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.”