Bank’s own appraisal questions Gearhart loan

July 1, 2008

By KAREN VELIE and DANIEL BLACKBURN

A million-dollar loan from Heritage Oaks Bank to North County developer Kelly Gearhart earlier this year was based on “erroneous” and questionable claims, according to the bank’s own appraisal.

That appraisal was not received by bank officials until nearly two months after the loan proceeds had been paid to Gearhart.

Gearhart secured the loan Jan. 16 for his Paso Robles Vista del Hombre golf course and mixed 32-lot development project east of downtown Paso Robles. The title report to the Vista del Hombre project lists the bank as a creditor. But the property’s current $27 million encumbrance is not listed on the bank’s appraisal report.

Relying on a Cuesta Title report, the appraisal claims the property is free and clear of all liens and encumbrances not listed in the report.

The bank appraiser’s report was submitted March 10. A copy of the lengthy document was obtained by UncoveredSLO.com.

Gearhart has said publicly in the past that the property, located near the Paso Robles Airport, is worth “$100 million to $150 million.” He repeated that claim recently on Dave Congalton’s Hometown radio show on 920KVEC.

The bank’s appraiser, Market Dynamics’ Dennis Greene, said in his report that the property is worth approximately $4.3 million.

Questions regarding Heritage Oaks Bank were referred to First Bank Senior Loan Officer Denise Sanford.

Asked why the loan payout predated the appraisal, Sanford replied, “It’s permitted, but it’s not our usual practice.”

Sanford declined further comment on the Gearhart loan, adding that no one at Heritage Oaks Bank with information on the loan was available for comment. Heritage Oaks Bank Assistant Vice President Greg Porter, whose name is listed on the appraisal as the bank’s contact for the proposed development, did not return a request for comment.

Gearhart also did not return phone calls from reporters.

According to the appraisal, Gearhart reported that lot 27 was listed for sale in the Multiple Listing System (MLS) and that one “Brandon Hinrichs” was the “sales specialist.” Hinrichs is an employee at the Links Golf Shack at Vista del Hombre.

Greene’s report to Heritage Oaks officials says, “… the property was not found to be listed in the North County MLS. On-site, a listing box indicated this property for sale by Central Coast Commercial Properties, with Jake Hinrichs, broker at 8300 Morro Road, and Brandon Hinrichs, sales specialist at 5151 Jardine Road. Investigation revealed no office at 8300 Morro Road, and Brandon Hinrichs said he has ‘no knowledge of this sale and received no commission from any sale.’

“Kelly Gearhart provided a copy of a recorded sale document to a Delaware LLC,” Greene wrote. “However, in checking with Department of Corporations [officials] in Delaware, they said principals of an LLC are not given to the public at large. The ‘M Way LLC’ address in Reseda, California, has no phone number. The appraiser is unable to confirm this sale from buyer or a broker.”

Shortly after receiving the 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.

The bank appraiser’s report noted several significant discrepancies in the properties loan documents.

Data provided to the appraiser from the bank included a “Lot 37” which does not exist.

While declining to discuss specifics of the Gearhart loan without permission of his client, Greene said he was willing to speak in general terms:

“The name of the game is to lie and give false information,” he told UncoveredSLO.com. “If I wanted to do a bogus sale, I would start an LLC in Delaware or one of those states with no disclosure requirements. Then [I’d] buy the property at an overvalued price through the LLC.”

Greene summarized data from seven comparable properties that sold in the east Paso Robles area within the past few years that provide an average square foot price of $107 for the Gearhart property, according to the appraisal report. An unverifiable $185 per-square-foot sale of a block and steel shell building that Gearhart erected on Vista Del Hombre’s lot 17, apparently helped pump up the property‘s reported value.

Despite its current valuation, wrote Greene, the property stands to increase in value if “an extraordinary assumption” is made that Gearhart will ever complete 32 commercial and residential buildings as proposed. In that instance, Greene reported, the estimated value would swell to $21.8 million.

Even though the appraisal claims all liens and encumbrances are listed on the report, due to information provided by Cuesta Title. The appraisal did not list the $27 million still owed to Hurst Financial investors.

“It [the encumbrance] should have shown,” said Cuesta Title officer Marcus Harmon. “I don’t know why it didn’t show.”

Commercial appraisals are time-consuming, expensive and detailed. In contrast to residential appraisals, which can be produced in a few hours and cost approximately $350, commercial appraisers spend about a month investigating and piecing together a report. That report typically costs between $3,000 and $7,000. Commercial appraisers sift through voluminous data to produce business and industrial property evaluations.


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7 Comments

  1. ccn_debate says:

    Member Opinions:
    By: Anonymous on 7/23/08
    I always …
    I believe you meant to say:
    that bunch of north county domestic disputing, addiction challenged, loving incestites and a local lender run by their developmentally disabled relatives …

    If you are not from north county you must have been at one time cuz you sure can talk like trash.

    I guess you can take the trash out of the north county but you cant take the north county out of the trash.
    By: Anonymous on 7/23/08
    Anonymous, if thats even your real name, apparently you are the one with your head up my arse. If you would pull it out, you would see that I have no love for Kelly, hense the preditor statement.
    Kelly is a lying jerk, that doesn't mean he is responsible for Wal-Mart, he really is not that smart. You all give him too much credit.
    As for or Mayor (Brennler) and our Minor (Beraud), we are in serious trouble if these idiots are the best that 30% of our population can elect. We are better of as part of the county than with these arses in office.
    By: Anonymous on 7/22/08
    To In The Know: Your the village idiot! Where were you when Kelly G was ripping everyone off. Oh wait, I think you had your head up his arse, smiling and wishing him well……
    By: Anonymous on 7/22/08
    Oh … and 5.

    5. Brennler is a vindictive village idiot, but he is our vindictive village idiot. What the heck does he have to do with Kelly's paso problems. And if you haven't been paying attention, after our own fine mayor turned our fine city into the FBI for fraud that didnt exist, the whole thing went away just like when he accused Kelly of fraud that didnt exist and it went away.

    6. Yes, last I heard Kelly is married to Tammy, they were shopping in Albertsons last weak.
    By: Anonymous on 7/22/08
    1. Kelly had nothing to do with Wal-Mart, Wade McKiney did, at the request of the then city council.

    2. Kelly is doing what he has learned to do best. He honors loans with banks to build trust and then moves in for the kill. He is a preditor.

    3. The reason atascadero is in bad financial shape is mismanagement, over employment and because they push away anyhting good that might come.

    And …

    4. If you South County libs dont like north county, stay in the comfort of your saabs and volvos as you pass through to go up to napa where the real snobs play. We apparently dont want your money anyway, and we would prefer if you didnt drink all of our wine. We are going to need it for ourselves.

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  2. ccn_debate says:

    By: Anonymous on 7/16/08
    Does anybody know if Kelly is still married to Tammy?
    I would like to know, she is a dear friend.
    By: Anonymous on 7/8/08
    To smrtrthna5thgrder
    Kelly may run but he will not be able to HIDE in this day and age. "insider" has provided much interesting information here regardless of his/her political leanings.
    By: Anonymous on 7/8/08
    Insider knows nothing, sees nothing and speaks pretty much nothing, Dude, you didn't hear?! Kelly is moving to Ohio where he can screw those poor people out of their inheritances too. Good riddence to bad rubbish. By the way, could you catch a ride with him?
    By: Anonymous on 7/8/08
    I remember when Kelly was on the radio he said he wasn't going anywhere and that he was having a meeting in a couple of weeks with the investors (or lenders as he called them) and present a work out plan. Did he ever have that meeting. How did it go. Has anyone heard of what happened with Powell and his lawsuit?
    By: Anonymous on 7/8/08
    How much work was actually done at Vista Del Hombre by Kelly Gearhart. Michael Fredericks Paving is supposedly owed over one million dollars from Kelly for work done at Vista Del Hombre. What work has been completed and on which lots? There are sewer pipes sitting on the empty lot next to the buildings that were put up, so it would be nice to know where he left off and what utilities are in for each lot.

    By: Anonymous on 7/8/08
    smrtrthna5thgrader

    I don't know if Brennler can take running again if his head turns any brighter red it may just blow up. I guess you want a police state. Not me. Goodby comrad.
    By: Anonymous on 7/8/08
    Hey Insider: Seems to me you seem a little jealous of the fact that Mayor Brennler caught on to Kelly's little bogus dealings waaaaaaayyyy before your little friends could dream about it. That is what a good investigator does. You, on the other hand, need to lighten up on your nasty opinions of others and take a look in the mirror – I'll bet it isn't pretty.
    By: Anonymous on 7/5/08
    Roberta Fonzi works for Century 21 Hometown Real Estate and is currently a Planning Commissioner who is an announced candidate for city council. I believe that Bob Kelley has semi retired since suffering a heart attack and is not affiliated with any real estate office.
    By: Anonymous on 7/5/08
    Yes, it is the same Greg Porter, part of the Porter family that owned the Atascadero News. Roberta Fonzi is running for City Council and has been on the Planning Commission forever. She is a realtor in the same office with Bob Kelly and was his treasurer in 2006.
    By: Anonymous on 7/4/08
    Are we talking about the same Greg Porter that was voting on Kelly Gearhart development projects in Atascadero for a number of years? That’s brilliant! Are there any other Commissioners involved in financing, building, or selling Gearhart projects/properties that asked or received “favors” to or from Kelly Gearhart? How many other Atascadero officials took advantage of this apparent free-for-all? Seems worthy of a peek behind the Atascadero curtain.

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  3. ccn_debate says:

    By: Anonymous on 7/3/08
    Sobia

    Please Sobia you really must stop obsessing.
    By: Anonymous on 7/3/08
    ….sigh. Once again, I apologize to the group for poking the monkey in the cage with a stick. (I'm referring to "Insider", alias Mike Jackson, alias Ray Buban, alias Dumass.) As to be expected, the angry monkey begins flinging doo-doo through the bars like mad. I should never have mentioned Wal-Mart…..truly, the Wal-Mart thing needs to be on it's own blog. Shut up now, Dumass.
    By: Anonymous on 7/3/08
    Isn't it time the Oppose Walmart snakes crawl back under thier rock and we address why it appears a lot of cash was borrowed on over valued properties with little construction activity taking place just prior to ceasing payments to the investors who put up the money. Where is the money?
    By: Anonymous on 7/3/08
    To "Loves Atascadero"
    (So do I, by the way!)
    I think you're on to something. Remember, Clay and O'Malley were in on the deal when Gearhart first got the Rottman group involved in that property. I wonder if there was a 'kick-back' in the works that WalMart would have paid Kelly had they been able to proceed and he then would have been able to cover some of his debt. Ah well..what does it matter. What a huge mess. It will take years for the investors to recover our losses, not to mention unfinished projects tied up in red tape all over the place. Prison for these thieves is a drop in the bucket compared to the disaster they have caused for this area.
    By: Anonymous on 7/3/08
    Brennler complained about fees. Yes, a money issue. It will come out how many fees are unpaid in Atascadero and Paso by Kelly. Could Atascadero's money problems not be due to not having a Wal-Mart,but instead related to unpaid fees from those developers behind Wal-Mart. Hmmmmmmmm.
    By: Anonymous on 7/2/08
    to Sobia

    LOL. Your too easy.
    By: Anonymous on 7/2/08
    Oops! Sorry about that! I shouldn't have responded to Dumass(Aka Mike Jackson, Ray Buban or "insider") YES, I MEAN to spell his mane that way. It doesn't take much to get him going about WalMart and Beraud and Brennler since he wants to build his rabbit hutch condos in the creek. Just who does he think is gonna be buying those things now that all the hard money lenders are going to prison and all the investors are too spooked to invest? What's that you say, Dumass? Wal-Marts gonna build thousands of low income houses for you to sell and you'll be rich? Wow! Why didn't you SAY so?!
    Sorry again to the group…..
    By: Anonymous on 7/2/08
    to anonymous

    That comment was off subject. I recomend you take the handle crybaby so people can know who you are from now on.
    By: Anonymous on 7/2/08
    I truly wish the Atascadero/Walmart comments would find their very own website where they could blog away instead of inserting their totally unrelalted comments here. They are annoying.

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  4. ccn_debate says:

    By: Anonymous on 7/2/08
    Hey Sobia
    (aka Dumb-ass, check our spelling)
    It is impossible for you to fathom the fact that others would be promoting business to come to Atascadero, isn't it.
    You and your kind have a rude awakeing coming. There is a small army forming that has had enough of you and yours.
    They are the working citizens of Atascadero that are raising families and growing the city, all the while why you and yours destroy.
    Take your hatred and leave this blog, in fact just leave period!
    By: Anonymous on 7/2/08
    to Sobia

    I thought that was your big issue.Have you lost your enthusiasm? What happened to the Peoples movement?
    By: Anonymous on 7/2/08
    Insider, (Alias Mike Jackson, alias Ray Buban, alias Dumass)you sure love to bring up WalMart in every blog, don't you. I really do hope real estate will pick up soon so you'll have something else to do. Get a life, Dumass.
    By: Anonymous on 7/2/08
    I'm glad Karen and Dan are investigating HOB loans. Karen has MANY MANY loans (BOTH PERSONAL AND ESTATE FINANCIAL) – secured or not don't know but we are talking multi-million dollar loans. Keep digging K&D. There are a lot of books, including Cuesta Title's, that need to be scrutinized. If there has been wrongdoing, it must be exposed and legal action must be taken.
    By: Anonymous on 7/2/08
    to rdog

    It seems like anytime you Beraud/Brenler Lunatic OWM supporters get a chance you try and portray Brennler to be the Great White Hope but in reality he's just the Bright Crimson Dope. You lost to bad so sad.
    By: Anonymous on 7/2/08
    Vista Del Hombre consists of more than one parcel. The loans in question could be on different parcels in the project (or not).
    By: Anonymous on 7/2/08
    to to insider

    I don't think so. The project in question I think had finaled without the recording of a easement that was intended before final. Purely technical in nature but a way to torture Kelly. If you have read these blogs you would know I'm no fan of KG. If you knew how the property tax system works you would also know the assessor does suplementals several times a year on construction projects and everyone finaled or not is assessed based on thier state of completion. The last thing you would know is even once assessed he wouldn't have to pay the taxes until he wanted to. Yes thier would be penalties. At the time Brennler made his stink many or most of those homes were sold and all taxes were collected at close of escrow. So once again Brennler was just brown nosing and grandstanding as usual. As to Kelly Gearhart his judgement day is soon to arrive.
    By: Anonymous on 7/2/08
    You make rdog's point perfectly. You are the one attacking Brennler and defending KG.

    He requested an investigation regarding business practices and avoiding tax payments by not completing projects.

    Not completing projects is part of the fraud issue.

    Get you facts straight.

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  5. ccn_debate says:

    By: Anonymous on 7/2/08
    to rdog

    Lets not imply Brennler was ahead of the curve on this one. The only curve he's ahead on is the one in the brown nose line.
    By: Anonymous on 7/2/08
    to rdog

    Brennlers attack on Gearhart was completely unrelated to financing issues and totally related to personal issues.
    By: Anonymous on 7/2/08
    Over a year ago, had the DA followed up properly when asked by Mayor Brennler to investigate Gearhart, much of this would not be happening. There would have been no loan.

    Instead the trib and others beat up on Brennler, while Kelly got a pass.

    What say you now?

    When does Larry Ward (HOB CEO) take some responsibility?
    By: Anonymous on 7/2/08
    It appears after the agencies are done with EFI they will have a good working knowledge of the area and the participants and should feel quite comfortable with sorting out Mr. Gearharts problems.
    By: Anonymous on 7/2/08
    It would be really interesting to find out how much of the initial 27 million Hurst loan was accually funded to Gearhart and or interest payments back to the investors on the original loan from Hurst. Its really quite unbelievable someone on that big of loan didn't inquire more as to the progress of the project, and the schedule of distribution of the funds before now.
    By: Anonymous on 7/2/08
    Was the loan amount exactly $1M? That this loan was granted in January of this year, well after the bubble started to pop, is incredible. By then, everyone's radar should've been up, but maybe Heritage Oaks only reads the Tribune. Either that, or something seems very fishy.
    By: Anonymous on 7/2/08
    Maybe Former Bank Client says:

    We currently bank with Heritage Oaks but are concerned that based on poor business decisions, we should take our money out and put elsewhere.

    Your deposit is safe upto $100,000 each account. I am not a bank costumer or have no affiliation with them.
    You are OK.
    By: Anonymous on 7/1/08
    We currently bank with Heritage Oaks but are concerned that based on poor business decisions, we should take our money out and put elsewhere.

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  6. ccn_debate says:

    By: Anonymous on 7/1/08
    The owner of Cuesta Title is Stewart Title Company.
    By: Anonymous on 7/1/08
    The owner of Cuesta Title is the one who purchased the Annex from Gearhart. The escrow officer who was at the Atascadero Cuesta Title office which did Gearhart;s escrow has her house for sale.
    This is all going to turn out to be ugly.
    By: Anonymous on 7/1/08
    Cuesta Title is definitely dirty. It will come out (but not in the Tribune)!
    By: Anonymous on 7/1/08
    Isn't anyone bothered that Gearhart didn't tell the bank he owed 27 million on that site. You know any application asks the borrower directly whats owed on the property? Everybody seems to want to find a way to blame the bank or the title company. What about the applicant?
    By: Anonymous on 7/1/08
    Great show on Congalton today with Karen Velie. One question – if the title company neglected to show the $27M first on the property, then the title companys insurance would be responsible for the $27M? But if there was fraud or misconduct on the part of the title company, then the insurance company would not be responsible? If the title companys insurance would not be responsible (assuming again that there was misconduct or fraud on the part of the title company), would the bank then be responsible or would investors just be out of luck?
    By: Anonymous on 7/1/08
    A clerification regarding comment on the radio show.
    If bank made a loan for $1,000,000.00 behind the $27,000,000.00, then it is in second position. Anything valued less than the first TD will make the bank's position worthless. If as a caller stated that the bank is in first position, the first TD holder had sub- ordinate behind the bank's loan. Title report should clarify. Check into that than maybe investors will get their money. Cross your fingers
    By: Anonymous on 7/1/08
    Hey Kelly…don't drop the soap when you get to prison! trust me on that one pal! Ouch! But then you desearve it don't you?
    Don't worry I will take care of Tammy!
    By: Anonymous on 7/1/08
    Possible reasons why the loan did not show the Hurst 27 mil. dollar loan. These are speculative.

    1) The title report was run just prior to the loan with Hurst for the purpose of securing that earlier loan and the developer gave it to the appraisor (possibly with dates altered to represent itself as current) representing it as current. The appraisor did not say if he ran the title search himself or if it was supplied by the bank or the developer.

    2) Hurst never recorded the Trust Deed at the time of the 27 mil. dollar loan. (Crazy huh?)

    3) The title company was in error. (I doubt this was it)
    By: Anonymous on 7/1/08
    Karen Velie will be on Dave Congalton's Hometown talk radio show at 6 p.m. tonight, 920KVEC. Call and express your views.

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  7. ccn_debate says:

    By: Anonymous on 7/1/08
    It's a much larger conspiracy than any of you tin hat wearers can imagine. All of the North County elite is involved in this bold attempt to control every aspect od your life. Believe it!
    By: Anonymous on 7/1/08
    If I were the underwriter for Cuesta Title's E&O insurance, I would need a clean pair of britches about now.
    By: Anonymous on 7/1/08
    What about Weyrich? He was tied into the board of Heritage Oaks. Hmmm?
    By: Anonymous on 7/1/08
    Obviously Gearhart and his supporter if he has one will fill this blog with nonsensical crap in an attempt to avoid the obvious conclusion.
    By: Anonymous on 7/1/08
    This shows why it is so hard to get any investigations (FEMA, the Printery, Kelly Gearhart's DeAnza project, the city manager)done in Atascadero. The good ole boys and girls are thick as thieves. Greg Porter is the son of one of the owners of the Atascadero News and a former planning commissioner.
    By: Anonymous on 7/1/08
    Kelly, Kelly, Kelly
    By: Anonymous on 7/1/08
    Another great investigative report by Karen and Dan. Is Heritage Oaks Bank really that incompetent or is it complicit? They have been entirely too cozy with these unscrupulous lender/borrowers. And the same questions should be posed to Cuesta Title as well. They both were involved in many of EState Financial's questionnable projects. There is a very big story here and if it weren't for uncoveredslo, what would we know? Nothing from the soft "reporting" of the Tribune and local tv coverage has been abysmal. Again, a great big thanks and keep it up. You are the only reliable source of news on the Central Coast.
    By: Anonymous on 7/1/08
    to anonymous:
    you are obvioosly knot a invister. i like to reed all of the nuse that unslo prints becuse no one else tells it lie we need to see. no local nuse, no local t.v., no local new times. wake up anon, unslo is here to stay.
    By: Anonymous on 7/1/08
    to anonymous:
    you are obvioosly knot a invister. i like to reed all of the nuse that unslo prints becuse no one else tells it lie we need to see. no local nuse, no local t.v., no local new times. wake up anon, unslo is here to stay.
    By: Anonymous on 7/1/08
    If this site was going to fail, it would have happened by now. UNSLO is here to stay! Anonymous, don't you yet understand that the comments posted on this blog tell us a hell of a lot more about the residents of this fair county than any newspaper article, book, or movie ever could. Read, learn and enjoy. As for wishing for this site to die: forgetaboutit.
    By: Anonymous on 7/1/08
    the initial comment is the main reason this site will fail…..and proof grammar school is on vacation
    By: Anonymous on 7/1/08
    I am shocked that a bunch of north county wife beating, meth snorting, sister shagging scoungers and a local bank run by their retarded relatives have evidently been taken to the cleaners by one of their own.

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