INSIDE EFI: Under The Microscope

May 4, 2008

Part 3: The good times are gone

(Editors’ note: This is the third and final article in a series examining the high-rolling, multi-million-dollar Paso Robles financial lender, EFI, and its current problems.)


One of the down sides of divorce is its very public nature, proceedings often revealing things about people they’d rather keep secret.

Had it not been for the bitter 2004 divorce of Guth and Charles Applebaum, then co-owners of Paso Robles’ Estate Financial Inc. (EFI) and Republic Properties, much regarding their businesses probably never would have found its way into the public domain. And if legions of investors were not today concerned about money they’ve invested with EFI, details of the pair’s divorce would have interested few.

But now the once high-flying North County hard money lending firm — bending under pressure from simultaneous federal, state and local investigations — is more exposed today than ever before. Complaints have been raised about the firm’s practices and investors have voiced concerns about conflicts of interest, mismanagement, and improper use of EFI’s mortgage fund. Investors have gathered by the hundreds in a series of meetings all over San Luis Obispo County seeking ways to recover monies that had been entrusted to EFI. Last week, the state Department of Corporations lifted EFI’s permit to sell off any of its real estate investments while the agency probes dozens of formal complaints.

EFI is in the business of making construction loans, charging high interest and – when times are good – paying high dividends to investors. When the real estate market began souring, Guth told investors that EFI’s slide was temporary, that it was just a result of the market downturn. But when investors had more questions than answers, the EFI story began to unravel.

Much of EFI’s present quagmire can be traced to Guth’s and Applebaum’s divorce, and to the couple’s increasingly hostile court confrontations over division of their personal assets… battles which continue even today.

Court documents spanning four years show that Applebaum’s departure had several immediate effects: Guth cranked up the sales and marketing machine, and EFI stopped paying much attention to construction projects in progress. In the years immediately following Applebaum’s departure, Guth and her new partner, son Joshua Yaguda, began concentrating almost exclusively on attracting new investors and making new loans.

After all, that was how they got paid: for each dollar that went out in a loan to a building contractor, EFI took one to three percent right off the top. There was more motivation to loan, less to maintain any semblance of quality control of any project.

The increased effort bore fruit. In a little more than 12 months after Applebaum left the firm, Guth and Yaguda had increased EFI’s mortgage portfolio from $95 million to $135 million.

Guth was hitting her stride in a very fertile real estate marketplace. “Fundamentally, I am a saleswoman,” she said in court documents describing the separate professional functions of the feuding couple.

In those 1994 documents, Guth explained why she thought additional business was accruing to EFI after Applebaum’s departure:

“We maintain excellent lender records and notes to ensure investors get whatever special attention they require,” she avowed. “Overwhelmingly, the reason new investors seek us out is because they have been told that when you call EFI you can always talk to Karen or Josh. Secondarily, EFI’s excellent reputation for protecting their investors, providing a continuous stream of loans for them to invest in, and the level of explanation, disclosure and attention they receive from us.”

Applebaum, on the other hand, said he didn’t think EFI’s expanding portfolio was attributable to Guth’s “expertise and personal effort,” but to the simple fact that “demand for capital in the construction market and the ability to pay ten percent when banks are paying one percent.”

And the big numbers Guth and Yaguda were putting up were misleading, he testified: “As of Nov. 28, 2007, of some approximate $172,687,619.32 in construction loans (assets) only $36,160,142.99 was invested in current, performing funds… (thus) “it is clear that only 21 percent of the entire mortgage fund portfolio is current and performing.”

Early in the property division fight, Applebaum sought financial information on one of the couple’s companies, Republic Properties. When EFI would make a bad loan, Guth would transfer it into Republic Properties, he told the court, because “she wishes to use all the cash flow from these investments… to pay interest into EFI.”

Information he sought, including the status of construction projects, was not provided, he reported.

Because Guth was at the time claiming that monthly debt service was costing EFI $107,106, Applebaum said he believed the bad debt portfolio carried by Republic Properties exceeded $12 million three years ago.

In what may turn out to be a fateful commentary, Applebaum hypothesized on Guth’s use of Republic Properties: “The real reason that EFI has had to transfer ‘bad loans’ to Republic for workout is that (Guth) decided to advance certain funds which were invested by investors in one project, to the builder for use on another project. This action is clearly inappropriate. I do not trust (Guth’s) judgment in this or other ways .”

Applebaum described one circumstance involving an office building in Paso Robles, referred to by Applebaum as the “9th Street Project,” which became a particular focus of attention during the property division hearings.

In what she termed an “update” of Republic after her separation from Applebaum, Guth sought $250,000 to finish the 9th Street project, which now serves as the company’s home office.

“I am certain,” he alleged in sworn testimony, “that (Guth) has unilaterally removed sums from the investment account without prior notice or consent and spent them in various ways that she has determined are ‘joint’ expenses.'” He also claimed that Guth “has certainly misappropriated the nearly one half million dollars we placed in the (9th Street project) investment account in October 2003.”

He claimed that the $900,000 construction fund for the 9th Street Project was spent by Guth “prior to putting a shovel in the ground.”

The travails articulated by Applebaum, ironically, echo many of EFI’s investors. Some have expressed concern that Guth has moved investment funds around from project to project in what might be a violation of contractual agreements. Still others hint at fraud.

The good days may be gone for EFI. Many of Guth’s personal assets have been liquidated to satisfy liens, judgments and other payouts. On last Valentine’s Day, the county sheriff delivered an order for Guth to sell her Paso Robles ranch, valued at between $2.5 million and $3 million, to pay the remaining debt to Applebaum and two banks. Sources have told that just last week Guth was busily attempting to raise capital or trade property to cover the Applebaum obligation, hoping to avoid selling the ranch.

And last but not least, her personal income is evaporating. Guth reported a $2.8 million taxable income in 2005. One year later, that had shrunk to only $1.4 million.

Tags:, Applebaum, EFI, Estate Financial, fraud, Guth, paso robles



  1. ccn_debate says:

    Member Opinions:
    By: Anonymous on 6/9/08
    New story about EFI posted on Here's the link:
    By: Anonymous on 6/9/08
    Amen! to K in Paso and Help Yourself
    And thanks to Karen for explaining so well what the receiver willl be doing for us. What a concept! Hire professionals to manage the company! Why, someone should write a book. Hire professionals instead of your own personal unqualified cronies and family members? I'm so excited to think she's on her way out the door that I'm dancing.
    By: Anonymous on 6/9/08
    P.S. How can there be a vote by the membership to replace the manager if proxy ballots have not been sent out to every member before hand? Not every member is going to be able to make it to the meeting, are they?

    Hopefully this meeting will be informational and not from only one side. I for one want to here about all of our options.

    Personally I think that EFI needs to be under the authority of the courts, not a new manager.

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  2. ccn_debate says:

    By: Anonymous on 6/9/08
    to Help Yourself

    Yes, I thought the same thing when reading about all the things a receiver would do, this is exactly what is needed. It looked to me like a list of reasons FOR getting a receiver, this is a good thing!

    We have to be realistic though, the receiver will need time to do the work needed and there will be fees involved. Every one needs to understand that on day one the receiver won't be cutting checks to all of us, but the receiver will be working as an officer of the court and looking out for our best interest. The receiver will liquidate everything, down to the office furniture, and he will have to give a public accounting for it all… then send US the money for the sale of Karen's desk!

    I have read about other receiverships of investment companies here in Calif and how some investors were upset that the receiver was charging fees to get their money back. We need to keep things in perspective folks… it is Karen's management that is being scrutinized by the authorities, it is EFI that has had its license revoked by the DOC for "good cause", it is Josh and Karen who are being investigated by the DRE for possible violations and the DA's office is up at bat next.

    If Karen and company had been fully exonerated by the DOC and the DRE was not looking for patterns of violations of the operating contract we would just be a bunch of whining, greedy old farts who should have bought lotto tickets and should shut up until the real estate market turned around like Karen said… but EFI is in the position it is today because of Karen and company, and she is currently charging us for it at the same time.

    So when we get the urge to start whining about how long it is taking the receiver and who much he is asking the court to approve for his fees, we need to remember that Karen had total control of our money without a judges oversight.

    By: Anonymous on 6/8/08
    The 6-6-08 letter.

    Karen's plea for no receiver and chatter of related expenses is just herself desperately trying to save her fanny. With what Karen charges now amoung all the lawyers she has to hire, a PR firm and more, a receiver will be cheaper. That's beside the point. A receiver will also open up her books – now there's a concept!!! Imagine all the dust that will fall off that book when opened! Also, a receiver will hire a staff…Karen goes on to explain. Included in that is an auditor and CPA (forensic). Yes, say this with me 10 times, "This is good, this is good." They will research where the money went from years prior and if it's in off shore accounts or in wrongful partnered builder's hands or….the long list goes on, then that receiver will get the money back, for you, the investor. Yes, YOU, YOU, YOU! Hoooraay! Receiver can actually pay for themselves. Oh, and they WILL find fraud which Karen is petrified of. Karen goes on to explain that a receiver's staff will pay themselves first. Umm, and Karen won't?- pleeaaseeee!

    Now it's your turn, get an unbiased opinion and contact a specialized attorney/receiver from far, far away outside of this county. You are insured no conflicts this way. No good ol' boys system, no scratch my back and I'll scratch yours system possibly found in this county. Nada, no conflicts insured! A receiver will be appointed by the courts to SUPPLY TO YOU, THE INVESTOR real facts and numbers for you to see! Wow! Go only with experienced, seasoned professionals.

    May the SJLM firm lay out ALL the options! EVERY LAST ONE! If the only option they propose is to have SJLM be managers, well, I'll be sad for all investors. But, I feel confident they will lay out many options and explain them well as any respectable firm would do. Here's hoping the June 17th meeting goes well! And here's hoping Karen develops laryngitis that day as well.
    By: Anonymous on 6/8/08
    WHY NOT says:

    Karen is afraid to open the books. She'll do anything to keep out of anyones hand. Only ace she has for now to stay out of jail.

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  3. ccn_debate says:

    By: Anonymous on 6/8/08
    K in Paso

    Intersting, Kren and Josh are looking forward meeting again. If it was't for the presure, they would not be so anxious to be there.
    Karen is scoring again.
    By: Anonymous on 6/8/08
    I for one am grateful to the individual investors who have hired the biggest law firm in SLO, at their expense, not ours to get the balll rolling to replcace the current management. We all have been blogging and worring about what is going on and what will become of our investments. They are doing something about it. The least we can do is gi to the meeting and support this effort. It may be our last chance. Thank you to the brave people who have stepped up to the plate and bput their money where their mouths are.
    By: Anonymous on 6/8/08
    I meant come to the meeting and vote YES! To have a chance of recovering any portion of our investment we must join together and VOTE YES, REPLACE KAREN.
    By: Anonymous on 6/8/08
    If Karen has squandered your money the only way you will be able to get your hands on her assets which is where some of your money may have landed is through some form of takeover or recievership. Only through that way can you gain control of the books, proove fraud if it exists and go after hers, Joshes and maybe Charle's assets. If fraud has been committed where do you think the money is. I assure you if fraud has been committed it will never be exposed by Karen will it.
    By: Anonymous on 6/8/08
    Karen is "using provocative language to generate unwarranted fears" herself! She needs to go. Whether a manager replaces her or a receiver, we'll be better off than we will be letting the fox stay in charge of the hen house. Don't be swayed by her self-serving letter – she's just trying to save her own butt. She could care less about us. All she's interested in is keeping the books out of the hands of a compentent manager who, after first look, will call the authorities who will file charges against Karen and Josh. Remember, the Department of Corporations has REVOKED her permit and the Department of Real Estate has an open, on-going investigation. Come to the meeting and vote NO.
    By: Anonymous on 6/8/08
    Letter dated 06/06/2008 from EFI – Looks like the "Meeting" is on for June 17th at 10am, Madonna Expo Center SLO.

    Karen and Josh will be there and said that they are looking forward to seeing us there.

    There also was a two page insert they drafted explaining receivership. My question is who do we trust? Is the receiver really the Boogie Man? Sure the receiver gets paid, but how much is Karen and company getting for their services? Can Karen and company continue effectively with the DOC revocation order and the ongoing DRE investigation?

    It all looks like it is headed towards EFI winding down and disolution of the fund anyway… do we want her to have the control or do we want an officer of the court to do it?

    Somebody is going to get paid, but is it going to be someone who has violated our trust or is it going to be a court ordered receiver who has nothing to hide.

    The receiver is not the Boogie Man!
    By: Anonymous on 6/7/08
    Trueman is correct, it is amazing the wealth of useful information that one can find on the internet with a cheap laptop and an internet connection.

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  4. ccn_debate says:

    By: Anonymous on 6/7/08
    Examining the latest loan information from Estate Financial, one can make a good case of complete incompetence indicating a classic “PONZI SCHEME”. It may not start that way intentionally, however greed, personal vendetta and events took over Karen’s world.

    Troubles started with Charles Applebaum; her now ex-husband additional income was needed which presented itself readily from new loans originated. More and larger loans provided additional fee income along with the interest spread she paid to investors and charged to borrowers. Not much ingenuity just simple scale of economics. To ensure more fees, she would make more loans prior to having the ones already originated and “funded”.

    Needing more origination, but not having the funds available on time caused delays in paying vouchers presented for payments by contractors. Those delays caused loans to past its maturity and more interest payments to EFI witch in turn afforded more spread to Karen. In an ascending market, this was not a problem because builders were able to raise their prices with the market and everyone was happy.

    All this time interest payments had to be made regardless of the payoff from any borrowers be it builders fault or EFI’s delayed payments. Some builders used their own funds to complete projects; others were not fortunate. In the meantime interest had to be paid on time to keep everyone happy and able to raise more funds for expansion.

    Many loans had to be refinanced providing additional fee income to Karen even if it was only book entry with no real money changing hands, At the same time interest had to be paid to keep investors happy. Some checks were sent out as payments on the funds others were “rolled over with compounding interest on interest. So everyone was happy; the ones who received their interest checks and the ones who saw their statement balance grow exponentially. Many investors had to pay income taxes on paper income, but their big pay off would come soon. So they believed since Karen gave assurances; First TD do not fluctuate like stocks in value and can never go to zero (statement is true on its face).

    Karen was able to book more income and could be assumed it was funneled into the Mortgage Fund partly to increase her share and control. Cash was not available to pay her and interest to investors while constructions had to be paid everyday. Voucher payments were delayed with more frequency while builder had to resort to pay and delay projects on their own.

    Finally, the inevitable happened last year when EFI notified investors that checks would not be forthcoming for a few months. Promises to be back on track within a few months, completing unfinished projects proved to be a primrose as the crises deepened more.

    To Karen’s discomfort, Ron Cooper organized his first meeting than another one and dug into their divorce papers shedding new light on the GUTH YAGUDA operation. No more new funding coming in, number of complaints piling up with several authorities, their attention focusing on many irrigates.
    Several of lawsuits filed by borrowers investors subcontractors and at least from one city for non-performance Karen either unable to put a proper defense or knows that any demands for documents will uncover more irregularities showing FRAUD and the likelihood of an real PONZI ZCHEME. Authorities are anxious to get their hands on documents she is unwilling to show. Her information to the investors she points out a crucial fact that they could be liable for defenses and damage awards. Claim to work with borrowers so far shows no evidence. The List of loans in the Mortgage Fund is all red with one exception a Maturity date of 2010. Little to show for all the money spent. How long can she keep the stack of cards together is a good question. It can collapse at any day.

    Charles (Carlo) Ponzi promised 50% return in 90 days and investors flocked to his side until a zealous newspapers reporter questioned his operation. It lasted for a little over a year when it finally collapsed. Karen is much cleverer, she only promised 10 – 12% return with absolute security and it has lasted much longer. Extra time gave her plenty opportunity to stash away a good sum while living the good life. Her ranch paid by the fund was a good relaxation and it must be difficult to contemplate giving it up. Heritage Oaks stood by in time of need i.e. Credit available to pay Charlie her X to avoid foreclosing on the ranch. Heritage Oaks was in a bind when they discovered their loan was junior to Charley’s judgment.

    Interestingly, the local DA is “too busy” to deal with an issue of such significance. That brings up questions about local collusion and who is involved, who got preferential payments and how much.

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  5. ccn_debate says:

    By: Anonymous on 6/7/08
    Take Action!

    Its not so simple to sue an enforcement agency. That would be a waste of efforts and god money.
    By: Anonymous on 6/7/08
    The DA and DOC are not doing much. Investors should consider suing them as well as a class action suit against EFI. This may boil down to street justice. If you don't get your money back, sue the DA, the DOC for shutting them down and EFI for fraud.
    By: Anonymous on 6/6/08
    Don't this you have a case? You can sue Karen for simply not showing her books to you or answering your questions. She has misrepresented the Fund and withheld pertinent paperwork from you! And, as most of you know, the last letter she sent out was a lie! Most of these simple complaints you are making are actionable. If it's in the offering circular and she didn't provide it, you can sue her. Those of you that still have money left should join forces and get yourself lawyer. Don't use one in this county, too many conflicts. Find a securities fraud lawyer or SEC lawyer. Google these if you have to.

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  6. ccn_debate says:

    By: Anonymous on 6/6/08
    How wonderful is the internet? Think about this…20 years ago someone could have pulled off a scam like this. Simply, after they do jail time or not, they just move to another town and start all over where no one knows them. But now, for the rest of Karen Guth and Joshua Yaguda's life their names will be posted on the internet for all to see. Hopefully, uncoveredslo does the future a favor and keeps this data on the internet for a long, long time. Karen may live out her life in prison but Joshua may emerge. If so, people will find him out so quick that he'll be shunned anywhere he goes. They both deserve it! My heart does not bleed!
    By: Anonymous on 6/6/08
    This loan was made in 2000
    LTV is 60%
    I may need better reading glasses. Who is Excel? How did this loan got so old without any action? Was this property affected by the mortgage meltdown and real estate condidtion? Maybe I was reading it wrong on her information site? I just need some explanation on this like so many other.

    Loan Account – B507-00
    Borrower Name Excel Commercial Corporation
    Loan to Value 60%
    Appraised Value $2,500,000.00
    Principal Balance $246,795.10
    Note Rate 13.00%
    Regular Payment $21,359.62

    If any of this makes sense let us know. Is this the management she is bragging about? I need answers!!!

    By: Anonymous on 6/6/08
    You KNOW Charlie's laughing! You would be too if Karen just paid you $2.5 Million by order of the court (on May 30,2008, document #2008028457). Go to the SLO County Recorders Office and look it up! Now, if only we could get Charlie to chat with a few interested agencies Karen would go away forever – which she will anyway – Charlie could just hasten things along. What do you say, Charlie? Help us out here.
    By: Anonymous on 6/6/08
    Linda Kennedy/Costa Rica says:

    Costa Rica will not protect her. She can go to Bolivia, why not Venezuela?

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  7. ccn_debate says:

    By: Anonymous on 6/6/08
    Charles must be sitting around grinning from ear to ear reading this stuff. Like a cat eating sh@t. Any misdoings of his have been refinanced over and over as the greedy lady continued to line her pockets.
    By: Anonymous on 6/6/08
    I told Karen 2 years ago she should retain as much as she could from the payments coming in and leave the country like I did and move to Costa Rica. She just wouldn't listen. It's great down here and the investor's stolen money will last a lifetime.Sorry I come 1st…….
    By: Anonymous on 6/6/08
    So, if the DRE comes in and takes Joshua's brokers license won't EFI just use someone elses. You know, pay the new broker a pretty sum to use it. So what if Joshua's broker license is gone. They can always find another sucker to expose theirs.
    By: Anonymous on 6/6/08
    So, if the DRE comes in and takes Joshua's brokers license won't they just use someone elses. You know, pay them a pretty sum to use it. So what if Joshua's broker license is gone. They can always find another sucker to expose theirs.
    By: Anonymous on 6/6/08
    to Anonymous

    Sorry I twisted my funny bone today. I missed your twisted humor. Your probably right the DRE is probably at the door now. Knock knock.
    By: Anonymous on 6/6/08
    insider says:

    HO HO HO!!!
    You issed my point. License from the DOC is diffrent than the DRE license. She can't take in investors money, but the Real Estate brokerage license allows Josh to opearate as a mngr. When his license is revoked than they are out of business. Don't shoot me yet please!!!!!
    By: Anonymous on 6/6/08
    to Anonymous

    Lets just let it go. She doesn't need it anyway.

    Are you kidding me the Government who will give anyone and let anyone keep a license took Estates away. And you want to let them continue to manage whats left of your money. Idiot!
    By: Anonymous on 6/6/08
    Anonymous says:

    Didn't I read some comment from Karen that she fully intended to have her Dept Of

    She must have appealed it and lost. Maybe she realized it was useless after assesing the evidence, so just let it go.
    Either way it makes no diffrence in her operation.

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  8. ccn_debate says:

    By: Anonymous on 6/6/08
    According to the LendersView site, updated yesterday June 5th, everyone has missed their June payment… including Karen's companies!

    The only, and I repeat the ONLY loan on the EFMF list that is current is a project in Bakersfield. That one has what looks like a baloon payment due on 2/1/2010 of about 3 million to the fund on a loan balance of about 6 million… the other 3 million must be to the TD holders.

    So now it looks like Karen's companies are all in dafault too.
    By: Anonymous on 6/6/08
    To WHY NOT:

    Could you explain the bench warrent further? Also, you make remarks saying Karen hasn't shown up to her legal meetings with Ron? This would be 100% in his favor as he could potentially win hands-down. Any investor associated with his project, including the Fund members, would loose every dime. Am I understanding this right? If so, Karen is purposely hurting the investors beyond any other hard money lender I've heard of. Why would anyone believe in her at this point?

    The only reason I can think of why Karen would purposely not show for any legal obligation is to make DARN SURE that no one will question or ever see her books. Once her books are exposed, it's just a matter of time before she goes to jail and she knows it! Come to think of it, jail is too good for her. It appears she is a crook and of the worst kind!

    And PR firm, if you are reading this, consider dropping her as your client. It's unethical to support her any further. When law suits arrive against Estate Financial, I know others who will make darn sure your company and personal individuals in it will be named under John Doe 1, John Doe 2, etc. By helping Estate Financial your liability is sky high! But go ahead and help, investors can use the extra money derived from your company's involvement.
    By: Anonymous on 6/5/08
    Didn't I read some comment from Karen that she fully intended to have her Dept Of
    Corp lincense reinstated after it was "suspended?" Seems like I read somewhere that she was going to appeal the suspension and just pooh-poohed the notion that they had suspended it. Well, Karen old girl, wah happen? It's going to pretty hard to spin this one.
    By: Anonymous on 6/5/08
    The Department of Corporations REVOKES EFI's permit. This is permanent. The Department of Real Estate is just one step behind. Once they pull son Josh's license Karen will be unable to serve as manager. These agencies may be moving slower than we like but be assured that they are still on the case as Karen well knows. Keep submitting those complaints to Dept of RE. It was investors like us who wrote and met with the agency that caused her license to be revoked. The same will happen with the Dept of RE. Stay tuned.
    By: Anonymous on 6/5/08
    On Karen's website, there's the log in information. i find this amusing as anyone can log in.

    What's most amusing is the question she asks in behalf of the investors "Is the money all gone" Sure, she can safely say 'no' to that. That was a clever question to post. But rest assure, the amount left is closer to zero than your initial investment. Karen's such a wonderful person, isn't she? Gotta love a girl with brains, right? What a great catch for us men!

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