Banks on thin ice after risky loans to developer

May 17, 2008

By KAREN VELIE and DANIEL BLACKBURN

Bank loans which appear inadequately secured made to a well known North County developer — as well as an accompanying tangled web of loan transfers — may have created significant problems for some San Luis Obispo County banks.

Kelly Gearhart owns an 884-square-foot house on a small, oddly shaped Atascadero lot at 5120 Traffic Way. The property transferred several times between Gearhart family members before San Luis Trust Bank, in 2005 and 2006, lent Gearhart a total of $3,696,677 on the house. The property is worth approximately $250,000 in today’s market, according to real estate experts contacted by UncoveredSLO.com.

According to court records, the loans have not yet been repaid. Neither Gearhart nor bank officials returned calls and e-mails from reporters.

San Luis Trust Bank reported earnings of $1.03 million for the first quarter of 2008, down from $1.08 million for the same period in 2007. In a recent press release, bank officials boasted of their $3.4 million loss reserve fund.

However, due to a recent $1 million hit linked to the failure of Cameron Financial Group’s First Choice Mortgage, coupled with $3.7 million in what may be under-secured loans made to Gearhart, San Luis Trust Bank’s “cushion” is stretched thin during the current climate of economic uncertainty.

Federal authorities began keeping tabs on the fledgling bank not long after its inception in 1999.

Following a lengthy examination of San Luis Trust Bank, the U.S. Treasury’s Office of Thrift Supervision (OTS) determined the bank had engaged in unsafe and unsound acts and practices. The OTS and San Luis Trust Bank signed a 16-page agreement in May 2006, written to bring the struggling lender back into compliance.

Heritage Oaks Bank also has made arrangements with hard money lenders and their developers that appear to be overly-risky.

Heritage Oaks Bank loaned Gearhart $1 million on Jan. 16, 2008, on his 14-acre Vista Del Hombre project — located near the airport in Paso Robles — with a deed of trust to secure the indebtedness.

(Vista Del Hombre’s problems were detailed in an April 29 UncoveredSLO.com article.)

Gearhart has stopped interest payments to hundreds of private investors who put $27 million into the project through Hurst Financial in 2005 and 2007. Those investors, though, are positioned above Heritage Oaks Bank in case of a default.

Gearhart claims his Vista Del Hombre project is worth between $100 and $150 million. However, real estate experts contacted by UncoveredSLO.com estimate the property to have a value closer to $5 million.

That property now includes some infrastructure, a golf course, three temporary buildings, a group of Porta-potties, and a small trailer housing both a pro shop and a cafeteria.

A cursory search of Gearhart’s holdings could have alerted bank officials to his current financial standing. Of dozens of properties Gearhart owns throughout the county, many have intertwining title profile histories.

Between 1994 and 2003, a residence located at 6305 Alcantara Avenue in Atascadero was transferred nine times between different Gearhart family members. At various times, it was listed in his wife’s name, Tamara Gearhart. Then the property’s ownership transferred frequently, listed to either June or Raymond Knight, Gearhart’s relatives, according to a title report. Because of state regulations governing interfamily transfers, these exchanges cost Gearhart nothing.

On November 7, 2006, Gearhart deeded a residence on Encinal Avenue in Atascadero to his son, Jeremy Gearhart, at no cost. A month later, on December 8, 2006, Central Pacific Mortgage Company provided the junior Gearhart with a $250,000 loan on the property. Later that same day, the property was deeded back to Kelly Gearhart, according to the title profile history.

Anticipating a rash of bank closings nationally, the Federal Deposit Insurance Corp. recently announced plans to beef up staff by as much as 60 percent, according to the Wall Street Journal. The key concern is not residential lending, but commercial and construction loan concentrations at smaller, locally-owned banks.


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29 Comments

  1. ccn_debate says:

    Member Opinions:
    By: Anonymous on 7/16/08
    I think the bottom line here is if banks and bonds are paying 4% on your money, and you are getting 12% on your money with certain financial entities, shouldn't you expect a certain amount of increased risk? When I lost some money on risky investments, I didn't over-react, I learned and moved on. Take responsibility for where you invested. I am sorry to hear people lost life-savings on these investments, but a little elementary education would teach you more reward usually equals more risk. Also, don't put all your eggs in one basket.
    By: Anonymous on 6/22/08
    says every one of you on this blog sucks none of you get it.how stupid are you.
    By: Anonymous on 6/22/08
    insider your just a one man band that no ONE listens to..
    By: Anonymous on 6/20/08
    Hey Kelly and Jay check out the new article on undercoverSLO. Giddyup!
    By: Anonymous on 6/20/08
    Where's the DOC and the DRE on this one?
    By: Anonymous on 6/19/08
    So is Gearhart getting everybody thier money back? Hows the golf course looking? Better than the one in Atascadero I hope.
    By: Anonymous on 6/19/08
    If you were in certain countries your hands would be missing.
    By: Anonymous on 6/19/08
    to Insider your still at it Unbeliveable.if all your fingers were missing, you wold probably pick up a stick just to blog
    By: Anonymous on 6/19/08
    I hate to break it to you guys but I'm not this Ron Barry you speak of nor do I know him. Sounds like you guys are still wallowing in it. It sounds like Gearhart and Hurst have got you wrapped around thier finger. Thats alright have another drink it will be alright. The Estate people are finally making a clean break of it. They are leaving you in the dust. Hopefully when you come around to taking matters in your own hands you'll still be able to garner support. Maybe I'm wrong and the boys have a plan to get your money back. Yes? At least get Powell his money back. Eh?
    By: Anonymous on 6/19/08
    It sounds lie Ron. let me think about this a while

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  2. ccn_debate says:

    By: Anonymous on 6/19/08
    to Ron Berry the Isider. you and your phoniex recovery group had myself and others almost convinced to turn our investmets over to you, all that does is cost all of us more money. sorry Ron barry i want to keep what i have left
    By: Anonymous on 6/19/08
    Ron Berry,we know you are the INSIDER. you are hatefull, vengefull and would love to destroy anyones lives at anytime for any thing. you should not be listening to the little horned man on your left shoulder but focous and listen to the angel on your right
    By: Anonymous on 6/19/08
    I'm sure god has better things to do than supporting little trolls flying around in jet airplanes on trips to Las Vegas to spend retires retirement funds on the roulette wheel. Don't you?
    By: Anonymous on 6/19/08
    Where was god when these peoples money was absconded with?
    By: Anonymous on 6/18/08
    To insider. Beware of mocking GOD. you seem to be the judge and jury. what goes around comes around.in your time of need or crisis in your life i hope GOD hears you when you are calling out his name
    By: Anonymous on 6/18/08
    Somebody getting a little religion before thier trip to jail.
    By: Anonymous on 6/18/08
    He who is without sin cast the first stone
    By: Anonymous on 6/12/08
    Wait! I know where he is. Curled up in the corner of his bedroom feeling sorry for himself. Dewdog probably brings a bag full of stuff off the McDonalds menue once a day.
    By: Anonymous on 6/8/08
    I want my money back as well, Estate Financial may not be the only one that may not have acted in good faith with others peoples money. Those who wish to cast stones may wish to clean up the mess in their own back yards.

    By: Anonymous on 6/7/08
    Kelley, Bubba your new room mate is waiting for you at CMC. Make sure that you take plenty of lube when you check in! hehehehehehehhe
    By: Anonymous on 6/7/08
    Kelley, Bubba your new room mate is waiting for you at CMC. Make sure that you take plenty of lube when you check in! hehehehehehehhe
    By: Anonymous on 6/4/08
    Looking over his left shoulder and dead bolting his doors no doubt.
    By: Anonymous on 6/3/08
    Where is Gearhart?
    By: Anonymous on 6/1/08
    One last comment and then I really must go. If the investors were to pool some effort and attack both Gearhart and Hurst hard. Freeze thier assets. How much do you think they are willing to spend on attorneys and where would they get it. They are constantly threatening an extended legal battle. Who get best fight that battle? YOU the investors. They are going to have to come up with some serious cash to get someone to work for them at this point. Attorneys don't like that end of the battle without seeing the money up front. Don't be intiminated Powell probably already has his money back.
    By: Anonymous on 6/1/08
    to to private jet

    It sure would be interesting to look at Gearharts transactions in and around the time 3 years ago when he bought this jet we hear about. I bet it would be pretty clear who bought him that jet that he later off loaded at a deap discount. I would be quite suprised if he could show any accual real estate transactions that indicated that kind of income. I would be equally suprised if he ever made real money on any sale or just kept it all going with loans. Of course his tax filings would show that. Someones getting fibbed to either the investors or the IRS. Maybe both.

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