Gearhart files bankruptcy

February 12, 2009

By KAREN VELIE

Kelly Gearhart, a North County developer with ties to hard money lender Hurst Financial, has filed for Chapter 7 bankruptcy protection in Ohio.

Gearhart and his wife, Tamara Lowe, filed the bankruptcy petition on Wednesday, claiming $6.5 million in estimated assets and $45.1 million in estimated debts.

Their filing attorney is Kate Bradley of Akron. She did not return requests for comment.

Gearhart and Lowe moved to Wadsworth, Ohio, in November following threats of physical violence by an angry investor. Gearhart filed the bankruptcy petition in the Northern District of Ohio U.S. Bankruptcy Court.

The bankruptcy lists Gearhart’s personal assets and liabilities and does not include his corporation and LLC holdings. Even so, Gearhart asserts in his petition that his LLCs and corporations “are substantially insolvent and have no realizable value.” Hurst Financial lent Gearhart and his holdings more than $70 million, the bulk of which went to Gearhart through his LLCs and corporations and is not included in this bankruptcy filing.

Cal Coast News has chronicled Gearhart’s legal and financial troubles in procuring loans for properties at highly inflated values — like Vista del Hombre in Paso Robles. Hurst Financial Inc. lent the troubled builder approximately $26 million on the property even though it was appraised at only $4.5 million, subjecting investors, primarily seniors, to millions in personal losses.

Dozens of properties docketed in the bankruptcy petition list values substantially below monies owed.

Last summer, David Rios and Murray Powell filed an 11-count lawsuit against Gearhart and Hurst Financial principals Jay Miller and Courtney Brard in San Luis Obispo County Superior Court. Allegations include fraud and civil conspiracy by the trio and claims they misled investors and misappropriated funds. Gearhart had provided Rios and Powell a personal guarantee on the business related debt.

Gearhart was slated to give depositions regarding the suit today though he declined to appear. The bankruptcy filing will put a 30 day stay on the lawsuit.

Gearhart’s debts include $5 million owed to First Bank of San Luis Obispo; $1.7 million owed to San Luis Trust Bank; $39,421 owed to local attorney firm Adamski, Moroski, Madden, and Green; $11 million owed to Hurst Financial for interest in Beacon Road and a parcel on Highway 41; $6.4 million owed to the Fred Russell Trust; and a long list of local lending institutions, companies, government entities, and individuals. More than 600 creditors are listed on the petition.

Chapter 7 bankruptcy allows the creditor to start anew. Under Chapter 7, assets are sold and proceeds distributed to creditors.

However, the bankruptcy court is a court of equity where honest men go to discharge honest debts, and trustees do not discharge tainted debts, said a local attorney. Gearhart is currently the subject of an FBI investigation into fraudulent business activities, according to sources.