Hurst’s lending practices under scrutiny

May 10, 2008

By KAREN VELIE and DANIEL BLACKBURN

Hard money lending schemes and questionable business practices have jeopardized hundreds of millions of dollars of investors’ money and placed several San Luis Obispo financial firms directly in the path of a sweeping probe by federal, state, and local investigative agencies.

Some lenders have closed up shop; others have simply ceased making interest payments on loans.

(See previous UncoveredSLO.com articles, “Fraud lawsuit filed against Gearhart, Hurst,” May 6, and “Gearhart’s $28 million Paso project imperiled,” April 29, on this site.)

Among the lending companies currently under scrutiny is Hurst Financial of Atascadero, owned and operated by Jay Hurst Miller. Hurst makes high-risk, generally short-term “bridge” loans to contractors. Investors, during good times, would receive 12 to 14 percent on their money in monthly interest payments, with their entire principal returned upon maturation of the loan.

Now, however, many of Hurst’s monthly interest payments on numerous construction projects have abruptly stopped, and investors are becoming increasingly concerned about the future of their funds.

Rita is a 65-year-old Cambria resident who suffers from multiple sclerosis and can no longer walk. Her husband placed the couple’s savings, $830,000, with Hurst Financial prior to his death from a long term illness, thinking he had guaranteed his wife’s financial security.

“I need 24-hour care,” Rita explained. “Without my interest and possibly my investment, I’m not going to be able to afford my caregivers and I will have to sell my house. I don’t know where I will end up. I am scared.”

According to Rita, Miller failed to return numerous calls she placed to him requesting information. In the midst of the financial turmoil, Miller took a 10-day trip to Hawaii.

“I am appalled that they would leave their business in the state it was in,” Rita added. “How do they dare go on a vacation? It shows they have no concern for their investors’ situations.”

Miller did not return phone calls and e-mails from reporters requesting comment.

Professionals with intimate knowledge of details of the unfolding venture disaster predict that local investors will be lucky to recover pennies on the dollar. UncoveredSLO.com interviewed numerous individual local investors, contractors, attorneys, law enforcement agencies, and lenders while preparing this article.

Hurst’s key player’s lifestyles were allegedly right out of the movies: fancy cars, gold jewelry, private jets, and high rolling excursions to Las Vegas. Investors allege Hurst and his associates used construction monies to live the high life, while paying interest from one account to fund another.

The pitch was alluring. Investments were supposedly secured by first trust deeds; had low loan to value ratios; and all monies were placed into secured accounts with a draw system – funds to be paid out only as construction work progresses.

Hurst assured investors they would be provided with copies of construction agreements on projects in which they were vested; Hurst failed to provide the documents, according to investors.

Numerous investors claim they were wooed with talk of accurate property appraisals, only to find out later that many projects had been given alleged inflated values. Hurst’s appraiser, Terry L. Pippin, is licensed only as a “certified residential” appraiser, licensed to appraise residential property from 1 to 4 units, each with a maximum market value of $250,000; or commercial properties valued at no more than $250,000. Investors report Pippin’s name has appeared as the appraiser of record on commercial projects valued at millions of dollars.

The firm also sold securities out-of-state, according to investors in Texas and Idaho. Generally, state regulations governing hard money lending require lenders to be licensed in the state where the investor resides.

Jim and Michele Mitchell live in Idaho. The retired couple has the bulk of their retirement funds, $638,000, invested with Hurst. The entire transaction occurred through the mail between Hurst’s Atascadero office and the Mitchell’s Idaho home.

“We made a trip [to California] to talk to Jay last month,” said Jim Mitchell. “We went to a couple of properties. There was no structure, nothing. It’s disturbing to me.”

Allan Beil, a 65-year-old retired Texas resident, also claimed Miller knew he was living out of state when he asked Bell to invest his retirement, $480,000, into Hurst construction loans.

“Jay absolutely knew I was living in Texas,” Beil said. “I think it’s going to be very hard for anyone to get money out of this. It took us 30 years to put that money together, and he just took it all. My wife and I are talking about going back to work. It’s an appalling thought to me. We worked to get to a point where we can retire comfortably. Everything I worked for is literally falling apart. They destroyed it. They stole the money. It is not about investment risk.”

Hurst maintains one-person offices in Arizona, Nevada, New Mexico, Oregon and Florida. Sales originating in each respective office generally must be made to qualified investors in that state only.

Yvonne Zamora, an investor with both Hurst and Estate Financial, took matters into her own hands when interest payments on her loans ceased last fall.

After checking with local law enforcement officials, Zamora began marching back and forth in front of Hurst’s Atascadero office, carrying a sign that read, “Hurst is the worst! Don’t Invest!” on one side and “Hurst is cursed! Don’t invest!” on the other side.

Within 45 minutes, Miller agreed to return Zamora’s investment. She was paid in full the following day.

Zamora proceeded to Estate Financial, another beleaguered hard money lender, where she picketed for three days to no avail with a sign that read “Meet your fate at Estate” on one side and “Burned at the stake by Estate” on the other.

Tags:, Estate financial, Gearhart, Hurst Financial, Paso Robles