Heritage Oaks Bank versus the investors

April 4, 2009

By KAREN VELIE and DANIEL BLACKBURN

Heritage Oaks Bank is battling with Estate Financial Inc. and Hurst Financial investors over first place in the quest for financial compensation.

Attorneys for the bank are chasing first position in the pursuit for assets of fraud suspects Karen Guth and Josh Yaguda Estate Financial Inc. (EFI), and Hurst Financial, and in some cases, trying to supplant individual investors. Bank officials have attempted to foreclose on properties in which hundreds of investors, primarily retired locals, already have a prior financial stake.

In addition, a large, unsecured loan made by Heritage Oaks Bank to Guth, Yaguda, and high-rolling developers created a false air of credibility that may have duped some hard-money investors.

The bank’s actions on a large Paso Robles development that never left the launching pad provide an example. Attorney Pete Josserand has filed a complaint against the bank on behalf of Gary Luttrell, for attempting to foreclose on developer Kelly Gearhart’s Vista del Hombre property near The Links golf course in Paso Robles.

Despite the fact that 326 investors were listed on deeds of trust prior to the bank’s doling out a loan to Gearhart, the bank claimed a priority interest in an attempt to foreclose on the land ahead of investors.

Gearhart got his first loan for Vista del Hombre’s purchase and initial infrastructure construction in May 2006 from Hurst Financial, in the amount of $15 million. That initial loan was slated to mature in late 2006, but Hurst has not reimbursed investors and ceased providing interest payments in 2008.

By then, Hurst had already lent Gearhart another $11,850,000 for the Vista del Hombre development. That pact was inked June 22, 2007, after Hurst attracted more than 100 investors with the promise of high returns. These investors received interest payments for only six months before the payments abruptly ceased.

Relying on a faulty Cuesta Title report that incorrectly suggested the property was unencumbered, HOB lent Gearhart $1 million secured by a lien on Vista del Hombre on January 20, 2008. One month later Gearhart secured a $500,000 loan from the bank, further encumbering the property.

The bank’s own appraisal – performed almost two months after Heritage Oaks provided Gearhart the loans on the property – was based on “erroneous” and questionable claims, according to the appraisal. That appraisal valued the property at $4.5 million.

Luttrell and a bank insider claim Heritage Oaks officials were aware the Cuesta Title report was inaccurate, but chose to ignore the issue.

“They subordinated us so we wouldn’t get anything at all,” Luttrell added. “They (bank officials) admitted they knew Gearhart and (Jay) Miller subordinated the loans and left them a clear field.”

An additional HOB loan on the property, for $250,000, was made on June 12, 2008, at a time when bank officials were aware of the property’s true value, and also that hundreds of investors stood ahead of them, according to county title reports.

In response to Josserand’s March 30 filing, the bank agreed to postpone the sale for 30 days, according to an e-mail to from HOB attorney William Raver to Josserand.

“If we don’t have an agreement by May, Raver will postpone the sale for an additional 30 days providing us time to stop the sale” Josserand said. “I believe HOB is trying to foreclose on deeds of trust in third and fourth position on this property. I believe Hurst investors’ deed of trust has priority over HOB.”

Arguing Wednesday at an asset hearing for Heritage Oaks Bank, Raver asserted the bank has rights to the assets of EFI principles Yaguda and Guth ahead of investors due to an outstanding loan of more than $5 million and an older, smaller loan. Raver asked Judge Jac Crawford to allow the bank to pay off these notes as assets of Guth and Yaguda are sold.

Crawford agreed that the bank’s first loan on the property, made in 1998 for around $300,000, was valid, and could be repaid through the impending sale of two gas stations partially owned by Guth. But the judge voiced concern over validity of the bank’s request to collect on the lien for $5 million placed on the property to secure a previously unsecured line of credit.

“You loaned large sums of money when crimes were being committed,” Crawford noted.

Guth’s attorney, Steven Smith, claimed the revolving line of credit was paid to investors as interest payments during a time the lender was in serious financial trouble.

Investor and real estate broker Jeri Kirkpatrick said she wonders how many people were defrauded during the period in which Heritage Oaks Bank’s loan was being used to pump up EFI’s financial reputation.

“If Heritage Oaks hadn’t provided an unencumbered line of credit to Guth, many of the injured investors might not have been robbed of their retirements,” Kirkpatrick said.


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2 Comments

  1. ccn_debate says:

    Member Opinions:
    By: pinot4me on 5/8/09
    Nameless asks how Questa could provide clear title. The title company does not determine facts, they simply insure the title subject to the exceptions . The bank then relies on the title insurance issued by Questa which insures that their loan is a lien on the property and lists the items which are prior liens and encumbrances.

    All of this assumes the original loans were in fact recorded.

    The list of encumbrances is prepared from a search of the county records-title search.

    If the policy does not list an item through oversight or fraud inside the title company and the bank looses money because of it they are insured. Getting paid on the insurance is another matter.

    In this case it sounds like the Bank and Questa may have decided the most cost effective solution is to screw the investors.
    By: pinot4me on 5/8/09
    Nameless asks how Questa could provide clear title. The title company does not determine facts, they simply insure the title subject to the exceptions . The bank then relies on the title insurance issued by Questa which insures that their loan is a lien on the property and lists the items which are prior liens and encumbrances.

    All of this assumes the original loans were in fact recorded.

    The list of encumbrances is prepared from a search of the county records-title search.

    If the policy does not list an item through oversight or fraud inside the title company and the bank looses money because of it they are insured. Getting paid on the insurance is another matter.

    In this case it sounds like the Bank and Questa may have decided the most cost effective solution is to screw the investors.
    By: starvingmexican on 4/8/09
    why do you need a title company if they are as crooked as the whole lot of embezlers?
    By: Nameless on 4/5/09
    Cindy

    I have worked with several title comopanies. I know things must be reviewed and signed off by a Title Officer. When subordination is an issue the process takes even longer. What I can see in here is complicity by the Title Co. and the Bank. As far as I am concerned, investors should be able recoup their investments one way or the other. If you are a share holder in HOB, consider what comes next.
    By: Cindy on 4/5/09
    Nameless,
    It's my understanding that the brother of Kelly Gearhart had a girlfriend working at Questa title. It's been said that she produced fraudulent title documents. I'm not aware that she had anything to do with EFI but apparently some of the erroneous Hurst doc's and Gearhart doc's were penned by her. She has left the state.

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  2. ccn_debate says:

    By: Nameless on 4/5/09
    It is curious that HOB lent Gearhart $1 million on January 20, 2008. One month later another $500,000. Officialls at the bank had to have their heads in the sand.
    EFI already stopped making interest payments to investors. HOB demanded security from Karen and got it in the form of recorded TD against her personal assets by February 2008.

    HOB was aware of EFI's problem since October 2008, than went ahead and loaned more. Now, isn't that raises more questions? No wonder that Judge Crawford had so many questions to the bank official.

    An additional HOB loan for $250,000, made on June 12, 2008, indicate serious collusion within the bank and its BIG Borrowers.

    I have a hard time understanding what went on at the bank, unless personal interest at the bank stopped them being prudent. No wonder they had to get $21,000,000 in TARP.

    By: Nameless on 4/5/09
    Questions to anyone. How did Questa Title provide a clean title to HOB when there were already so many investor on the same property? Who had the responsibility to inform the Title Co. and the Bank about existing investors on the same propery?

    By: DashRiprock on 4/4/09
    I am confused here, why isn't Cuesta Title the main bad guy, they insured title, c'mon, they are as guilty as Madoff….whoever was in charge at the time..
    By: WiseGuy on 4/4/09
    David Weyrich used to be heavily involved with the inner workings of Heritage Oaks Bank, including being on the Board of Directors, if I'm not mistaken, at the same time he was initiating large real estate developments in the North County. Now Weyrich's name seems to be conspicuously absent from the Heritage Oaks PR documents. And his empire is falling all to crap. I think there is a story there somewhere. These connections aren't mere coincidences.
    By: Nameless on 4/4/09
    Can CNN Clarify how did the unsecured credit line to EFI escalated and when did it become secured. If Karen's Attorney Steve Smith states that the credit line was used to pay investor's interest, would it be more evidence that the entire operation was a PONZI scheme?

    If that is the case, will it prove HOB an eanabler to EFI and Hurst Financial? What was their role to these operators to further the mith of Financial Strength?

    If EFI, Hurst was able to show healthy opeartion with the help of these credit lines, did it entice investors to place more funds when they were already in trouble?

    Sounds like the Bank has more questions to answer not only to the court but to the investors and creditors.

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