Fraud lawsuit filed against Heritage Oaks Bank and Stewart Title

June 15, 2009

By KAREN VELIE

Investors have filed a lawsuit alleging Stewart Title and Heritage Oaks Bank (HOB) aided and abetted and/or conspired with Hurst Financial Inc. (HFI) in defrauding hundreds of seniors through illegal investment schemes.

The suit filed by more than 300 investors against Stewart Title, HOB, and HFI lists eight complaints including conspiracy, fraud, financial elder abuse, and negligence. Investors are seeking punitive as well as compensatory damages.

Late last month, the FBI seized assets of (HFI) President Jay Miller’s home because of allegations of racketeering, money laundering, and wire fraud, according to a seizure warrant. The suit alleges HFI could not have engaged in a “Ponzi scheme” without the “joint effort, cooperation, and planning” of Stewart Title.

San Diego based attorneys Steven Sanchez and David Noonan, of the law firm of Kirby Noonan Lance and Hodge, claim that Stewart Title, working alongside HFI, siphoned money from investor loans to place in the pockets of HFI principles Miller and his daughter Courtney Brard. Sanchez cites examples of the title company creating false escrows, falsely closing active escrows, and illegally filing clean title reports before placing additional loans on already encumbered properties.

In addition, Stewart Title failed to notify investors when they discovered the fraudulent dealings following an internal audit and interviews that were spurred by numerous lawsuits and allegations of illegal activity.

According to the lawsuit, “As a result of those internal interviews and audit, the Stewart Title defendants closed the local offices. Yet the Stewart Title defendants never disclosed to the plaintiffs and other parties to the fraudulent escrows that they had been defrauded.”

In an odd twist, Melanie Schneider, an ex-employee of Stewart Title (formerly Cuesta Title) who was a key person in the majority of HFI alleged fraudulent transactions, reportedly moved to Colorado with developer Kelly Gearhart’s brother, Doug Gearhart, shortly after the fall of HFI, sources said.

The suit accuses HOB of making a “conscious decision to participate in the scheme to extract money from the Vista del Hombre property (a Gearhart project)…. HOB gave Gearhart access to monies and a mechanism for obtaining those monies under the auspices of purportedly legitimate transactions.”

Last summer, CalCoastNews reported that a million-dollar loan from HOB to developer Gearhart earlier this year was based on “erroneous” and questionable claims, according to the bank’s own appraisal.

On Jan. 16, 2008, nine days after Stewart Title is accused of fraudulently reconveying portions of the Vista del Hombre property, HOB lent Gearhart $1 million. In February, that loan was increased to $1.5 million. In a highly unusual maneuver, the bank did not order an appraisal for more than two months following the dispursement of funds.

Then on May 3, 2008, following the bank’s appraisal reports of possible fraud, HOB lent Gearhart another $250,000, as noted in the lawsuit.

Additionally, Heritage Oaks Bank Assistant Vice President Greg Porter, whose name is listed on the appraisal of Vista del Hombre as the bank’s contact for the proposed development, reportedly had his house in Atascadero remodeled — including a room addition by Gearhart — prior to the loan’s approval. (Gearhart Construction built commercial and residential properties. The development company did not have a remodeling division.)

Shortly after receiving the HOB bank loan, Gearhart stopped making interest payments to hundreds of private investors who had already put $27 million into the project through Hurst Financial during 2005 and 2007. Those investors now hold approximately 8,000 percent beneficial interest in the planned development and are positioned above Heritage Oaks Bank in case of a default. According to the bank’s own appraisal, the property is worth approximately $4.3 million as is.

Jim Pope, 64, a previously “retired environmental advisor to a major oil company,” is now looking for work as a handyman due to his unreturned investment with HFI. Pope, one of the plaintiffs, is facing substantial medical bills and is unable to afford a needed heart procedure.

A 53-year-old wife of an investor, Kim Balaris, works six days a week. From 6 a.m. to 3 p.m., Balaris waitresses and bartends before heading for either of her two other jobs. Robert Balaris, 61, invested with HFI to help his family stay afloat after he became disabled in 2007.

More than 1,200 investors, primarily seniors, invested in excess of $100 million with HFI that is currently unaccounted for. According to the Department of Real Estate, Miller failed in his contractual agreement to protect investors by funding projects only as work was completed with progressive payments. Instead, he paid Gearhart in lump sums “without any monitoring of the construction.”


One Comment

  1. ccn_debate says:

    Member Opinions:
    By: housingscams on 6/18/09

    To stop housing scams, we must continue investigating U.S. Attorneys firing scandal.

    By: DashRiprock on 6/18/09
    Follow the money, whats left of it.

    By: nosedatruth on 6/18/09
    KellB = Shingh

    By: KellB on 6/17/09
    Good work booty uncovering the real connections, Check out CUESTA Title Escrow # 116168-MSG County Recorder Document #2008034796 filed 7-8-08 this document and the escrow files are part of a really big investigation with several Law firms including a plan to commit fraudulent transfer of assets. Booty your a good investigator. I agree with one prior posting we readers need to see the truth, facts and proof. Not just internet gossip and hearsay. Print the facts and don’t sling false mud.

    By: hotdog on 6/17/09
    Dysfunction, ignorance and greed exists all over. Even Booty, who was often entertaining and relatively intelligent, has fallen into those domains. The first two are obvious, the third relates to the compulsion to feel all hot with superiority by bashing others, usually victims.
    “fleece the grindingly naïve, ignorant and greedy” can only refer to the ripped off investors. I guess Booty is, like insider, outsider and others who parrot this line endlessly, interested in taking the attention off the crooks.
    I have often invited those miserable examples of homo sapiens who malign the victims to work this out with sharp sticks or in lively debate (say, on Cangalton) but they refuse by their silence. Launching these hideous accusations at victims reduces their credibility through the floor.
    I’ll put my dough where my mouth is. I’ll bet anyone two to one (any amount) I can beat them to death in honest and open debate over this issue of investor ‘greed and stupidity’.
    Those who take delight in belittling the ‘rubes’ who finance thieves and crooks ought to be shot. Good con ‘men’ prey on our good intentions and desire for a better life, and are terrific liars and cheats. They fool us over and over because we do not live in their world of lies and deception, we cannot exist living like wild animals, afraid of very shadow and movement. That is why we have government, laws, and cops. But we get fooled anyway, sometimes. Just like when some of us wished Booty could have his/her own little column for we thought that might be cool. Not any more, Booty has joined the ranks of the miscreants and fools with nothing to say.

    By: BeenThereDoneThat on 6/17/09
    Well the problem with the institutions, is that they are run by people and it is people that are letting their morals go further into the dirt.

    Corruption is everywhere in everyday life.

    By: Booty_Juice on 6/17/09
    Yes it’s very surprising that the generations-old North County Romanian Pikey crews that continue to fleece the grindingly naïve, ignorant and greedy have inside, inbred accomplices in various financial and insurance businesses. I’m shocked. The next thing you know, they’ll be telling us that construction, development, politics, law enforcement, and public institutions are dirty as well.

    By: BeenThereDoneThat on 6/16/09
    Let me clarify that. I mean longer prison terms.

    By: BeenThereDoneThat on 6/16/09
    I like Harlow’s idea. We need to make the PUNISHMENT SEVERE. Make the next guy think twice.

    By: Harlow on 6/16/09
    White collar crime has always been a mere slap on the wrist.It is time to cut off a hand or two and make a few people think twice about ruining hundreds of lives.JMHO

    By: Nameless on 6/16/09
    am just perplexed about many of these revelations be it Hearst RPL Twenty First Century or EFI. Financial Frauds were and will be whenever money is involved. Throwing a rope around their necks will not prevent others to take their places. Yes, there could be a few rotten bodies hanging on the street lamp posts, but it would still not prevent the next snake oils sales person to take money from the gullible public. As soon as these times are over, there will be a new game in town with new players both shysters and investors.
    Having more regulations will not solve the problems either. By the time the legislature get around it agree to a new language the perpetrators will have it figured out and a new theme will be in place. People who rely on the Government to protect them, just because its illegal will be taken to the cleaners again and again.
    So, my advice is for the next generation. Look at everything and ask questions all the time.

    By: Harlow on 6/16/09
    JohnGalt- I am a believer in Title Insurance.
    In the Hurst debacle, there is collusion and I believe now, as I have since the beginning, that the Rico Law will apply. This is way bigger than EFI or the SLO DA

    By: JohnGalt on 6/16/09
    While I am not commenting on the legal or ethical issues here of Gearhart and Hurst, I do want to provide some information regarding title companies, title reports and title policies….While it is true that title reports do provide information regarding documents recorded with the county recorder, they also include other information such as the status of the seller (or borrower) and potential buyer, as well as “off-record” matters pertaining to the property in question. A title report is issued to a lender or potential buyer, and it is an offer for future title insurance. The county recorder is not in the position to offer insurance regarding title. That is not their job…and do you really want our government to be in that position??? Title insurance offers coverage against things such as forgery, fraudulent documents, etc. It also reflects the current status as to correct ownership, legal descriptions, encumbrances, etc. (Note: just because an APN has changed-the change is made by the assessors office-does not mean that your title report is incorrect…The governing factor is the legal description of the property. APNS change for any number of reasons, and it may take the tax collector several months to catch up to the change made by the assessor. A title report will reflect taxes owing against the property described-even if the APN has changed.) Even though Joe Public can do his own title search at the recorders office, can he be SURE that he has found ALL encumbrances affecting the property?? Can he find property taxes, even if the APN has changed, perhaps more than once? The public has to “search” by name only, whereas a title company has meticulous records from the early 1800′s, and those records are posted to individual properties, to which the public does NOT have access. Let me give you an example of how searching on your own at the recorders office can be risky…say you want to purchase a property from Jane Smith. First, you have to search the thousands of documents under that name (same goes for Johnson, Silva, and in this county, Twisselman and Rossi). If you are lucky, you may find a few that pertain to the property you want…but you need to know how to read a legal description, and sometimes they are several pages long. (Keep in mind, relying upon an APN instead of the legal description is unacceptable: APNS change, legal descriptions do not without a legal subdivision.) What if Jane purchased the property as Jane Johnson then later married Mr. Smith? How would you find the deed where she came into title? And what if you did, but she was married more than once and borrowed money against the property as Jane Doe? What if she already sold the property to someone else? What if she conveyed an easement to the neighbor as Jane Doe and you never knew her previous name? What if Jane inheirited the property along with her six siblings and 14 cousins? Have you tracked all of them down? Have all of them agreed to sell you the property? Are they married, and have their spouses agreed? Are some of them deceased, and if so, who are the heirs? What if some of them have tax liens or judgements against them? Those liens and judgements attach to the property. What if the government has exercised eminent domain to a portion of the property? What if you are purchasing with your daughter and new son-in-law. Unbeknownst to you, your new SIL has a Federal tax lien. Guess what? Your newly acquired property can now be sold by the Feds to pay off his tax lien. You wouldn’t have known about this if you did not use a title company. Title companies have access to this information, and are willing to provide insurance to you in the event they have missed something. So, the information and INSURANCE you receive is usually well worth the cost. Just because a lender or a developer was unscrupulous does not mean that every entity involved in the tranaction was also unscrupulous.

    By: BeenThereDoneThat on 6/16/09
    P.S. Also with the Fed prosecuting I would think they would do time in Federal Prison? Not many cushy ones there as compared to, say CMC.

    By: BeenThereDoneThat on 6/16/09
    I think it is even better that the F.B.I. is investigating Hurst. They would have the experience and more man power. Hopefully that would help to get all parties (I.e. GD Development, Cuesta, Hurst, Heritage, etc.)

    Maybe that is also why the F.B.I. is investigating. More parties (businesses) involved here, than is involved with Estate.

    Another reason. More people to possibly prosecute? With Estate it is just the mother and son. Here we have quite a few people that could get jail time.

    By: Black_Copter_Pilot on 6/16/09
    To Cindy

    I spoke to the DA’s office a few weeks ago and asked the same question…I was told that the FBI was investigating Hurst and that any action woild come from them. The SLO DA is not pursuing Hurst, it was using all it’s resources in the EFI dabacle.

    By: Harlow on 6/16/09
    Yes, indeed . The rot runs deep. Who will keep the rot out of the regulatory agencies?We haven’t done it yet with the FDA.

    Jail time for all!

    By: hotdog on 6/16/09
    -Been There- has it right on. Until we get legit oversight and regulation these messes will continue, they cost all of us a lot.
    I can think of a number of simple, cheap and easily implemented reforms that if were in effect would have prevented this fraud. The state regulates (sort of) these crooks, yet our two state reps were uninterested in hearing from me about needed reforms. Probably because I wasn’t a lobbyist for some corporation.
    The rot runs deep. I urge all readers to contact Maldo and Blakeslee and lean on them to get off their high horses and work on reforming this arena. This is a non partisan issue yet their idiotic right wing ‘let the market rule’ ideology is killing us. The ‘market’ is a crook, always striving for more profit at the expense of the community of people at the bottom of the food chain.

    By: BeenThereDoneThat on 6/16/09
    Yea I think we all get the fraud, as we have all posted for some time. It just boggles the mind that we NEVER get out of this cycle.

    Tom Poole the real estate investigator who pulled HFI licence, stated in the Trib. a while back that this crap with lending institutions, goes in cycles and always comes to the top when the economy goes to crap and they get caught.

    So my point is, is how many more cycles do we do? As with Heritage also. How many cycles? With the title companies. How many cycles?

    I think everyone is done, disgusted, and ready to throw the gang in jail and fix laws, so we stop doing this.

    By: Harlow on 6/16/09
    People don’t seem to comprehend that the title reports ARE printed as recorded. They are printed and recorded on TOP of existing encumbrances. The APN numbers do not match up to the properties and the maps are sometimes not even in the same county. Are ya gettin’ the kind of fraud we’re talking about here?

    By: BeenThereDoneThat on 6/16/09
    Jorge good post. I can’t agree more.

    By: Harlow on 6/16/09
    A law firm that has the clout( and guts) to call a “spade” a “spade”.
    All one has to do is go down to the Recorders Office and smell the smoke.
    Dig deeper and find the fire…….this will not be the last of the conspiracies involving a Title Co.

    By: JorgeEstrada on 6/16/09
    I’m not even going to try and follow this scam because the term Title Company is as misleading as the term Federal Reserve. In my opinion a Title Company is just another insurance company that insures their search of what is public record. The scam is that lenders require you to buy it so they can have someone to blame if there is a problem with recorded title. Yes, if we want the deal we buy it and others may get even a better deal, like the accused.
    Our public watch dogs allow this and it takes allot of crime to even think about changing things.
    I’d rather be reqired to pay the County for a tile report, printed as recorded, to satisfy a lending agency. This would keep all liabilities where they belong, with the buyers.
    More often than not insurance and snake oil are in the same category. The big difference is, you can’t drink it and drive.

    By: Cindy on 6/16/09
    When is the DA going to issue warrants for the arrest of Melanie Schneider, Kelly Gearhart and Jay Miller? It sounds like there is plenty of proof to bring to a jury.

    By: BeenThereDoneThat on 6/15/09
    Karen. Excellent article. I would take you to task on one thing, about Gearhart not having a remodeling division. Most General Contractors or Developers will go with stuff as it comes. Gearhart did quite a number of remodels and additions over the years for his projects or for friends. You really don’t have a division for that.

    One thing I think is interesting. Heritage got their butt in a sling with the F.B.I. back in the eighties with Block and Bower and that fiasco. Now possibly this. I think that if this all plays out in court, the Fed. ought to yank Heritage as a bank. Two strikes is enough. No three.

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