INSIDE EFI: The Long Fall

May 3, 2008

Part 2: Maybe money does grow on trees


(Editors’ note: This is the second in a series examining the high-rolling, multi-million-dollar Paso Robles financial lender, EFI, and the fascinating reasons for its current critical condition.)

When Karen Guth angrily ordered the locks changed on the office housing Paso Robles’ Estate Financial Inc. (EFI) in February 2003, banishing her then-husband and partner, she helped set into motion a series of events that eventually would publicly expose both her private life and the inner working of her businesses.

And despite her penchant for marketing, the public attention has not been beneficial, to her or to the businesses.

Only last week, Guth learned that EFI’s permit allowing the sale of properties has been suspended by the California Department of Corporations. That’s the first overt action by a regulatory or law enforcement agency against EFI, but a cooperative investigation by San Luis Obispo County, state and federal agencies has been ongoing for the past month – with the Paso firm as a target.

The official probe into EFI’s practices is the outgrowth of a growing swell of anger, apprehension and legal activity by hundreds of EFI investors trying to find out where their money went. Investors are just now learning that the company currently has only 20 percent of its mortgage funds in current loans.

Charles Applebaum and his then-wife, Guth, purchased the financial brokerage in 1994. After the purchase, they divided their shares, and their duties. (The pair holds 85 percent of EFI; Guth’s adult son, Joshua Yaguda, owns the remaining 15 percent.) Guth and Applebaum own all of a subsidiary company, Republic Properties).

The man Guth calls “Charlie” became the target of her wrath in the aftermath of their marriage’s sticky breakup. Still, the inevitable divorce might have gone relatively smoothly, had Applebaum not quickly discerned that Guth was moving to lock him not only out of the office, but out of the vault, too.

This, and a whole lot more, is memorialized in a yet-growing mountain of documents, sworn declarations and other court documents, the paper fallout of four years of contentious litigation between Guth and Applebaum scrapping for the spoils of a troubled business. And it’s not over yet.

A lot was at stake when it came time to divide the couple’s assets. In 2004, Applebaum estimated their community property to be worth $10-15 million, and their business ventures another $10 million.

Applebaum’s first clue that he was being separated from both his spouse and the couple’s golden goose occurred when he read this in Guth’s response to his divorce action as she sought to gain exclusive management and control of their business interests:

“When Charlie abandoned me,” she alleged, “the bank cancelled our line of credit… several months ago, Charlie just disappeared,” she said in February 2004 court papers. “I have been running the businesses single-handedly. He has been hiring personal friends and interfering with contractors… helping himself to unusually large amounts of cash” from a Templeton service station they own. She said he leased a new Jaguar “shortly before he disappeared… (and) evidently now doesn’t want this car.”

She also belittled Applebaum’s contribution to EFI, claiming he had not been actively participating in the company’s operations “for years.”

Funny. That wasn’t the way he remembered it.

“If that was true,” Applebaum shot back through his lawyer, “then it is (Guth) alone who made the bad loans which the company has had to absorb. Those loans arose through decisions made by (Guth) in the use of various loan funds which resulted in losses of several million dollars.”

Applebaum said those bad loans “were transferred by EFI into Republic Properties so as to avoid having to hand them back to various investors in the projects… she wishes to use all the cash flow from these investments when sold to pay interest into EFI rather than use the cash flow of EFI to service EFI’s bad debt. This would have the effect of dramatically increasing the assets of EFI.”

As a result, EFI’s largest asset is a note receivable from Republic Properties, which is not collectible.

Applebaum said Guth “refuses to account in any meaningful way for the uses she has placed monies to in the past, and there is no reason to expect that she will be more forthcoming now.”

EFI’s business seeks to attract private investment money to fund construction projects. The so-called “hard money” loans cost, and sometimes pay, high interest rates. Builders often use these loans as “bridges” to complete projects.

It was Applebaum who was the managing real estate broker for EFI before the divorce. In his position, he told the court, he was responsible for establishment of loan-to-value ratios; review of construction plans; establishment of disbursement schedules; monitoring of the construction budget; and supervision of all construction. Applebaum described his professional attributes in an early 2004 divorce document: “…a B.A. degree in engineering, a Master’s in business administration. I am a certified financial planner and am a licensed California real estate broker. I have held a state general contractor’s license for 17 years.”

Once Applebaum was out of the picture, Guth turned to her son, Yaguda, to fill the empty chair. Yaguda took the state real estate broker’s exam, failed the first time, but got his license in late 2004.

The mother-son team then set out on a whirlwind marketing tour, snagging investors and pulling them in one EFI door while the loans were going out to builders through another. In a sworn deposition in March 2004, Yaguda explained his new role in EFI: “I explain to (investors) how we will handle their investments and I further answer any questions. I then try to sell them on the merits of our company and encourage them to invest with us.”

And for every dollar that Guth and Yaguda pushed into the hands of hungry developers, they took one, two, or three percent off the top for their services. There was no shortage of investors, and no shortage of supplicant builders.

When times were good, investors were making 12 to 14 percent on their money. Many simply rolled over their interest earnings into other projects. But according to court documents, Guth and Yaguda were collecting money, distributing it, and then failing to monitor construction money draws, or even the progress of building.

That had been Applebaum’s job.

While the feuding pair jockeyed for position in court, their assets slowly dwindled. They either sold or divided their stable of new vehicles – a Volvo, Jaguar, GMC Yukon, and two trucks. Residential real estate in Templeton and Cambria went on the block.

But even as Guth’s personal assets disappeared, she still found favor in the North County banking community. Around Feb. 1 2006, EFI got a $5 million unsecured revolving line of credit from Heritage Oaks Bank. In mid-November 2007, Heritage changed the terms of the loan. It was no longer a revolving account, and now was secured by collateral -– two gas stations owned by Guth and her son, Josh, one in Templeton, the other in Morro Bay.

As of January1, Guth owed Heritage Bank $1,180,629. And today, she still owes Applebaum $1.3 million. But she still has her $3 million Paso Robles ranch.

Or does she?

SUNDAY: PART 3: The shoe keeps falling.

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By: Anonymous on 5/9/08

Interesting Legals in the Telegram Tribune. Notice of Trustees Sale on Loan B352-05 – B366-05 Signature Homes and Al D'Amico in the amount of $7,584,421.10 APN: 026-281-055/056 and Three Bells,B193-06 Karen Guth- Al D'Amico in the amount of $6,453,285.89 APN: 040-111-024. Open your eyes

By: Anonymous on 5/9/08


Why do you have l0 loans a year old. Are you paying interest on these loans. If so how can you afford to do so. What if you are paying interest on money thats not even there?

By: Anonymous on 5/9/08

Sound familiar? Read the below article at this link:

By: Anonymous on 5/9/08

Let me get this right.. Let's say EFI tells the investors they have a great investment at 65% Loan-to-value-ratio for a project. So investors hand over their money to Karen. Karen allocates some or all the money to the contractor BUT here's the thought… Karen only loaned 65% of the FINAL VALUE of the project (of course, making the investors feel safe) yet didn't mention to the investors that the project was going to need more money to complete (really being a 85-90 LTV ratio). When it came time for the contractors to hopefully get a new loan (more money) EFI blew them off causing them to go into foreclosure. From there, EFI picks up a wonderful real estate deal for themselves.

How does Republic Properties fit into this equation? I heard this was Charlie's (x-husband) company and he bought these foreclosure or bad loans at a discount from EFI and then finished contruction to make a bunch of money. Meanwhile the original contractor most likely had quite a bit of his own equity in the project, so he REALLY LOOSES OUT!

It would see reasonable that Republic Properties owes EFI money for these properties. Recall in the article/blog Charlie stating in the divorce docs 'EFI's biggest asset is a note from Republic Properties which is non-collectible'? I'm guessing this note had to pay interest to EFI amounting to 12% or more, thus the investors are satisfied. I'd like to know the books of Republic Properties? Is it negative or positive? How positive or negative? Those books are crucial to the investors!!!

Also, Charlie can PAY HIMSELF to run Republic Properties, (coming from the investors money), yet the investor don't know because they are sleepers happily receiving their 12% (no offense investors). Another twist, I'm gathering Karen really ran Republic Properties, not Charlie. His name was more of a front. Any comments or other possible scenerios someone would like to list? Or add any information? Elaborate please!

By: Anonymous on 5/8/08

Get a load of this….. says:

Aired on American Greed last Wednesday was a documentary of the Baptist Foundation of Arizona. I missed the first part of it, but this company/foundation was promising their investors 12% derived from real estate deals. It happened in the 90's but oh, the similarity is stunning to EFI. It ultimately turned into a Ponzi scheme. If you want to understand what so many believe is true about Estate Financial, I suggest watching this show. It concludes with prison time for both owners of the Company. The next airing I can find is Sunday 5/11 at 8:00 CNBC – American Greed.

By: Anonymous on 5/8/08

None of my 10 loans are new. All are more than a year old.

By: Anonymous on 5/8/08

to TK

Maybe your the exception to the rule. Really with all this focus on them and your loans being new they did the right thing. I don't know how you can check it out though. Truth is not thier strong point.

By: Anonymous on 5/8/08

What do you mean "when funding requested often no money was there"? I have ten loans and have in writing (from an EFI employee)that all ten were "fully funded". Most are not even started and yet "no money is available to complete the projects". Where's the money?

By: Anonymous on 5/8/08

to Anonymous

Thats what I'm talking about!!

By: Anonymous on 5/8/08

insider says:

Performing Loans? Most of the loans when they were made did not have the full amount available. Just enough to close and comence work on any given project. However, when funding requested often no money was there as it was to be within two weeks of voucher submittal. Often it took months to get paid All projects were delayed while expenses accumulate and subs deserting builders. Karen made those loans knowing that the money was not there. She expected borrowers to come up with funds from other sources to complete projects. Karen did charge the full fees upfront and booked it as income and profit to herself regardless of her inability to perform under the contract. Many projects are upside down because she was only interested making loans on paper without delivering funds as required. She tried to operate as a bank without the bank's ability to have the daily free cashflow (checkings, saving, overnight borrowing from other banks and or ability to borrow from the feds window). She clearly operated a PONZY SCHEME. It is a federal crime and is being investigated as such. People in the office are singing as we speak.

By: Anonymous on 5/8/08

to K in Paso

You know those performing loans will probably fail if Estate funded those loans in the way they often did. Meaning that they did not fund the entire loan at closing and therefore do not have the funds on hand for those builders to complete thier projects. What builder will continue to make thier interest payments when they stop funding construction. Since Estate can not continue to gather investors they may not have funds for these projects. In other words I would think that number of performing loans is much lower than reported at that time. Sorry,

By: Anonymous on 5/8/08

to K in Paso

I think that what this means is they loaned out the larger number but of all that money loaned out only loans totaling the smaller number are acually performing or for a more precise definition paying thier payment at that time. Thats about 21% of the loans on the books are still paying. What it doesn't say is what is the true condition of those that are paying. They could be in just as bad of shape in terms of construction completed they just haven't stop making thier payment. The other thing these numbers don't tell you is how much money Estate may have in the bank under the various loan numbers of funds they never issued. Imagine if they stop giving progress payments before the money was gone which is most likely. Now add those amounts from each account together. Estate could still have many millions of dollars that they continue to use as they see fit. A more interresting number to know would be the cash on hand in all accounts.

By: Anonymous on 5/8/08

to Dan,

Hummm… in August '07 a letter came out hinting of trouble…. someone knew something prior to the Nov court papers.

By: Anonymous on 5/8/08

to Dan,

Thanks for that piece of info. It is good to have productive, quality exchanges like these in a time when so much is at risk. Thanks guys!

By: Anonymous on 5/8/08

K in Paso —

EFI claims "to have available $172,687,619.32 in construction loans (assets); it has $36,160,142.99 invested in current, performing funds." — Charles Applebaum, in court papers dated Nov. 28, 2007

By: Anonymous on 5/8/08

to Insider

She really set it up!

Does anyone know when only 20% of the loans were producing? An actual date would be helpful.

By: Anonymous on 5/8/08

To K

If you choose the larger fund investors you'll need less than 50% of the fund participants. The individuals on trust deeds are not getting paid either and are just as pissed. Karen does not control them. Her greatest control is because she set the fund as 51% owner in each project so even if the individual trust deed investors want to take back a project they can't because the fund owns 51%. Karen just wants you all to lay back and die, give up, give in, let her do it her way.

By: Anonymous on 5/8/08

to Insider

Even if I had the time and money to contact everyone on the Mortgage Fund list (24+ pages long) and we could get 51% of the fund to agree on removing the Manager and agree on a replacement we would still have to pay Karen off for her incurred expenses to date.

Oh, and the 51% is not 51% of the members, it is 51% of the controlling interest. That could actually be more or less than 51% of the members depending on how many share they individually hold.

Still, all that the Fund members have are shares in an LLC… Karen controls the actual equity that is represented by the Trust Deeds. Those Trust Deeds are also owned by investors who are individually invested in those projects. Correct me if I am wrong, but that would make it very complicated to liquidate assets because it is not just Mortgage Fund members that must agree on liquidation, but all investors, individual investors and fund members alike.

We need legal help!

By: Anonymous on 5/7/08

to K in paso

It's my understanding that the fund owns 51% of almost all projects. That way Karen as manager of the fund can dictate all actions on each property. The people who invested in individual trust deeds are at the mercy of the fund. Who manages the fund? Karen. If a majority of the fund participants representing over 51% interest in the fund agreed they could apoint a new fund manager. A new fund manager could then meet with the individual trust deed owners and liquidate and or complete projects and then liquidate. Short of this only a reciever can help. Wouldn't a reciever be better than to continue to allow this rip off.

By: Anonymous on 5/7/08

Those of us invested in the Mortgage Fund don't have any equity in TD's… only a fractional interest in an LLC that has no liquid assests.

The list of Mortgage Fund investors is over 24 pages long and unless the courts step I don't know how to get enough investors to vote to take over the Fund and put in a new manager.

It looks like we are going to take a bath on this one.

By: Anonymous on 5/7/08

to annie

I am not an investor. I have been around this stuff for many years. This is a serious situation and I feel the fund investors need to gather each others support and take controll of the fund if they are to get anything back. Sounds like they came across with the information you have all been seeking for quite some time. Good luck with your efforts to recover some of your equity.

By: Anonymous on 5/5/08

to insider,

The D.O.C. has preasured EFI into releasing information.

We have been trying to get a list of investors since last Sept. By some miricle the last time we called we were told to stop by and pick up the list.

I know of several people who have picked up the list and at least three people who called EFI and insisted the list be mailed to them at the expence of EFI.

I feel it is important to keep preasure on Karen to release any information you want. If you find they do not respond in a timely manner call the D.O.C. and you will see some fast action.

By: Anonymous on 5/4/08

Still Applauding — which county are we talking about: Santa Clara or San Bernardino?? Mtn View Avenue or the city of Mtn View?

By: Anonymous on 5/4/08


It seems that there has not been a street laid yet. Check out Mountain View Avneue.

By: Anonymous on 5/4/08


According to my records, the total amount loaned on B100-04 was $719,010, so I assume the difference was funded by first trust deed holders. Thanks for the research.

By: Anonymous on 5/4/08

Still Applauding — Neither Mapquest nor Google recognize Abraham Court in Mtn. View (Santa Clara or San Bernardino Counties) Anybody laid eyes on this project??

By: Anonymous on 5/4/08

Still Applauding — I have the "Loans Listing: Estate Financial Mortgage Fund" which shows Loan B100-04 was made to First Press Partners and has a principal balance of $150,156.96. I assume the other loans were from DOT investors??

I'll give it a look-see tomorrow and report back.

By: Anonymous on 5/4/08


Mountain View property – loan B100-04 (plus three other loan #'s), APN#189-03-016, CONSTRUCTION DEED OF TRUST 19794969; address: 1298 Abraham Court, Mountain View.

By: Anonymous on 5/4/08

Insider: Just call or email EFI and ask for the list of investors in the EFI Mortgage fund. If you don't get it let me know and I will email it to you. I have it.

By: Anonymous on 5/4/08

slo bear

Are you actually implying that because these people got involved in a risky business that this level of mismanagement is somehow acceptble.

By: Anonymous on 5/4/08

It was implied shortly after the big meeting in Atascadero that the list of investors was to be available to all who requested it. Did that ever happen? Does anyone know of an investor who actually managed to get a list of those in the fund?

By: Anonymous on 5/4/08

SLO Bear

Your comment is unfair to all investors. The operation was to be run as a legitimate business with high confidence in Karen G. They had all credentials and history of prompt payments for long time. Karen G. effectively concealed her problems and for all practicalpurposes, she was prosporous. Who would have beleived that all it was a show? Things were kept togather until the payments stopped. She was also effective in keeping the name of investors and borrowers to herself.

Charlie saw it coming and got his share of thelootin time.

By: Anonymous on 5/4/08

I also find it interesting that no one was asking questions when the cash was flowing.

Although Ms. Guth appears to have criminal actions, there seems to be enough greed to go around. Be careful what you wish for.

By: Anonymous on 5/4/08

According to the last line of the new oaticle Karen owes her X Charlie 1.3 million. It comes form a reliable course that in the past two weeks she paid off that amount to him. That is why no one showed at thier hearing last week.

Wonder where that money came from. I appears we the investors are paying all of her legal expences and maybe even her divorce settlement.

Hard to believe a man would want to leave such a wonderful woman as Karen.

By: Anonymous on 5/4/08

Mac — do you have the address of the Mountain View properties? I'm in the area and would like to run by and and check status. Also, an APN and/or property description may get a property profile.

Let me know. I'd like to check itout.

By: Anonymous on 5/4/08

K in Paso

EFI's trouble started years earlier actually with the onsetof Karen and he X seperation. No one would have known it and as long as interest payments were paid timely, no one cared. In hindsight, it is easier to see. Too late, your money is gone into the blackhole with the rest

By: Anonymous on 5/4/08

There is a four home project in Mountain View that is still not finished after approximately five years. The four Deeds of trust securing the investment were never recorded by EFI. Is this fraud? Under pressure Joshua recorded them just a few weeks ago. In the meantime, while the DT's were unrecorded, contractors liens were filed against the project. They have priority over the DT's because they were recorded first. If the liens hold up at binding arbitration, they will file foreclosure if EFI doesn't pay off the liens. Foreclosure will wipe out the four $719,000 DT's, unless the investors form a committee and foreclose first. There are developers who would be eager to finish the project, if the numbers make sense. It may reqire a short sale, but my quess is that most of the money could be recovered. This will take a lot of work by the investors, but it's better than losing all your money.

By: Anonymous on 5/4/08


go to the court hearing on may 7 at 9:00 slo court house in court room called VETS. al d'amico/ 3 bells trial. somebody go

By: Anonymous on 5/4/08

To Vince and all readers:

I came upon this data this morning and it should clarify this issue. EFI claims to have available $172,687,619.32 in construction loans (assets); it has $36,160,142.99 invested in current, performing funds. — Nov. 28, 2007

This will be reported in this evening's posting of EFI: Part 3.

By: Anonymous on 5/4/08

Do I understand correctly that if Karen gets people to agree to mortgage their first trust deeds in order to form an LLC, that she will be able to borrow more money under the LLC? What will she do with that money? What if she doesn't make interest payments on that loan? Could we then be foreclosed upon and lose everything? If we were foreclosed upon, could Karen go in and buy the property at a discount and increase her personal holdings? Also, I heard that her LLC documents state that no one can get out of the LLC unless there is a 100% agreement of all the investors. What does that mean? That we would be stuck in an LLC for life? Would we ever be able to get our principal back? Would Karen be able to charge us fees for managing the LLC forever? Who can answer these questions? Certainly not Karen.

By: Anonymous on 5/4/08

My wife and I invested in the Estate Financial Mortgage Fund in late July 2007. At that time we met with Karen G. and of course part of our discussion was about current market trends. Although Karen G. acknowledged that things were slow in home sales she never hinted that EF was in trouble. I have to wonder what facts she was withholding from us at that time, as it was only thirty days after we signed our papers and given EF our money to invest that we received a letter hinting of trouble with EF.

This brings to mind the old question..

"What did she know and when did she know it?" If Karen G. was withholding important information about EF that would have effected our decision to invest in her company that failure to disclose in my mind is fraud. I wonder what the DA and the California Department of Corporations would have to say?

By: Anonymous on 5/3/08

Vince —

This is Applebaum's direct quote from court papers recently: "It is clear that (Guth) is scrambling to protect herself and her best property while Estate Financial, with only 20 percent of the mortgage fund invested in current loans, is sinking fast. I have no reason to believe this situation is going to improve soon.” This was first reported in Part 1 of this series.

By: Anonymous on 5/3/08

First Indictment have happened Jon G. Ervin associate and fellow con man and ponzi scam of RW Hertel has been taken into custody today. More to come

By: Anonymous on 5/3/08

"Investors are just now learning that the company currently has only 20 percent of its mortgage funds in current loans."

Do you actually mean performing loans; that is loans that are making scheduled payments? Looks like readers are interpreting your choice of words to mean only 20% of the money is invested and the other 80% is gone. You need to clarify your statement since I believe readers are misinterpreting your words.

By: Anonymous on 5/3/08

If EFI has been told not to do and new loans or solicit investors how can they do these LLC's. Who in the hell would give them a loan? They can't do thier own loans anymore. Isn't taking existing investors and reorganizing them to go get more financing just working around the order?

By: Anonymous on 5/3/08

A old friend once told me the best way to make money is to be there when money changes hands. Estate made an art out of it.

By: Anonymous on 5/3/08

It's official: Robert J. Sucarato wasn't much of a hedge fund manager after all, regulators say. In a civil lawsuit, regulators charge Sucarato lost much of the money he solicited from investors, and he raised that money under false pretenses.

A New Jersey federal judge, at the request of the Commodity Futures Trading Commission, has frozen all of Sucarato's assets and ordered him not to destroy any documents pending a court hearing on May 8. The judge approved the asset freeze in response to the CFTC's Apr. 22 lawsuit, which was unsealed on Apr. 30. The suit accuses the longtime New Jersey resident with "employing a device, scheme, or artifice to defraud participants" in raising at least $1.5 million from at least five investors.

Sucarato did not return telephone calls or an e-mail seeking comment. It is unclear whether he has an attorney after his previous lawyer quit, citing lack of payment.

For nearly a year, several of Sucarato's investors have been battling with him, trying to get their money back. The attempts by investors to recoup their investment and expose Sucarato's alleged deceptions were described last month by BusinessWeek, which highlighted how Sucarato and other potential scam artists are using so-called virtual offices (BusinessWeek, 3/27/08) to make their operations appear larger and more established than they really are. A virtual office is a more elaborate version of an old-fashioned post office box, in which tenants—for as little as $100 a month—get access to a telephone answering service, a reception area, and conference rooms for meetings, along with a mailing address. Sucarato used a virtual office on Wall Street in New York and in Chicago to allegedly induce investors into giving him money.

Among the Accusations, Concealing Big Losses

The CFTC says that "contrary to the impression created by Sucarato" his money-management firm, New York Financial Co., "is not a well-established, successful New York investment firm staffed with experienced traders." Sucarato had claimed his two hedge funds controlled more than $7 billion in assets, employed more than 20 traders, and generated extremely high returns. For instance, the CFTC says Sucarato, 37, claimed a 10-year compounded return of more than 1,800% for one of his funds. By comparison, the Standard & Poor's 500-stock index, over that same time frame, has returned 102.7%.

In fact, regulators charge Sucarato worked alone, distributed false financial statements, misrepresented his background and accomplishments, and concealed big losses from trading commodity futures and options. "The sophistication required to fabricate an established management firm with a winning earnings record and the financial statements to back it up will not go unchallenged," says Gregory Mocek, the CFTC's director of enforcement.

The CFTC is scheduled to return to federal court on May 8 to tell a judge why the asset freeze against Sucarato should be made permanent. Sources say federal prosecutors in New Jersey are also investigating the money manager.

By: Anonymous on 5/3/08

To Those of you who applauded Karen and Josh at recent meetings:

Are you ready to admit that she's a crook now? Band together with those who have known who she is for some time. Organize and vote to remove her as manager. Call her and demand that she resign. If she were legitimate that is exactly what she would do – but as we know, she is not. She is still, unbelieabably, trying to save her sorry ass. IN THE MEANTIME – DO NOT SIGN AWAY ANY OF YOUR FIRST TRUST DEEDS TO FORM LLC's AS SHE IS RECOMMENDING. YOU WILL LOSE YOUR FIRST POSITION AND BE LIABLE FOR ALL LOANS SHE WILL THEN HAVE AUTHORITY TO BORROW UNDER YOUR NAME.

By: Anonymous on 5/3/08

insider says:

Have you been reading some of the complaints against FI?

By: Anonymous on 5/3/08

Dewdog still has yet to comment on Gearhart/Hurst. Are you involved in that somehow?

You make good comments, but your credibility is in question by your lack of input regarding Gearhart.

Why no comments?

By: Anonymous on 5/3/08

Bankrupt your borrowers by loaning just enough money to builders to get projects almost, but not completely, finished.

Take full origination and management fees from those loans.

Foreclose on the unfinished projects and sell them to yourself.

Loan yourself investor's money to finish the forclosures, taking full origination and management fees from those loans.

Sell the completed foreclosures and keep all the profits for yourself.

Seemingly a nice racket Karen and Josh, but completely illegal.

You will soon be hooked up, hauled off, thrown in a cage, and breathing government air.

By: Anonymous on 5/3/08

Insider: Please e-mail me at

By: Anonymous on 5/3/08

All true. Now the story of how repuplic fits in. The borrowers have been getting the shaft far before the investors. EFI funds a loan at with about 40% of loan proceeds in place at closing. Enough to pay of the land, fund thier expences and pay thier points, a interest reserve of 6mo. with whatever is left in the construction fund. At that point they have collected 100% of thier fee. The concept is they will bring in new borrowers as the construction proceeds. The borrower proceeds to pay architects, engineers, subcontractors to get permits and start construction. Borrower then request payment. Payment is very slow because they have no new investors or they use the new investors to fund a new 40% loan which they take a 100% fee on. This cycle continues and I think you can see the proplem. So now a certain amount of the borrowers who are pretty much of limited cashflow give up and either sign over the property of are forclosed on. You just can't keep paying 12% with no funds coming for construction. The investors don't know much because they are still getting paid from the interest reserve and the left over construction funds they won't give the borrower. So what does this have to do with Republic. So now Republic steps in a company of Charles and Karen. Republic steps in and takes over the project from the poor shmuch they put under. In good times they were getting thing that should have taken a few months to complete and they thought they would make the profit the builder would have made. Lets face it they had value they never paid for since many of these builders had much of thier own time and money in and usually had debts to subs they had not paid. The foreclosure wiped out the debts since the subs did not have the money to step in and take the project themselves. So what does Repuplic do to finish the project. They get a new loan from EFI. The old loan which they only funded 40% of gets paid off. Remember they recieved 100% of the intended original loan. A new loan is created with new investors which provides them with another 100% fee. Of course Repuplic gets thier loan entirely funded and gets valued above what is needed. Oh thats the other part they actually generally undervalued the project for the initial borrower knowing it could not be built for what they were providing creating more liklyhood of failure. So step one underlend, step two underfund, step three, collect 100% of loan fees for EFI, Step four don't provide timely payments to borrower, Step 5 send construction moneys to investors as interest payments, Step six foreclose or take deed from borrower, Step seven get new loan from EFI for finishing construction charging full fees and creating slush fund for Republic. Step eight, Repeat step one. This relationship kept a revolving door between EFI and Repuplic and kept all the investors in the dark untill the thing was so screwed up Republic didn't even want these projects.

By: Anonymous on 5/3/08


There will be more information to come.

By: Anonymous on 5/3/08

EF has been dirty since day 1.Great explanation provided by Anonymous. There are hundreds if not thousands of people in prisons for far less crimes than Karen has committed. The amazing thing here is the apparent intent from the beginning to rob these people. Intent is the fruit of the crime. Like some others who may have got caught up with a downturn in the real estate market and bad economic times Karen's actions appear to be for the sole purpose of ripping alot of people off. This type of person needs to be locked up with the key thrown away. The financial, mental and physical damage she has done to hundreds is unacceptable in any society.

By: Anonymous on 5/3/08

Let's see: only 20% of funds are invested in mortgages and EFI's largest asset is a note receivable from Republic Properties.

If investors get even 10 cents on the dollar, I will be surprised.

It also looks like they continue to drain funds from the business. The FBI needs to step in and shut this thing down or all the collateral will do nothing but pay attorney's fees.

By: Anonymous on 5/3/08

Forgot to mention some First Trust Deed holders weren't informed of the sale of their properties. EFI didn't inform them of the sale so Karen/Josh could use the investors money for whatever else. Many investors didn't notice because they kept receiving their 12 percent. Mostly, they trusted Karen and Joshua to tell them when their projects sold and to do their jobs correctly.

What happened at EFI was no accident! Karen broke the rules and now all the investors are paying handsomely for that! And to think up until just recently Karen was still trying to make loans! Where is that hammer of justice?

By: Anonymous on 5/3/08

Well put Anonymous! She made loans hoping that new money from investors would come in. The temptation to make new loans was too great – money in her pocket from fees! Now what a wreck! The borrowers are suing her for not having the money she promised and the investors are wondering why they can't get their money back. They can't get it back because she needed it so desperately to put towards projects she promised other builders. But it appears she never missed the opportunity to pay herself her management fees. How swell for the investors!

By: Anonymous on 5/3/08

Lets get something clear in here! Karen Guth increased her loan activity from around $95 MILL to $150 MILL within less than one year following their seperation. She made loans without the money being in the accounts expecting to fund them with either money coming from new investors by the time bills were to be paid or other loans getting paid off. In the process, Karen G. collected fees between 2 to 3% up front that was hers to keep. In practice she was "kiting" or rather acting like a bank except EFI was a hard money lender vs. a bank. The difference beteen a "hard money lender and bank" is huge. A bank only needs a percentage of funds on hand counting on deposits and free cashflow from checking savings and if come up shorth, they can borrow from other banks to tie them over. As a last resort, they can go to the feds and get money real cheap. Usually they want to avoid it as it indicates problem. A hard money lender on the other hand must have the entire fund in a segregated account available upon demand. Karen failed big time causing projects not to be completed on time causing hardship on many developers and unneeded delays with additional interest and other overhead cost to each projects. What Karen did was illegal and thats what caused her business to implode taking down everyone around her. The money she claimed to have was never there but was going on until it came to light.

We ca thank this blog to bring it to everyones attention. She is going to the dungeon soon along with her puppy Josh. Josh's wife and kids will have to get by as many of their victims unless of course they have a good chunk stashed away.