Where did Hurst’s Beacon Road money go?

July 9, 2008

By DANIEL BLACKBURN and KAREN VELIE

Investors wooed by Atascadero hard money lender Hurst Financial’s owner Jay Miller raised $414,000 of an apparent $485,000 loan to help fund a new North County commercial park, but learned within four months that only $198 remained in the investment account. Construction on the Kelly Gearhart/Miller project was never started.

And even as the fund money was paid out by Miller’s Hurst Financial to a variety of other recipients not involved in this particular project, the 28-unit “Beacon Road Project” was allegedly conceptually evolving, unbeknownst to investors, from a commercial park into a recreational vehicle storage lot.

The torturous path of monies invested in the Beacon Road Project may provide some transparency for other hard money lending schemes now coming to light around San Luis Obispo County, many of which are already impacting thousands of investors, builders, subcontractors, building supply providers, and landowners.

Miller solicited and collected investments from eight individuals between Dec. 3, 2007 and Feb. 26 of this year, ostensibly to provide construction funding for the commercial park. However, according to data provided to investors by Miller’s Costa Mesa attorney, disbursements quickly went in a much different direction.

(Detailed financial records were yielded by Jeffrey S. Benice, Hurst Financial lawyer, after a formal request from investor Pete Evans of San Luis Obispo. The records contain a day-to-day accounting of deposits and names of investors in the Beacon Road Project, as well as a complete list of dated disbursements.)

Within a week after the first investor’s money went into the Beacon Road Project fund, according to those records and a cover letter from Benice, Hurst Financial was apparently writing checks to itself, reportedly to pay interest to a variety of other investors on previous loans for unrelated projects. As additional investment money came into the fund, additional interest payments were made by Miller to, among others, developers on Hurst-funded projects such as David Graves and Royce Eddings, and to projects such as “Navidad” and “Las Tablas.”

The payment procedures often came close to depleting the fund. And just three and a half months after the first investment, the fund had been drained. Nearly $360,000 had been paid out of Hurst’s loan escrow account in recorded interest payments.

As of June 17, according to attorney Benice, the fund contains $198.12. Virtually none of the fund’s proceeds have gone toward construction of the Beacon Road Project, Miller’s own records indicate.

Shortly after the fund shriveled, Miller informed investors they would no longer receive interest payments due to them, citing their agreements with Hurst Financial.

“I anticipate that we will break ground on the project within the next 60 to 90 days, providing we don’t get additional corrections [or] requirements from the city of Paso Robles,” Miller said in an April 25 letter to Evans regarding the Beacon Road project. “In the meantime, we must ask for an interest forbearance of six months from the date of this letter while we finish working with the city and begin construction. My primary cash flow concern at this time is to keep Hurst Financial functioning during these difficult financial times.”

A financial accounting indicates Gearhart received only one Beacon Road check from Hurst Financial, for $58,450, identified as an “interest payment.” That check was written Dec. 26, 2007, and was made out jointly to Miller and Gearhart. Benice, Miller, and Gearhart did not return phone calls from UncoveredSLO.com.

Benice, in a June 20 letter to Evans, said the planned commercial park had “encountered significant entitlement and traffic issues… and the developer [Gearhart] reconfigured the project as an R.V. storage facility.”

“This was the first time I heard about the change,” said Evans.

Benice claimed some costs associated with the Beacon Road Project have been paid, including entitlement application fees; property taxes; a biological report; and pending landscape and civil engineering plans. He said Gearhart “anticipates that a building permit will be issued within 180 days.” Benice failed to list expenditures regarding those claims in the Hurst escrow account custom transaction detail report he provided.

Gearhart’s plans as described by Benice were met with skepticism by investors.

“Hurst represented that this investment would fully fund the construction of this project,” said one. “How do they propose to carry this project on to completion now that the proceeds for our loan have disappeared?”

“The accounting records obviously indicate that Hurst has failed to abide by any sort of required construction loan agreement and related draw schedule, and has obviously disbursed the entire proceeds of this loan without any construction whatsoever being performed on the project,” the investor added.

There are apparently 28 lots comprising the Beacon Road project, and Hurst investors have apparently funded each lot for $485,000. Many of the lots were originally funded in 2006. Two years have passed but no building permits have been issued.

Both the state Department of Corporations and the Department of Real Estate have ongoing investigations into Hurst Financial management practices.

According to Hurst Financial’s Web site, the company is a “no risk, no hassle, no worries, note serving and collection specialist.”


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9 Comments

  1. ccn_debate says:

    Member Opinions:
    By: Anonymous on 7/28/08
    I would check with the Contractors Licensing Board and the City of Atascadero in reference to Ron Berry their "construction consultant." Just anothe predator out there to get you.
    By: Anonymous on 7/27/08
    PLEASE BE ADVISED THAT AN INVESTOR MEETING FOR THE BEACON ROAD PROJECT HAS BEEN SCHEDULED FOR JULY 29TH AT 6:00 P.M TO BE HELD AT THE ATASCADERO LAKE PAVILION. THE MEETING WILL BE HOSTED BY THE PHOENIX RECOVERY GROUP. FOR MORE INFORMATION LOG ON TO http://WWW.PHOENIXRECOVERYGROUP.COM OR CALL THEIR OFFICE AT 238-5313
    By: Anonymous on 7/22/08
    K. Gearhart has tucked tail and run "for the hills". I hope he gets squashed like the bug he is, and soon!!! And Atascadero makes him Man of the Year!!! WHOOOOHOOOO. Could you feel more stupid?!
    By: Anonymous on 7/22/08
    smelly beerfart
    By: Anonymous on 7/18/08
    Where is Gearhart? What is his workout plan? Where is the money? First glance is his investors were sheep. Second glance is that they are a group of ostriches. Heads in the sand. Or as webster defines One who attempts to avoid danger by refusing to face it. How long do you watch and wait. If anything can be seen with EFI time only increases the loss.
    By: Anonymous on 7/17/08
    Apparently Hurst is in the midst of an audit by the DRE and DOC as stated in a letter to investors dated 7/14/08. Should be interesting to hear the outcome.

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  2. ccn_debate says:

    Member Opinions:
    By: Anonymous on 7/28/08
    I would check with the Contractors Licensing Board and the City of Atascadero in reference to Ron Berry their "construction consultant." Just anothe predator out there to get you.
    By: Anonymous on 7/27/08
    PLEASE BE ADVISED THAT AN INVESTOR MEETING FOR THE BEACON ROAD PROJECT HAS BEEN SCHEDULED FOR JULY 29TH AT 6:00 P.M TO BE HELD AT THE ATASCADERO LAKE PAVILION. THE MEETING WILL BE HOSTED BY THE PHOENIX RECOVERY GROUP. FOR MORE INFORMATION LOG ON TO http://WWW.PHOENIXRECOVERYGROUP.COM OR CALL THEIR OFFICE AT 238-5313
    By: Anonymous on 7/22/08
    K. Gearhart has tucked tail and run "for the hills". I hope he gets squashed like the bug he is, and soon!!! And Atascadero makes him Man of the Year!!! WHOOOOHOOOO. Could you feel more stupid?!
    By: Anonymous on 7/22/08
    smelly beerfart
    By: Anonymous on 7/18/08
    Where is Gearhart? What is his workout plan? Where is the money? First glance is his investors were sheep. Second glance is that they are a group of ostriches. Heads in the sand. Or as webster defines One who attempts to avoid danger by refusing to face it. How long do you watch and wait. If anything can be seen with EFI time only increases the loss.
    By: Anonymous on 7/17/08
    Apparently Hurst is in the midst of an audit by the DRE and DOC as stated in a letter to investors dated 7/14/08. Should be interesting to hear the outcome.

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  3. ccn_debate says:

    By: Anonymous on 7/17/08
    To Broke – Stop posting on this site. You are a dipshit! If we are all so goddamn greedy, then move to another country.
    By: Anonymous on 7/15/08
    to Broke

    You are an idiot. If your money was in the Stock Market you could have sold in one day anywhere along the way. Not so when someone takes your money for one purpose and then uses it for another.
    By: Anonymous on 7/15/08
    I lost half my money in the stock market in the last month, those theives stole my money. I wish I would have diversified and put some of it in other investments. damn it!!!!
    By: Anonymous on 7/15/08
    Hey Broke: F#@k you!
    By: Anonymous on 7/15/08
    To Broke

    I already live a simple lifestyle. I was hoping to live it for many years however my savings have been stolen by Hurst/Gearhart. Now the future looks very complicated and troubling, even here on Walden Pond.
    By: Anonymous on 7/15/08
    The reason everyone is going broke is because of greed, who needs all this money anyways, live a simpler life people, you don't need 5 cars, 6 tv's, 4 computers, ect. Americans are all too greedy, hence the problem we are facing. Quit over consuming.
    By: Anonymous on 7/14/08
    July 14 (Bloomberg) — The U.S. Treasury Department's plan to shore up Fannie Mae and Freddie Mac is an “unmitigated disaster'' and the largest U.S. mortgage lenders are “basically insolvent,'' according to investor Jim Rogers.

    http://www.bloomberg.com/apps/news?pid=20601087&a

    Gear Heart and EFI are small apples in the scheme of things…???

    Ponzi Investment Schemes are
    most likely the cause of Fannie Mae and Freddie Mac U.S. mortgage lenders going broke….
    By: Anonymous on 7/14/08
    Scarier still… these people have offspring . So the future holds MORE with no values or scruples…
    By: Anonymous on 7/14/08
    Ponzi Scheme, yes. How many lives have these scumbags ruined? Most of us have never owned a Rolls or an island, for that matter. I may never see my money, but, I will see "them" living in the street out of a bag. A large majority of the investors at the meeting I went to were very complacent and throwing up their hands in defeat.
    I don't go down quite that easy.
    By: Anonymous on 7/14/08
    WTF

    Thats it you keep focus on me while the developer you loaned your money lights his cigars and wipes his ass with $100 dollar bills from the money you gave him.

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  4. ccn_debate says:

    By: Anonymous on 7/14/08
    Hey, I have an idea! Let's just rename this site, 'The Insider Show' after all, you seem to have all the answers. Sobia was right to call you dumass.
    By: Anonymous on 7/14/08
    We wouldn't want anyone wasting valuable e-space going off topic on this thread would we?
    By: Anonymous on 7/14/08
    i now pronunce this thread as "the dead zone."
    By: Anonymous on 7/11/08
    I heard there is a Kelly Gearhart estate sale in downtown Atascadero Friday and Saturday 8 – 2:00 on El Camino Real. They have furniture and other heirlooms so you might want to recoup your investment losses. We should get there when the doors open before the evidence (I mean furniture) disappears.
    By: Anonymous on 7/11/08
    Insider,
    Well said. Where are those weenies?
    I do know things are in the works, many lenders are working with various agencies and there is a two month old lawsuit against Hurst et al for all the same reasons brought up in this article, but on a different parcel. Hurst is now undergoing an audit by the Dept of Real Estate, which licenses them to do their business (I imagine the list of violations of their license will stun even the most jaded observer).
    As with EF and other crooks in this industry the situation is confusing, the trail of properties and money wound up in a web of LLc's and bizarre deed assignments and faulty documentation. Before too long some very interesting revelations will be made public.
    If you are caught spitting on the sidewalk you will end up in the judicial system in minutes. White-collar criminals, who steal millions, operate with impunity for months, or years. And their penalties, if caught and prosecuted by a very slow moving legal system, often stagger the imagination in the leniency meted out. Despite that, the violations in these cases are so egregious, and the consequences so immense to the victims, I am confident many of these ‘suits’ will go to jail. I just hope they don’t get the country club down south, but rather something like Sing Sing.

    By: Anonymous on 7/11/08
    to Humbug and WTF

    What the F. If you have something to say about Hurst and Gearhart then say it. The people involved the the Estate loans have taken the Bull by the horns and made public thier wants, desires and concerns. Apparentlly the Hurst/Gearhart investors are just fine with thier lot in life. I just don't see much complaining. Are you scared of them or hoping they are going to make you right and just don't want to upset them. How's that for staying on subject?
    By: Anonymous on 7/11/08
    To Humbug:

    I agree, what happened to the subject?
    UncoveredSLO needs to have a special site where all the city council bashers, Walmart lovers and no growthers can have their say!

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  5. ccn_debate says:

    By: Anonymous on 7/11/08
    i forgot to disclose that the broadwater rant was lifted from the Trib website…it ran in yesterdays bullshit section
    By: Anonymous on 7/11/08
    Shaking the Cage

    You might want to take a look at your performance that night David its on record at the City website. Quite astounding I must say. Really over the top. You make Brennler and Comar look rational with that one.
    By: Anonymous on 7/11/08
    n unfortunate symptom of Atascadero’s dysfunctional civic discourse is the degeneration of debate into personalized mud-slinging and shoot-the- messenger evasion. A favored tactic is to accuse others of character assassination while perpetrating it, thereby impugning their reputations and imputing to them nefarious motives and emotions.

    Lon Allan has now descended into that putrid pit (Gadflies to shoo away—and to praise,” June 17), charging others with attacking a councilman’s character, loathing him and enjoying it, providing no evidence for these blatant canards. He also theorizes that I “take delight in throwing gasoline on the flames” and that I’m trying to make that councilman a “villain.”

    As the only individual singled- out in Allan’s screed as guilty of such below-the-belt tactics, I must set the record straight. In demanding accountability of various civil servants and advocating on a number of issues, I have focused exclusively on official conduct and policy. I have never personally attacked or cast aspersions upon any public official’s character or motives.

    At the June 10 City Council meeting, I filed a complaint regarding a threat of physical violence directed at one councilman by another during a previous meeting. I requested a remedy to prevent repetition of such unbecoming conduct. This apparently instigated Mr. Allan’s fulminations.

    It’s a twisted town where one who attempts to douse a fire is blamed for stoking it. It’s as disappointing that Lon Allan has stooped to such a despicable depth as it is deplorable that The Tribune would print such disreputable drivel.

    David Broadwater

    Atascadero

    By: Anonymous on 7/11/08
    To Hotdog: Amen
    By: Anonymous on 7/11/08
    To Humbug:
    So far Hurst has somehow 'disappeared' many millions. Your question about the money will be answered one of these days. How these various thieves have managed to stay out of jail so long is a testimonial to our creaking oversight and legal system.
    As for all the crackheads whining about Atascadero on this blog site I can only surmise they are agents of various lending brokers and crooked developers who want to dilute legitimate chat about this huge problem before us. And for those who think only investors will lose, think again. The consequences of this massive rip off will affect the local economy in many ways, touching all of us.

    (0) 0 Total Votes - 0 up - 0 down
  6. ccn_debate says:

    By: Anonymous on 7/10/08
    Where did Hurst’s Beacon Road money go?

    What happened to the subject?
    By: Anonymous on 7/10/08
    to Pity

    No not Ray. I agree he seems a little tense. Almost as bad as Brennler, Comar, and Broadwater. Broadwater has been gone a few weeks and seemed a little calmer. Must be getting his dosage right.
    By: Anonymous on 7/10/08
    Insider’s ranting reveals the shell of a disturbed and cowardly human being who is as bitter as the splinter group, appropriately named “A Bitter Atascadero”

    I watched the recent video of the council meetings and found that one speaker displays similar hatred.

    Ray Bubin's diatribes closely resembles the rantings of Insider. Could they be the same?

    As some may remember, Bubin was part of the failed recall and was also subject to a New Times political cartoon where he was depicted as a fly sitting on top of some barnyard dung. Although the cartoon was a bit distasteful it also struck me as a bit amuzing. Apparently it has put this poor fellow over the edge.

    It's time to grow up Insider. Living a life of hatred will only consume your soul.
    By: Anonymous on 7/10/08
    By: Anonymous on 7/10/08
    Just as a side note I noticed Gearhart dropped the price on his house from 1.5 mil to 1.1 mil quite a reduction. 400k. Whether it's worth it or not I don't know but on face value it sounds like a motivated seller as they say in the biz.
    By: Anonymous on 7/10/08
    I certainly hope everyone can get something back. If what you say is true, and it certainly may be, a class action law suit would be in order. Then on top of getting ripped off by Hurst the next step will be to get ripped off by the attorneys and the inflated costs of their "experts."
    Good luck.
    By: Anonymous on 7/10/08
    to Finally!

    You probably idolized Hitler too. Didn't he just want to make the trains run on time. Give me order!
    By: Anonymous on 7/10/08
    I know most of the money is gone. The idea is, if fraud is proved, and entities such as title companies and appraisers are found to have been a part of the overall scam or complacent, they can be forced to cough up cash and we all fair quite a bit better.

    Only someone that hasn't lost everything would choose to let it go.

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  7. ccn_debate says:

    By: Anonymous on 7/10/08
    I think you investors need to come to grips and realize that unfortunately the money is GONE. If there were any money around they would still be making interest payments and doing construction on the projects. This is a very sad situation that there are literally thousands of people who have lost millions of dollars. I'm sorry but i don't beleive that there will ever be any thing good come from this. Financially that is. I hope the scroundels are penalized to the maximum for which the law allows. And even that will not get your money back.
    By: Anonymous on 7/10/08
    What a bunch of lame brains! Can't you knuckleheads give it up on the Atascadero jazz? Ask Uslo to do an article about that and blog to your heart's content.
    Thousands of locals have been taken to the cleaners by these 'suits' in fancy offices. I wish the site managers would take all your idiotic chat off here so the real issues can be addressed, that many millions of dollars have been stolen and much work remains to be done to reclaim some of it.l
    By: Anonymous on 7/10/08
    Hey! I thought I was the only rude one around here. Now everyone is getting in on my act.
    By: Anonymous on 7/10/08
    To Anonymous. says:

    You are as rude as the members of the Atascadero City Council. Are you running for office. Currently you sound like you would fit right in.

    You just don't get!!
    I am runing from people like you who just shoot off their mouth. So I want to be rude to you and pelase, go get a life!!
    By: Anonymous on 7/10/08
    You are as rude as the members of the Atascadero City Council. Are you running for office. Currently you sound like you would fit right in.
    By: Anonymous on 7/10/08
    Finally! says:

    Can't you just get lost?
    This particular articlehas nothing to do with the council
    here will be expose about the counsil, than get on it with both feet. Until than, get a life
    By: Anonymous on 7/10/08
    I actually find it somewhat refreshing to see someone on the City Council, Mike Brennler, take control of a meeting. One of the biggest problems in Atascadero is the rudeness and hatred that exists. I actually sit back and chuckle when Mike Brennler puts the clamp on Tom O'Malley who routinely goes on and on about all of the great things he has done for Atascadero when they have nothing to do with the agenda. If Tom wants to really talk about something why doesn't he tell us about his interview with the FBI. Although I do not agree with some of the votes that Mike Brennler has made I will give him a pat on the back in his attempt to regain some respect and integrity to the City Council.
    By: Anonymous on 7/10/08

    "Was this loan on one of the 28 lots or on the entired assembled 28 lots? Its not clear in the article."

    When dealing with Hurst nothing is very clear. The loan mentioned in the article is one of many on the whole property so sorting it all out will be interesting to say the least. Despite repeated inquiries to Hurst over the last 3 months no definitive info has been received- they are masters of stonewalling.
    By: Anonymous on 7/10/08
    Insider: Shut up.

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  8. ccn_debate says:

    By: Anonymous on 7/10/08
    I'm not so sure it's medical so much as a lack of rage control.
    By: Anonymous on 7/10/08
    Insider: Please, please, please shut the shit up about your dislike for Mayor Brennler. You are so transparent that it has become nauseating. To constantly ragged on someone about a medical condition is in extremely poor taste. My question is – how do we cure your medical condition which is "diarrhea of the mouth"?!
    By: Anonymous on 7/10/08
    Your right – i should shut up now.
    By: Anonymous on 7/10/08
    Was this loan on one of the 28 lots or on the entired assembled 28 lots. Its not clear in the article.
    By: Anonymous on 7/10/08
    Please. This story is important. Don't make this another Atascadero trash-everyone-rudely thread that gets inexorably to Wal-Mart. Give us a break! Stay. On. Point.
    By: Anonymous on 7/10/08
    If Brennler wants to clean up corruption he should start with himself. As Luna quite correctly stated at the last CC meeting that CC members are not allowed to direct staff, that all direction could only be accomplished with majority vote and that all direction to staff would be by the City Manager only. Any direction to staff would otherwise be a violation of the municipal ordinance. When Brennler directed a reluctant officer to warn a citizen at the previous meeting that he would be removed at Brennlers direction if he didn't toe the party line that was a direct violation of the municipal ordinance. I do realize at this point that those rules he is so proud of enforcing are only for others and can be changed without notice by the Crimson King Brennler himself. I realize this blog is not about the the great red menace other than to say his previous attempt to take an internal city enforcement to the Supreme Court failed for the obvious and would have in no way protected any of these individuals who I feel great empathy for. So lets do the right thing and support a sanction against Brennler at the next CC meeting for his blatant disregard of the Atascadero Municipal Ordinance. Do I hear an Aye!
    By: Anonymous on 7/10/08
    Kelly is known not to follow planning department rules and city regulations. His three buildings in Paso golf project are red tagged. He doesn't pay fees on time affecting the cities finances.

    Brennler ran on cleaning up corruption in the city. Didn't over 60 percent of the people vote for him.

    Your attitude of let developers do whatever they want, no questions asked, has led to this current mess. The way out is not to scream at those wanting laws and rules followed, but to applaud those working for change. And I don't mean the small, loud group, those that used to blindly follow Gearhart and now sling mud at Brennler, that want O'Malley and Clay back in the majority.
    By: Anonymous on 7/10/08
    "insider",

    Remember to keep that butt-plug in-place, otherwise the gasses will escape without warning.
    By: Anonymous on 7/10/08
    rdog

    Brennler is a buffoon the only difference is which end is red. Sorry that would be a baboon. In that case maybe the right end is red. What turning Kelly in for not recording an easement has to do with anything is ridiculous.
    By: Anonymous on 7/10/08
    Again, had the DA taken Mayor Brennler's complaint in early 07 seriously could a few people have been spared financial ruin?

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  9. ccn_debate says:

    By: Anonymous on 7/10/08
    The story says the claim was made by Hurst's attorney. It also says in the same paragraph, "Benice failed to list expenditures regarding those claims in the Hurst escrow account custom transaction detail report he provided."

    Do you really believe that this group does what they say they will do? It looks to me like this was an attempt to get funding with no plan on building anything.
    By: Anonymous on 7/10/08
    At the top of the article "Construction on the Kelly Gearhart/Miller project was never started" then at the bottom "some costs associated with the Beacon Road Project have been paid, including entitlement application fees; property taxes; a biological report; and pending landscape and civil engineering plans" so it sounds like the project is in progress.
    By: Anonymous on 7/9/08
    Interesting article about the debacle at Hurst. The issues and data attributable to me reflect a response I received from a comprehensive set of questions I put to Jay Miller, emperor of Hurst. The answer and accounting (of investor funds) was so childishly insufficient I could hardly believe it.

    One independent accountant reviewed the figures I received about the investment disbursements and called the Hurst accounting 'a joke'. On top of that only figures from 12/07 to 3/08 (four months) were noted in the accounting although the loan was dated 2006!

    I sent a comprehensive response to Hurst and Jeff Benice about the inadequate data expressed in the accounting and text (which contained the customary errors one always gets when receiving anything from Hurst). No answer-which is their most common response to lender inquiries.

    Their (not 'there', as they always say) tactics of ignoring, stonewalling and lying to their clients has gained them innumerable foes in the investor community. And of course the lack of compliance with their own servicing obligations and DRE regulations will be their downfall.

    The reader will notice that in all these articles about Gearhart, Hurst, Heritage Bank and EFI etc they never return calls to the reporters. Same with investors. No response, silence. They operate in their ivory towers, but the towers are coming down.

    By: Anonymous on 7/9/08
    The North County mess continues. Does anyone know whatever happened to Linda Kennedy and 21st Century Mortgage? They would make a good third piece of this ponzi pie.

    Also, Hurst has been filing default notices like crazy over the past 30 days – all over the county.
    By: Anonymous on 7/9/08
    ponzi
    By: Anonymous on 7/9/08
    Well, EFI going down, now Hurst. If you need to connect with other lenders and get in the loop about what is going on, and what you can do to protect your interests:rippedoffinvestor@yahoo.com
    By: Anonymous on 7/9/08
    Mr. Benice is Karen Guth's attorney as well. He was at the Madonna Inn meeting. Guess he's got his hands full.

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