County lender files for bankruptcy

After four decades in the real estate business in San Luis Obispo County, lender, developer, building contractor and foreclosure firm owner Don Vaughn has filed for bankruptcy protection.

In a Chapter 7 filing at U.S. Bankruptcy Court in Santa Barbara on Tuesday, Vaughn lists himself doing business as Vaughn Real Estate. He runs his building contractor business through that Atascadero company, according to his license information with the Contractors State License Board. He risks losing that license because he hasn’t paid a civil judgment.

Attorney David Robertson of El Dorado County in Northern California claims that Vaughn and his business partner, builder Fred Machado, owe his client $150,000 in that judgment.

He had requested that Vaughn and Machado appear at a debtor’s exam in San Luis Obispo Superior Court on the day Vaughn filed for bankruptcy. Contractor licenses can be suspended if debts go unpaid, according to state law. However, if one files for bankruptcy protection, the court could determine that a debtor is freed from paying some or all of his or her creditors.

The bankruptcy filing does not mention Vaughn’s ownership in nonbank lender Country Financial. Nor does it refer to his owning All American Foreclosure Service — which handles a large portion of real estate foreclosures and auctions in the county — nor any of the limited liability corporations that Vaughn uses to conduct business, nor a number of properties that he owns in California.

The filing is incomplete, failing to list required schedules that would show his assets and debts. If Vaughn does not give that information to the Bankruptcy Court within two weeks of filing, his petition will be considered invalid, according to court documents.

Neither Vaughn nor his attorney responded to calls from The Tribune seeking comment.

Vaughn is one of the longest-standing nonbank lenders in San Luis Obispo County. He founded the lending company Pippin-Powell Real Estate, also known as Requity Corp., with James Vincent Allred in 1978.

Vaughn bought the company back in 1988, reorganized it under the name Estate Financial and then sold it to Karen Guth and Charlie Applebaum in 1994, according to filings with the state Department of Corporations.

When Estate Financial started having cash-flow problems at the end of 2007, Guth brought on Vaughn as an adviser, and he shared offices with her in Estate Financial’s Paso Robles headquarters until she put the company into bankruptcy last year.

Guth and her son Joshua Yaguda were sentenced this week to 12 and eight years in state prison, respectively, for having defrauded thousands of investors out of millions of dollars.

Vaughn is also facing lawsuits alleging fraud in his real estate dealings. In one instance, he was alleged to have collected money from investors that he gave to borrower Machado. Investors allege they did not know that Machado used at least some of their money to buy property directly from Vaughn.

Machado then defaulted on the loan before building on the property, although for a period of time Vaughn had told them that construction was proceeding according to plan, the lawsuit alleges. That case was settled out of court, but then was resurrected because Vaughn allegedly failed to pay the affected investor according to the agreement.

Like other nonbank lending companies in San Luis Obispo County that have been accused of fraudulent practices — such as Estate Financial, 21st Century, Real Property Lenders and Hurst Financial — Country Financial had a permit to sell investments that consisted of fractional interests in promissory notes secured by real estate deeds of trust. The company was also responsible, and took fees, for servicing the loans.

In 2007, Country Financial was managing about $16 million in loans, according to its official representations made to the state Department of Corporations.

Machado, who has been an active builder in this county as well as the Central Valley, borrowed funds from Country Financial for more than one project. He also borrowed from other nonbank lenders — including some troubled lenders such as Estate Financial and Hurst Financial — according to documents filed with the county Clerk-Recorder’s Office.

Machado was placed into involuntary bankruptcy. But that was dismissed last week, and attorneys associated with the case say the creditors plan to file a second petition shortly attempting to place Machado in involuntary bankruptcy.

While Country Financial is still doing business, and Vaughn has not been accused of wrongdoing by the Real Estate or Corporations departments, the company’s permit to sell to investors expired in 2008.

He owns All American Foreclosure Service with Sheryle Machado. She is not related to Fred Machado.