CRACKS IN THE FOUNDATION

StateView Homes sold hundreds of pre-built townhomes without the necessary approvals. It was just one of the warning signs of the company’s impending downfall

Karim Teja got an urgent call from his real estate agent. It was August 2021, and the pre-construction townhouses in Markham he’d been eyeing were “flying off the shelves.”

Teja pulled the trigger on a $900,000 townhome with a large rooftop patio. It would be where he and his family would move from their highrise condo in midtown Toronto.

For two years, the developer — StateView Homes — held Teja’s $120,000 deposit as he waited for his future home that has still not been built.

It turns out the developer was never authorized to sell him the Markham house in the first place.

StateView never obtained the required approval from Tarion — Ontario’s new-home buyer protection organization — to sell the townhomes in its Minu Towns project.

A Star investigation has found StateView collected tens of millions of dollars in deposits for more than 450 homes that it did not have authorization to sell.

“How did this one get past it? Where’s the oversight?” Teja asked.

It’s among several red flags that went unnoticed or unheeded by regulators as StateView grew from a modest homebuilder to an industry upstart, on its way to a spectacular collapse that has left hundreds of homebuyers in a lurch.

The company was led by brothers Carlo and Dino Taurasi, who solicited deposits for unbuilt homes on land that in at least one case they did not yet own as they rapidly took on more debt to promote more housing developments.

The project of Nao Towns in Markham, which remains vacant, is among the eight StateView Homes developments that are in receivership. SHEILA WANG TORONTO STAR

In recent months, StateView has been ensnared in court proceedings, accused by a bank of writing bad cheques as part of a “highly sophisticated” fraud to gain tens of millions of dollars. Eight of StateView’s developments — including the Minu Towns that Teja bought into — have been put under courtordered receivership after defaulting on hundreds of millions of debt.

In a statement, Carlo Taurasi said while StateView always intended to complete all the projects, they could no longer do that because of recent events, many of which were outside their control.

He said StateView worked diligently to make sure that it had the required approvals for any project.

“At no point did Tarion communicate or suggest to me or StateView that StateView lacked the appropriate … approvals for any project,” Carlo said.

A Tarion spokesperson said it’s the obligation of developers to advise Tarion of their sales plan and to obtain the necessary approvals before putting houses on the market — not the other way around.

“StateView’s response has it backwards,” Tarion’s Andrew Donnachie said.

Before a builder can sell a new home in Ontario, it must obtain a licence from Ontario’s Home Construction Regulatory Authority (HCRA) and receive approval from Tarion in what’s known as a Qualification for Enrolment (QFE).

It is a provincial offence to sell a home without both authorizations.

When approving a QFE, Tarion looks at the estimated number of homes to be built, the type of houses and the estimated price range, as well as assesses the developer’s construction experience and financial position.

Obtaining a QFE approval is crucial for Tarion as it allows the agency to assess the risks of the proposed development and “take steps at an early stage (if needed) to protect consumers,” Donnachie said.

Leor Margulies, a real estate lawyer, said the QFE process is an important tool for Tarion to not only protect the purchasers’ from a poorly built home, but make sure a builder is able to get the project started and see it through.

StateView sold hundreds of unapproved homes across at least five freehold projects over the past four years: Minu Towns; Nao Towns; Nao Towns II in Markham; Elm & Co in Stouffville; and Nashville in Vaughan. In an unaudited report, the receiver found StateView collected $50.6 million in deposits for these projects.

As it is currently investigating the business activities of StateView, Tarion would not say whether it is pursuing provincial charges for selling homes without a QFE.

Consumer advocate Barbara Captijn wonders who was watching out to ensure the developers had the competence and money to complete the projects. She said regulators should be more proactive.

“A law is only as effective as its enforcement, and it’s not being enforced either by Tarion or HCRA,” she said.

It was in June — two years after StateView began selling homes without proper authorization — when the HCRA announced that it was suspending 14 licences the regulator had granted to StateView companies. Six of these companies had already been put under receivership as mortgage lenders try to recoup their money, while the other eight firms all have the Taurasi brothers at their helm.

In making its decision, the HCRA said it was troubled by allegations of financial mismanagement against StateView. Some companies operated by the Taurasi brothers “appear to have” sold homes without obtaining an HCRA licence, the regulator said.

The regulator would not specify which unlicensed companies sold the homes or how many were sold.

“The HCRA is still investigating StateView Homes and cannot comment on ongoing matters,” a spokesperson said.

The regulator stated in its June report, “the HCRA does not believe that StateView Homes can reasonably be expected to be financially responsible in the conduct of the businesses nor can these licensees be expected to carry on business in accordance with the law and with integrity and honesty.”

Brothers Dino Taurasi and Carlo Taurasi had been running StateView Homes out of two units in a two-storey industrial building in Woodbridge for almost a decade before they sprang into an expansion spree in 2020.

From 2014 and 2020, StateView Homes built and sold a total of 160 homes, according to the HCRA’s database.

Beginning in 2021 they began a push to convince would-be homebuyers that they were now going to build at least 700 more — almost all at once.

That is “a big jump,” Margulies said. “I would hope that the regulatory authorities were stringent in terms of ascertaining their financial capabilities of taking on those kinds of projects.”

As StateView sold homes across the GTA, the brothers also spent money for purposes not apparently related to the developments.

They spent $15 million buying nine more units in the Woodbridge industrial plaza. A Corvette, a Maserati and other premium cars were stored inside one unit, according to a former business owner in the same plaza.

Dino and Carlo also each bought large properties in King Township for a combined price tag of $7.55 million in November 2021.

In 2022, videos posted on TikTok appeared to show Dino Taurasi taking private jet trips, one to the Bahamas and another to Aruba.

It was around this time that an “unusual series of cheque transactions” began occurring between StateView accounts and the Taurasi brothers’ personal accounts, according to a lawsuit against the developers by TD Bank.

TD Bank alleged that StateView perpetrated a year-long, chequekiting scheme involving thousands of transactions that siphoned off the illegal gains.

TD alleges that StateView companies would deposit a cheque for a large sum from an account with a different bank. As soon as the money was deposited, the StateView accounts “would use the conditional credit from TD to disburse the funds” to another account. A stoppayment order would be issued on the initial “fraudulent cheque” before it had cleared its way through TD’s automated settlement system.

“In order to evade detection and to temporarily avoid an overdraft in the account, the StateView defendants would enter into another sham transaction to create the illusion of fresh funds coming in,” the lawsuit alleges.

“The StateView defendants enjoyed over $37 million of unauthorized credit at TD’s expense.”

On March 31, StateView entered into a settlement agreement with TD to immediately begin repaying $37 million. The developer blamed the alleged fraud on its then-chief financial officer, who has since left the company.

“We take our financial responsibilities very seriously and are deeply disappointed that this situation occurred. We have taken steps to ensure that this does not happen again and are committed to maintaining the trust of our homeowners, trade partners and stakeholders,” Dino Taurasi said in a statement earlier this year.

The Taurasi brothers did not answer any questions about their personal expenses, but noted that they were proud of “many successful projects” over the years.

“While we have been unable to complete construction of all of the homes that were planned more recently, we completed construction of over 300 homes,” Carlo told the Star.

Dino Taurasi previously said StateView would not be declaring bankruptcy and assured its purchasers that it would complete all projects under construction and move forward with as many other projects as possible.

Six months after Dino’s April statement, the StateView group of companies remain in disarray as at least eight subsidiary companies’ assets remain seized in receivership. One company, behind its On the Mark development in Markham, was ordered by court into bankruptcy after the receiver could not recover enough funds to repay debt. The company also owes the Canada Revenue Agency about $4 million in unremitted HST.

Over the last three years, StateView took in more than $77 million in deposits from purchasers of more than 780 prospective homes that went into receivership earlier this year.

Even though StateView sold at least half of those homes without first obtaining the necessary authorization from Tarion or the HCRA, once a developer enters into a sales agreement, the purchases are still entitled to deposit protection.

The deposit protection offered by Tarion, however, has its limitations when it comes to freehold homes like the ones StateView was selling.

Unlike condominium projects, in which builders are required to hold deposits in trust, deposits for prebuilt freeholds are only protected for up to 10 per cent of the purchase price, with a maximum coverage of $100,000.

In its June announcement that it was suspending StateView’s licences, the HCRA said the developer collected deposits from purchasers to build homes on land it did not actually own — and now does not have the ability to purchase the land or return the deposits.

The HCRA would not specify which developments it was referring to.

The Star identified two projects — 82-unit Queen’s Court in Brampton and 72-unit Elia in Newmarket — for which StateView appears to have collected deposits for future homes on land it did yet own.

Developers can sell pre-construction homes on lands they do not own, real estate legal experts say, although some warned about the higher chances of risks to buyers.

“Buyers need to understand that any time they buy a pre-construction, especially, it’s so early in the process where they haven’t even secured the lands, there’s chances, projects never get built,” Bhupinder Lamba, a Toronto real estate lawyer said.

Tarion says it’s crucial developers obtain a Qualification for Enrolment approval, as it allows the agency to assess the risks of a proposed development and ‘take steps at an early stage (if needed) to protect consumers’