EFI investor prospects dismal
January 28, 2009
By KAREN VELIE and DANIEL BLACKBURN
Investors in both the Estate Financial Mortgage Fund (EFMF) and Estate Financial Inc (EFI) received gloomy reports from trustees regarding recouping investments through the bankruptcy court. The bad news was contained in a letter sent to investors earlier this month.
EFMF investors appear to be in the least likely position to recoup investments, despite assurances from EFI boss Karen Guth to investors that their money was more secure in the mortgage fund. Guth was successful at getting her supporters to cash out of investments secured by first trust deeds in exchange for membership in her unsecured mortgage fund.
Early in June, creditors forced EFI into involuntary Chapter 11 bankruptcy proceedings. About a week later, EFI owners Guth and her son Joshua Yaguda voluntarily placed EFI’s mortgage fund into Chapter 11. Federal bankruptcy court Judge Robin Riblet appointed Thomas Jeremiassen and EFI Mortgage Fund trustee Bradley Sharp to liquidate the company’s remaining assets.
According to the trustees, their preliminary analysis of the mortgage fund revealed that the fund is not secured by any timely filings of deeds of trust and as such all recordings in the mortgage fund could be voided.
Some of those who invested in EFI fractionalized loans may not fare much better, due a number of bizarre management techniques.
“We have observed other problems with assignments (e.g., recorded in the wrong county, made or recorded in the wrong percentages or the recording references the wrong instrument number for the deed of trust), and we have seen at least one instance where a deed of trust was mistakenly reconveyed by EFI without EFI or the investors being paid with respect to the loan,” the trustees say in the letter.
Even those secured by deeds of trust may receive little, if anything, back after the trustees finish their work. Though the trustees say in their report that proceeds will be distributed as properties are sold to the co-owners (those on deed of trust), they list a number of factors – “including previous interest payments to investors” – that will impact the funds owed to each secured investor.
In the past, in cases of Ponzi schemes, judges have sometimes ruled that investors have to take into account past interest payments received.
In a Ponzi scheme, lenders pay unusually high returns while utilizing incoming investor money to cover expenses, rather than making income through the alleged business activity. EFI entirely funded numerous developments that were never constructed.
Siugfried Stuevee, an 83-year-old machine shop owner, is grappling with the trustees over funds from a property that sold last July. According to Stuevee, the trustees pointed out that he had already received two to three years of interest payments.
“They haven’t paid me a dime yet,” Stuevee said. “I am very disappointed. I brought it to the trustees many times, but not a word. My wife is in a convalescent home with Altzheimer’s disease, and I am just about bankrupt. Maybe I can get her on Medi-Cal.”
Guth, 65, and Yaguda, 40, were arrested October 16 by a multi-agency task force at their Pasolivo olive ranch. They face 26 fraud charges, and both remain in San Luis Obispo County Jail pending $5 million bail each.
A creditor created and provided to CalCoastNews the following scenario of possible loan disbursements regarding a $100,000 investment made six years ago:
“Based upon EFI’s report, EFI will be entitled to fees before any funds are distributed to secured investors. Also, all moneys paid to them over the years in the form of interest will be deducted from their initial capital invested.
Example: $100,000.00 invested six years ago at 12 percent interest.
Yearly payment received: $10,000
Total funds received: $60,000
Service charge one percent for six years: $6,000
Additional administrative charge: $10,000
Total due to secured fractional holder
($100,000-$60,000–$6,000-10,000) $24,000.00 if all papers recorded properly and the loan was paid in full. Deduct for any potential short sale.
If it is a 50 percent short sale: $100,000
Received: $ 60,000
Management Fees: $ 6,000
Trustee Charge: 10 percent of $100,000 $ 10,000 (may vary)
Total to secured creditor: ($100,000-$50,000-$60,000-$6,000-$10,000)
Total due to secured fractional holder: ($100,000-$50,000-$60,000–$6,000-10,000) -$26,000. In other words, investors could end up with a negative balance.”