California Real Estate Fraud Report

A pair of Monterey businessmen have been indicted by a federal grand jury on charges of conspiracy to commit mail and wire fraud, mail fraud, wire fraud and securities fraud.

In yet another civil lawsuit, builder Fred Machado and hard money lender Don Vaughn have been accused of conspiring to commit fraud with malice.

San Miguel resident Lorraine Cagliero’s lawsuit accuses Vaughn, a president of Country Financial, of soliciting a $375,000 high-interest loan from her in 2005, which was to be used to construct a home on a property in Paso Robles. Cagliero contends that Vaughn failed to disclose that he was the owner of the property, which he then sold to Machado, who had spent the loan of Cagliero’s money given him by Vaughn.

Many hard money lenders in the North County region have been ensnared in lawsuits involving various forms of fraud. Amonth are Hurst Financial (use the Search feature to find articles in the California Real Estate Fraud Report), Estate Financial, 21st Century and Real Property Lenders. They and Country Financial made money by writing high-risk, high-interest loans, servicing loans and also selling securities that were fractional shares in promissory notes that were collateralized by real property deeds of trusts. On a small investor level, this is equivalent to the bundling, reselling and monetizing of mortgages in the hundreds or thousands by mega-lenders such as Countrywide, Washington Mutual, aka WaMu, Bank of America, Deutsche Bank, etc., many of which are now “toxic assets” that the taxpayers will be paying off for the next several generations.

Read the Full Article in the San Luis Obispo Tribune by Melanie Cleveland.

Tony Huy Havens, the subject of a prior article in the California Real Estate Fraud Report, was sentenced to a five-year, four-month sentence for promising several real estate developers funding for their projects from his firm Dynamic Financial Services. Havens demanded upfront money for appraising their properties, then ceasing contact once he had received the funds, consistently not performing the appraisals (appraisal fraud).

The swindle included a former mayor of Manteca and totaled $208,000 for the 14 felonies for which he pled guilty. Havens’ pleas for leniency because of his dependant wife and children fell on deaf ears for the judge who imposed the sentence. It turns out that Havens is behind $100,000 on support payments to his children from a prior marriage and the partial restitution he made to some of his victims was acquired by swindling other persons.

Glenn Gulley is the Criminal Investigator with the Stanislaus County District Attorney’s Office whose hard work took Tony Havens off the streets, at least for a few years.

Read the Full Article in the Modesto Bee.

A Modesto man awaiting trial on mortgage fraud charges promised loans of $3 billion to casino and golf resort developers in the South in a scheme that netted him $300,000, according to a search warrant. Believing his fabricated story about a wealthy Hong Kong investor, 39 victims wired money to a Modesto bank for real estate appraisals that Tony Huy Havens never intended to do, the search warrant says. It is thought that some of the developers lost their multimillion-dollar projects as a result of Havens’ fraud, according to court documents.

Havens’ hard money loan company is called Dynamic Financial Services. The company’s Web site claims Dynamic “is a growing player in the hard money industry” with eight years of experience in everything from  “helping a family save their home from foreclosure to coordinating multiple million dollar loans.” According to the affidavit filed by Stanislaus County District Attorney investigator Glenn Gulley, Havens portrayed himself as a “broker for bridge lenders,” yet Gulley could not find that Dynamic Financial Services had conducted “any legitimate business.”

Committing “secondary offenses while on bail” is prohibited in the California Penal Code.

Read the Full Article in the Modesto Bee.

Hard money lender Hurst Financial Inc. is not the only San Luis Obispo entity that investors are eyeing for restitution of the millions of dollars that have been lost. Investors and creditors who have lost millions of dollars to local hard money lenders may find financial reprieve through a plethora of entities with dirty hands. Developers, appraisers, title companies, accountants, and bankers may be tangled up in a conspiracy that created this Ponzi scheme that may have that may have already cost thousands of investors, primarily seniors, more than $500 million in non-returned investments.

Cuesta Title may have a bull’s-eye painted on it following its appraisal of developer Kelly Gearhart’s Vista del Hombre property, which the title company showed to be free and clear of all liens and encumbrances, when at the time it had liens exceeding $27 million. By the time the bank had received the appraiser’s report, it had already lent Gearhart another $1 million.

Hurst’s appraiser, Terry L. Pippin, claimed the Vista del Hombre development would be worth more than $100 million if it were completed - and that’s a big “if”. The bank’s appraisal came in at less than 1/4 of Pippin’s appraisal. Pippin is apparently only licensed to conduct residential appraisals.

This story of fraud and financial ruin in the Central Coast is much smaller than Bernard Madoff’s Ponzi scheme, yet is just as devasting for the investors in that region.

Read the Full Article in the CalCoast News.

Former employees of the now-defunct Estate Financial Inc. (EFI) firm in Paso Robles acknowledge witnessing fraudulent behavior on the part of its principals and possible other employees.

Karen Guth and her son Joshua Yaguda were arrested on October 16 at their Pasolivo ranch. They are both in San Luis Obispo County jail on $5 million bail each. EFI’s escrow officer, Shauna Bishop, is also accused of slandering one of the investors who is organizing other investors unhappy with EFI, which made hard money loans.

This is a fascinating story, one well-worth reading the full expose in CalCoast News.

Although many jilted investors have cheered at the recent arrests of the mother-and-son leaders of the bankrupt Paso Robles-based Estate Financial, they are only one group of a growing number of investors in the Central Coast who have had troubles with mortgage and lending firms.

Besides Estate Financial, other hard money lenders who are biting the dust are:

- Atascadero-based Hurst Financial, which had at least $86 million in investments last year, has had its license revoked by the California Department of Corporations and has been accused of fraud in September in filings by the Department of Real Estate. Hurst Financial has been the subject of several posts in the California Real Estate Fraud Report.

- Real Property Lenders of Paso Robles had its license revoked by the Department of Corporations in May. It had about $55 million in loans as of 2007,

- 21st Century Mortgage, also of Paso Robles, closed down abruptly about a year ago with no notice to its investors. Other firms eventually bought most of the loans.

Estate Financial is still the king of fraud allegations at the time of this writing. Their $170-million in loans were frozen and put under court control after the state revoked its license to sell real estate investments. On October 16, Estate Financial’s President, Karen Guth, and her son Joshua Yaguda were arrested at their Paso Robles ranch by investigators from the SLO County District Attorney’s Office.

Read the Full Article in the San Luis Obispo New Times.

After a six-month investigation, local prosecutors have charged Karen guth and her son Joshua Yaguda of Estate Financial with 26 felony counts of fraud. The investigation included agents from the FBI, the Internal Revenue Service, the San Luis Obispo County District Attorney’s Office, the California State Department of Corporations and the California Department of Real Estate.

Estate Financial was a hard-money lender that solicited money from investors to make high-interest/high-risk loans to developers. At the time of the company’s collapse, it is reported that they had funded hundreds of millions in housing and condominium subdivisions, hotels and winery developments in San Luis Obispo County. Their war chest of $340 million real estate portfolio was built with money from more than 3,000 investors, almost 30% of whom lived locally.

Read the Full Article in The San Luis Obispo Tribune.