Heritage Oaks Bank makes out while investors lose

March 10, 2011

By KAREN VELIE

After battling for a cut of developer Kelly Gearhart’s Vista del Hombre property, Heritage Oaks Bank in San Luis Obispo walked away with most of the controversial developer’s land in Paso Robles.

At the same time, a federal bankruptcy court in Ohio, that is handling Gearhart’s tangled financial holdings, has dubbed investors in the Vista del Hombre project as unsecured creditors.

Hundreds of local investors put approximately $28 million in cash into Vista del Hombre through hard-money loans secured by Hurst Financial, Inc. (HFI). Gearhart and HFI president Jay Miller lured investors with promises of high-interest monthly payments on construction projects secured by property.

CalCoastNews exclusively reported in 2008 that Hurst had illegally promised deeds of trust with an unheard of ownership of 8,000 per cent in the planned 32-building development to hundreds of local investors. Miller promised that investors would have more than 200 percent interest in each structure.

In fact, the highest percentage of interest in any property is 100 percent.

HFI filed deeds of trust with Cuesta Title, that did not accurately describe the properties, secured by lots that had not been legally subdivided and had more than 100 percent ownership, documents show.

The bankruptcy court in Ohio said that it questions the validity of the investors’ liens, according to a judgment filed in February by a federal bankruptcy court in the Northern District of Ohio.

Nevertheless, following fraudulent filings with the County Clerk Recorder’s Office in San Luis Obispo that claimed that loans had been repaid, Heritage Oaks Bank was able to procure clean titles to most of the Vista del Hombre properties.

It also appears to have made a profit by foreclosing on the properties.

In a twisted web of loans and reconveyences, Gearhart, Miller, bank officials and Joey Scolari, the founder of Scolari Markets, were able to transfer properties out of the hands of the investors, according to documents filed in San Luis Obispo.

Located six miles east of downtown Paso Robles, the Vista del Hombre property is on the site of The Links golf course, a flat, dust-blown, tree-bereft expanse of land situated a stone’s throw from the airport.

To date, little of the development’s plans have been completed.

HFI provided Gearhart his first loan of $15 million for Vista del Hombre’s purchase and initial infrastructure construction in May, 2006. The investors — primarily seniors — were told they would receive interest on their monies until the property was developed and sold.

At that time, Miller said their investments would be returned.

Miller assured investors he would dole out money to Gearhart in progress payments as the property was developed. However, Miller provided Gearhart his loans upfront and without any oversight.

Gearhart, in turn, did not fund the project and instead co-mingled the funds with his personal assets, according to the bankruptcy court’s February filing.

In June 2007, Hurst lent Gearhart another $11.8 million on the same development – escalating Gearhart’s annual interest payments to $4 million a year. Miller persuaded more than 100 investors with the same loan-to-value promise to put a second loan on the same properties, according to the loan documents.

These investors received interest payments for only six months before Gearhart abruptly stopped payments to the investors in late 2007.

On Jan. 7, 2008, Miller filed paperwork with the county that claimed that the investors had been paid back.

The investors insist they never got any of their investments back.

Less than two weeks later, Heritage Oaks Bank loaned Gearhart $1 million on the same land relying on a Cuesta Title report that claimed the property was free of liens and encumbrances.

On Feb. 20, 2008, Heritage Oaks bank modified the loan, increasing the amount to $1.5 million.

In March, 2008, two months after lending Gearhart money secured by the proposed Vista del Hombre development, bank officials had the property appraised as required by law. The law, however, does not say when the appraisal is required to be done.

The bank’s own appraisal, a copy of which was obtained by CalCoastNews, says the loan was based on erroneous and questionable claims. The bank’s appraiser, Market Dynamics’ Dennis Greene, said in his report that the property is worth approximately $4.3 million.

Meanwhile, Scolari, concerned that he was no longer receiving interest on a $1 million personal loan that he gave Gearhart, said he told Gearhart that he needed to secure his loan.

“I knew he was in trouble, he couldn’t pay interest.  So I threatened to foreclose,” Scolari said. “It was personal.”

Then in the middle of April, 2008, Heritage Oaks Bank filed paperwork to take its name off of the dead of trust on one of 14 lots that make up a majority of the Vista del Hombre project.  The action removed the bank as a lien holder for the property, giving Gearhart clear title to it.

Eleven days later, Gearhart filed a deed of trust securing Scolari’s loan through the lot, using Cuesta Title — the same title company that filed the alleged fraudulent reconveyences.

Both Heritage Oaks Bank and Scolari foreclosed on Gearhart and took ownership of  the lots. “I have a clear title to the property,” Scolari said. “I grabbed the property when I could.”

Three of the 17 lots that make up Vista del Hombre were not secured by loans to the bank or Scolari and have become part of the bankruptcy court’s proceedings.

Gearhart fled to Wadsworth, Ohio, in November, 2008 after the FBI had began an investigation into Miller and Gearhart’s activities. A few months later, he filed a bankruptcy petition in Ohio, claiming more than $45 million in personal debt.

The court determined last month that because Gearhart illegally co-mingled funds invested into Vista del Hombre with his personal assets. Vista del Hombre is an alter ego of his.

Bankruptcy trustee Harold Corzin has filed a request with the court in Ohio to allow him to sell the remaining three lots free and clear of any liens.

Several lawsuits have been filed against Heritage Oaks Bank and Cuesta Title on behalf of more than 300 investors, who claim the bank and the title company aided and abetted and/or conspired with HFI in defrauding people through illegal investment schemes.

Repeatedly asked by CalCoastNews for comment about the investors’ lawsuits, officials from Heritage Oaks Bank and the parent company of the now-defunct Cuesta Title declined comment, saying they could not discuss the issue because of financial privacy laws.

It has been more than three years since Gearhart stopped paying interest payments to more than 1,000 investors. Several investors have passed away, others have lost their homes and some have been forced out of retirement in order to survive.


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Citizen

The Board of Directors, the people who should be watching over bank operations, are listed below.


The bank board now consists of 12 members who include Michael J. Morris, Donald Campbell, Michael J. Behrman, Kenneth Dewar, Mark C. Fugate, Dee Lacey, James J. Lynch, Merle F. Miller, Daniel J. O’Hare, Michael E. Pfau, Alexander F. Simas, and Lawrence P. Ward.


south

In the early 90’s a similar situation occurred with a development in Paso Robles. I believe a player in that issue was also HOB – I may be wrong, and please correct me if I am. If memory serves me, and it rarely does, the development was operated by a company called Block and Bauer (sp).


I wonder if we have a connection with any players listed above?


BTW Karen – this is a fine piece of journalism.


Cindy

Is it possible that the last name is Barre?


BeenThereDoneThat

It was Block and Bauer. It was the last project they did. It was Rambaulet (off Niblick) The city of Paso had to pay to finish some of the curb and gutter in the area. It was around ’88 that they went under.


Yes HOB was also involved in that. The F.B.I. investigated and HOB was put on probation for five years.


The I.R.S. and Gov. went after Paul Block for a few years but it looked as though he had no money left. They (Fed) always figured he funneled it through family and friends but could never prove it.


Craig Bauer went back to work as a framer. The I.R.S. liened him and he is paying monthly payments to them from now till dooms day. He lost everything and was living in an apartment on Vine St. for a number of years. I know he was still living there as late as 2001.


R.Hodin

Historically, one of the more effective remedies in this kind of situation is torches and pitchforks


Fedup

Due to the totally ineffective and corrupt District Attorney in this county that might be the only way to get justice.


cheseburger

No we must adhere to the civil policies in place. Never thought I would say that?


I never did either!


Cindy

Ummm, So after HOB lent Kelly 1.5 Million, they had the parcels appraised and determined that the value was considerably less than what they had reflected in their loan docs. Of course they were also aware that their associate Mr Scolari who invested $1,000,000 certainly anticipated recouping his funds and then of course there were a “few” others who had a financial interest. So HOB decided to return some of the property that they were holding as security to Mr Gearhart, who in turn secured the significant lot for Mr Scolari and then they (bank and buddy) foreclosed. Do I have that right ? This is the kind of behavior that is (or should be) unheard of. My jaw is still stuck on the floor! I wonder what else HOB did?


I have little doubt that the remaining investors will prevail in the courts. HOB re-conveyed fraudulent titles as fast as Melanie from Cuesta Title could clean up her pencil marks. The thing that is so horrendous about this, is that apart from Mr Scolari, there are citizens holding 27 million in paper and the courts aren’t going to award them more than the current appraised value of the property and we know how much that is. Even if the court decides to sanction (if they can) HOB and Cuesta, the investors will not recover anything reasonable. OMG, how could Kelly do this? Yes, I know he had help but where is that $27,000,000? He didn’t build the project, he stopped paying interest and he didn’t pay anybody back, in fact he ripped off his mother! Where is that damn money, Kelly?


Citizen

What else did they do? HOB gave a big loan to one of its own Board members, Dee Lacey. Anytime the Board members are drawing money out of the bank, and allowing unsecured loans to friends (Karen Guth), you know something is wrong.


cheseburger

“The court determined last month that because Gearhart illegally co-mingled funds invested into Vista del Hombre with his personal assets. Vista del Hombre is an alter ego of his.”


Key word illegally, where are the suits with big guns to handcuff this perpetrator!

Justice is too long over due!


And my friend Fedup, Grigger wasn’t looking to good the last time I saw him, didn’t get his way, didn’t say goodbye, kinda grumpy, I think he knows the end is near and the out come will be very clearly his demise.


roymann

AMEN


roymann

AMEN the end is drawing near!


Fedup

One name that hasn’t been mentioned in all of this is Grigger Jones. This schister took a deed on VDA as payment to represent Miller in law suits against this very same property. When the fact of this conflict of interest came out in court the judge took a very dim view of it. It was nice to see this old dried up crook sweat in open court. Let us hope that the day of reckoning is near for this idiot as well as the rest of these a**holes including most of the Atascadero City Council.


BeenThereDoneThat

Boy could Vista Del Hombre and the finance’s be any more convoluted?? What a f**ing mess!!


You know you forget that besides Kelly the bigger players here is Heritage and Cuesta. Had either of these A**holes at ANY point along the way said, hey Kelly we can’t do this it is illeagal, we may never have got to this point. I for one would like to see some of the ones in charge of the deal at the bank be lead off in handcuffs. They did a HUGE disservice to their creditors. This is one of the reasons (untrustworthy assholes) that I moved my money away from Heritage shortly after this all came out.


Maybe if more locals moved their money away from Heritage and stopped frequenting Scolari’s, which is WAY overpriced in my opinion anyways, we can vote with our wallets (and what money is left in it thanks to this group of D*ckheads) and not give them anymore money!!!!!


Citizen

I agree. People need to boycott HOB, all of the Board members, and their fun run. HOB was set up like a mafia bank that the board and developer friends used like an ATM machine. They did a great disservice to the community, destroyed lives, and if Solari’s was involved as more than an investor, then boycott Solari’s also.


People from HOB’s Board of Directors are walking around Paso as esteemed citizens, when in fact, they should be ostracized as white collar criminals.


Al

And still after all this time and information the DA can’t put the dots together and charge any of the above with a crime. Sad day here in the “happiest place on earth”.


SLOChuck

Al, the DA is beyond useless. He couldn’t put the dots together on a child’s puzzle.

His buddies in this county get away with murder.


Bluebird

Whoops. I forgot to add Heritage Oaks to the scum bum list.


Bluebird

WOW! This is incredible.

And Scolari took his money and ran and didn’t give a crap about anyone else.

He probably had made that million he had sitting around screwing other people in the same way Gearhart was trying to screw him.


Cindy

Ummm, So after HOB lent Kelly 1.5 Million, they had the parcels appraised and determined that the value was considerably less than what they had reflected in their loan docs. Of course they were also aware that their associate Mr Scolari who invested $1,000,000 certainly anticipated recouping his funds and then of course there were a “few” others who had a financial interest. So HOB decided to return some of the property that they were holding as security to Mr Gearhart, who in turn secured the significant lot for Mr Scolari and then they (bank and buddy) foreclosed. Do I have that right ? This is the kind of behavior that is (or should be) unheard of. My jaw is still stuck on the floor! I wonder what else HOB did?


I have little doubt that the remaining investors will prevail in the courts. HOB re-conveyed fraudulent titles as fast as Melanie from Cuesta Title could clean up her pencil marks. The thing that is so horrendous about this, is that apart from Mr Scolari, there are citizens holding 27 million in paper and the courts aren’t going to award them more than the current appraised value of the property and we know how much that is. Even if the court decides to sanction (if they can) HOB and Cuesta, the investors will not recover anything reasonable. OMG, how could Kelly do this? Yes, I know he had help but where is that $27,000,000? He didn’t build the project, he stopped paying interest and he didn’t pay anybody back, in fact he ripped off his mother! Where is that damn money, Kelly?