Gearhart appraiser loses license over land fraud

January 5, 2012

By KAREN VELIE

EDITORS NOTE: See Conflicting appraisals, a comparison of appraisals made by Terry Pippin and Market Dynamics’ Dennis Greene, an appraiser hired by Heritage Oaks Bank, at the bottom of this story.

An Atascadero-based appraiser whose inflated appraisals helped North County Developer Kelly Gearhart defraud investors out of more than $100 million has lost his license. The California Attorney General’s office ordered Terry Pippin to surrender his license in December.

Pippin made false statements in appraisals that helped Gearhart, James Hurst Miller and others get financing that was used to carry out the fraud, Attorney General Kamala D. Harris said in her December order of license surrender. The story of the fraud, which affected some 1,200 investors, was first reported by CalCoastNews in 2008. Harris issued her order after the California Office of Real Estate Appraisers submitted an accusation that detailed Pippin’s conduct in a number of transactions.

At the time, Pippin said he stood by the numbers he put into his appraisals saying they were both accurate and legal.

“I do know what I am doing. I have been doing this for 18 years,” Pippin said in his 2008 interview.

In August, the U.S. Attorney’s Office in Los Angeles charged Miller, the former head of Hurst Financial, with defrauding investors. Miller fraudulently sought money from investors for the Beacon Road and Vista del Hombre real estate developments in Paso Robles as well as the Salinas River development project in Templeton, the U.S. Attorney’s Office alleged.

Miller was charged with mail fraud, wire fraud, money laundering, making a false statement to a bank and aiding and abetting Gearhart in making other false statements in seeking funding. The $100 million fraud was uncovered by CalCoastNews in 2008.

The CalCoastNews investigation found that Miller and Gearhart allegedly swindled the investors in a lending scheme involving hard money with the assistance of title officers, lawyers, public officials and appraiser Terry Pippin.

Pippin appraised the Vista del Hombre project in 2007 for $17.75 million, California state investigators said. The project lies six miles east of downtown Paso Robles and is on the site of The Links Golf Course, a flat, dust-blown, treeless expanse of land just a stone’s throw from the airport. The project envisioned the construction of 32 commercial and residential buildings on the property.

Pippin’s appraisal failed to report that the development was part of the golf course or that persons trying to get access to the development site would have to pass between two already existing golf holes.

Gearhart used Pippin’s appraisal to get a loan in 2006 from Hurst Financial for $15 million. Gearhart used that first loan to buy Vista del Hombre and for initial infrastructure construction. Miller got the money from investors who were lured by promises of high interest returns and reassured by Miller’s claim that the property’s loan to value ratio was only 44 percent. Those claims were included in loan agreement documents.

That hard money loan (a loan based on the land value rather than the developer’s credit rating) could fund no more than 44 percent of the project’s total value. That initial loan was slated to mature in late 2006, but Miller has not repaid investors and stopped making interest payments.

By 2007, Miller had lent Gearhart another $11.85 million for the Vista del Hombre development. That pact was signed on June 22, 2007, after Miller attracted more than 100 investors with the same loan-to-value promise.

Pippin appraised the property again in 2008.

“My opinion is it is worth around $100 million finished,” Pippin told CalCoastNews in 2008.

That figure is more than four times higher than what other licensed appraisers estimated its projected value to be.

Heritage Oaks Bank conducted its own appraisal of Vista del Hombre in 2008. Gearhart had sought a loan from the bank on the property. Using the services of Cuesta Title, Miller and Gearhart claimed that the property had a clean title with no existing loans, according to bank documents.

Vista del Hombre was worth about $4.3 million as it was in January 2008, the bank appraisal said. The property would increase in value if “an extraordinary assumption” is made that Gearhart would ever complete the 32 commercial and residential buildings as proposed. In that instance, according to the bank’s appraisal, the estimated value would rise to $21.8 million.

Also under scrutiny is Pippin’s appraisal of a proposed residential development in Atascadero dubbed the Triangle Property. State investigators said that Pippin falsely reported that the property was part of a 15-unit tentative map when no such map had been submitted to the planning department, falsely reported who the owner of the property was and failed to report former property transfers.

One of the more egregious appraisals Pippin created was used to get investors to fund a proposed 58-unit residential development in Templeton known as the Salinas River Property. In that case, Pippin failed to report that the property could not be utilized for the proposed development because portions of the proposed development were to be located in the Salinas River bed or in a flood zone.

In his appraisal of the Eagle Ranch development in Atascadero, Pippin reported the existence of a home that was not there and said that the property was zoned for residential development.

“Respondent produced an appraisal that lacked sufficient credible information and analysis to be used for any legitimate purpose,” the Office of Real Estate Appraisers accusation says.

In his report, Bruce Crandall, an investigator with the Office of Real Estate Appraisers (ORES), also noted that Pippin “failed to cooperate with the investigation.”

Crandall asked the state to suspend Pippin’s license, to enact fines and to “take further action as deemed necessary and proper.”

In response to Crandall’s request, the state ordered Pippin to surrender his license by Dec. 12 for a minimum of two years and to pay $15,000 for enforcement costs.  Pippin agreed not to contest the allegations.

Yesenia Rocha, Office of Real Estate Appraisers legal secretary, said further information on possible legal action to be taken against Pippin is confidential.

 

 

Conflicting Vista del Hombre appraisals  

Appraiser	Pre-development	Finished development
Terry Pippin	$17.8 million	$100 million
Heritage Oaks Bank	$4.3 million	$21.8 million