Night Moves: EFI files fund Chapter 11
July 4, 2008
By KAREN VELIE and DANIEL BLACKBURN
Estate Financial Inc. (EFI) principals Karen Guth and Joshua Yaguda placed EFI’s Mortgage Fund LLC into voluntary Chapter 11 bankruptcy with a July 1 appearance in Santa Barbara’s Central District of California United States Bankruptcy Court. Their action puts the brakes on a state court-ordered evaluation.
During the past month, EFI officials have reportedly been spotted packing and moving boxes from their Paso Robles office at 806 9th Street, across from the city public safety building. Last Saturday, three days before Guth’s and Yaguda’s trip to the Santa Barbara courthouse and during dawn’s early hours, a black Mercedes and a dark Cadillac Escalade were parked on the street outside EFI’s private entrance while EFI personnel worked behind closed doors, an eyewitness said.
A state court injunction appears to prevent EFI officials from disposing of records; however, because of the federal bankruptcy, the state court’s authority may be moot.
The voluntary Chapter 11 also may imperil a Fresno attorney’s efforts to evaluate EFI’s fund.
“My job is to evaluate and investigate the books and records of the fund,” said independent evaluator Hanno Powell Friday. Powell was appointed by San Luis Obispo County Superior Court Judge Barry T. LaBarbera to evaluate EFI’s Mortgage Fund.
“The state court cannot order those books and records open to me while the fund is under federal jurisdiction,” Powell said.
Last month, a group of EFI’s Mortgage Fund investors filed a lawsuit and asked the courts to appoint a receiver in an attempt to protect their investments. In order for Powell to continue his investigation, the plaintiffs will have to file a motion in federal court asking permission to continue the state court action.
“We will know soon enough,” Powell said. “The bankruptcy judge has the right to grant permission.”
On June 25, creditors forced hard money lender EFI, the mortgages fund’s managing company, into Chapter 11 bankruptcy. Although the action gave the court immediate supervisory powers over EFI’s financial transactions, Guth and Yaguda were given 20 days to dispute the creditor’s claims.
However, in the case of the voluntary bankruptcy, the court requires Guth and Yaguda to file a list of the fund’s creditors, assets, and liabilities with the court within the next few weeks. At that time, the information becomes part of the public record.
Currently, 1,459 of the funds 1,460 loans are in default. Investors have placed $152 million into the fund, according to EFI’s web site.
One example of EFI’s eyebrow-raising fund management practices involves a 40-acre project on Ramada Drive in Templeton. Investors doled out $11.2 million in 2004 to fund the proposed mixed use development. According to EFI, in 2004, the projects had an appraised value of $19.1 million, a 58.6 percent loan to value ratio.
Although the project is fully funded — and more than two years have passed since the project was slated to be completed — Templeton Mixed Use Partnership LLC, the developer on the project, has not yet broken ground.
And current evaluations of the property, from EFI’s online accounting portfolio, assign the property an appraised value of $235,000, a 3,617 percent loan to value ratio.