Last Name:
7. Title: Title:
8. SIN: SIN: BIN:
9. Date of Birth: Date of Birth:
10. Address: Address: Address:
11. City: City: City:
12. Prov: Postal Code: Prov: Postal Code: Prov: Postal Code:
Please circle your daytime phone number
13. Home Phone: Home Phone: Phone:
14. Business Phone: Business Phone
15. Cell: Cell: Cell:
16. Fax: Fax: Fax:
17. Email: Email: Email:
18. I ___have ___have not read the EFG Mortgage Investing Booklet completely.
19. ___ I would like to speak with someone from Enzo Mortgage Investment Fund. Please contact me at: _ ___
20. Email Expression of Interest form to: diane@enzofinancial.com
OR
Mail to: Enzo Mortgage Investment Fund, PO Box 5561, High River, AB T1V 1M6