Trust Deeds

Two Irvine businessmen were arraigned in federal court Monday on mail fraud charges in connection with an alleged scheme to sell millions of dollars of mostly fake second-trust deeds to investors. The two are James R. Anderson, 41, and Richard Shane, 40, both top officers of Equity Securities Inc. of Newport Beach. Federal prosecutors have alleged that investors in the firm lost $7 million between 1983 and 1986.

American Express Co., the international banking company best known for its credit card and travel businesses, has obtained permission to operate a federally insured savings bank specializing in trust services. The Office of Thrift Supervision, part of the Treasury Department, announced its approval for American Express to open the bank, to be named American Express Personal Trust Services, or AMEX Bank.

Five years after the collapse of a trust deed scheme that took in $105 million from investors, Southland financier Wayne Burton has been convicted of 110 criminal charges and faces a possible prison term of 10 years. San Bernardino County Superior Court Judge Bob N. Krug set sentencing for June 17. State and local prosecutors described the operations of Burton and his San Bernardino-based United Financial as "the largest real estate brokerage fraud in California history."

The spring migrations are upon us. Along the freeways, outbound U-Hauls cross inbound U-Hauls. New Angelenos roll in on the singing wheels of hope, old Angelenos ride off on the dented rims of frustration and disgust. The sheer freewheeling, merry chaos keeps people coming--to a city new as paint, land and wealth moving fluidly from hand to hand, sometimes on the up-and-up and some not.

If anyone were watching, the First Pension Corp. disaster might have been headed off as long ago as Aug. 12, 1987. On that day the firm's owners filed notices with a California agency claiming that each of 23 virtually identical real estate investment pools was exempt from regulation as a public securities offering because it was not to be offered to more than 35 sophisticated investors.

Questions about equity-sharing, "wraparound" loans and the difference between a mortgage and a deed of trust recently arrived in the mail. Journalists and even lenders tend to use the terms mortgage and deed of trust interchangeably. But, asks James Phillips of Los Angeles, "isn't there a difference between the two?" Yes, there is--but not much.

It's easy to earn up to 15% a year on your money. Or, at least, that's what some seminars and real estate brokers are telling people about investing in trust deeds. The truth, of course, is that some people can earn 15% a year--but only if they really know what they're doing. For most others, investing in trust deeds is probably very risky. Trust deeds are basically three-party legal instruments that are created to secure real estate loans.

Southland lenders reported a total of $2,754,948,532 lent on trust deeds in Los Angeles County in February, $1,185,847,142 in Orange County, $1,022,792,095 in San Diego, $447,007,606 in San Bernardino County, and $411,957,475 in Riverside County, according to Ticor Title. In Los Angeles County, money lent to purchase existing property amounted to $1,555,276,522 and refinancing accounted for $3,096,703,290. Construction lending totaled $734,964,371, up slightly from January.

It's easy to earn up to 16% a year on your money. That's what some seminars and real estate brokers are telling people about investing in trust deeds. And while some investors are indeed realizing such bountiful returns, trust deeds are a risky endeavor for the average person. There's the promise of a nice return, but there's also the risk of the investment being wiped out by declining property values or a borrower who just doesn't pay.

For many years investing in second trust deeds has been a popular means for individual investors to increase their return over that obtainable in alternative investment opportunities. For smaller investors to participate in the second trust deed market, typically the trust deed has been divided and sold in fractional shares, often with the seller of the trust deed enhancing the investment by issuing its own guarantee to the investor to further collateralize the trust deed.

A former Burbank real estate agent was in custody Wednesday on suspicion of bilking more than 30 clients out of at least $2 million in a trust deed scam, authorities said. David Davidson, 31, who left Burbank in 1994 after several clients accused him of selling fraudulent investments, was arrested Monday night by Burbank police at his home in the San Francisco Bay Area after a two-year investigation, said Det. Cheryl Skinner.

It's easy to earn up to 16% a year on your money. That's what some seminars and real estate brokers are telling people about investing in trust deeds. And while some investors are indeed realizing such bountiful returns, trust deeds are a risky endeavor for the average person. There's the promise of a nice return, but there's also the risk of the investment being wiped out by declining property values or a borrower who just doesn't pay.

The First Pension Corp. scandal moved to bankruptcy court last week, but as investors left angry and frustrated with little news to comfort them, the lingering lesson, especially in view of loose regulation at state and federal levels, is "let the investor beware." Investigators say that the company, which declared bankruptcy in late April, allegedly enticed investors to put money into mortgages that did not exist with promises of extraordinarily high annual dividends of up to 28%.

If anyone were watching, the First Pension Corp. disaster might have been headed off as long ago as Aug. 12, 1987. On that day the firm's owners filed notices with a California agency claiming that each of 23 virtually identical real estate investment pools was exempt from regulation as a public securities offering because it was not to be offered to more than 35 sophisticated investors.

A bid by creditors of bankrupt Lincoln Mortgage and Loan Co. to wrest control of the business from founder Kenneth E. Sarvak failed Wednesday as a federal bankruptcy judge ruled that Sarvak could remain in charge for at least 90 days while preparing a financial reorganization plan. Sarvak, a 68-year-old real estate investor, was given until July 13 to prepare a plan to repay creditors who invested more than $30 million into his second trust deed pool.

A state agency lost a round in federal bankruptcy court Thursday when a judge refused to give it control again of Washington Trust Deed Service Corp., a Newport Beach company accused of defrauding hundreds of elderly investors. The state Department of Corporations in December persuaded a state judge to appoint its hand-picked receiver to run the company in order to protect investors. To wrest control from the receiver, Washington's owner filed for Chapter 7 bankruptcy a few days later.

A former Burbank real estate agent was in custody Wednesday on suspicion of bilking more than 30 clients out of at least $2 million in a trust deed scam, authorities said. David Davidson, 31, who left Burbank in 1994 after several clients accused him of selling fraudulent investments, was arrested Monday night by Burbank police at his home in the San Francisco Bay Area after a two-year investigation, said Det. Cheryl Skinner.

Consumers and even lenders tend to use the terms mortgage and trust deed interchangeably. It's no wonder: Both instruments essentially create a lien on a home, and both allow the lender to foreclose if the borrower doesn't pay the money back. Yet, knowing the difference between a mortgage and a trust deed is helpful, especially if you'll be shopping for a loan during the spring home-buying season. A mortgage is the easiest of the two instruments to understand.

A hundred and fifty investors and their lawyers filled to overflowing a hearing Monday on the bankruptcy of Kenneth E. Sarvak and Lincoln Mortgage & Loan Co. of Newport Beach, accused by the state Department of Corporations of defrauding hundreds of elderly investors. Through second trust deeds, Sarvak loaned millions of their dollars to homeowners hard up for cash. Many of the investors say Sarvak promised them that their investments were secure.

Washington Trust Deed Service Corp., under investigation by state agencies for allegedly defrauding investors, Wednesday filed for bankruptcy. All the assets of Washington Trust will now be sold to repay creditors and the company will go out of business. Less than two weeks ago, the state Department of Corporations had a receiver appointed to run the company and protect investors' interests after accusing its owner, Kenneth E. Sarvak, of defrauding hundreds of investors, many of them elderly.