A petition to place San Luis Obispo County real estate developer Fred Machado into involuntary bankruptcy was dismissed this week by a U.S. Bankruptcy Court judge, saying that Machado was not properly notified.
Machado, who lives in San Luis Obispo, was an active builder in the Central Valley as well. He borrowed from investors through non-bank lenders, including the troubled Hurst Financial and Country Financial, but has since defaulted on those payments, allegedly without building the homes, according to several lawsuits filed against him.
Like many other lending companies in the county that have been accused of fraudulent practices — such as Estate Financial, 21st Century, Real Property Lender — Hurst Financial and Country Financial had a permit to sell investments consisting of fractional interests in promissory notes that were secured by real estate deeds of trust.
According to Hurst Financial loan documents, Machado had borrowed about $11.6 million from the firm from 2003 to 2006 for three housing projects called La Valencia Estates in Visalia, Sheid Ranch in Paso Robles and Carrizo Road in Atascadero. It is not known how much of the money has been left unpaid, but all Hurst Financial loans are now in default or have been foreclosed on.
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Three Hurst Financial investors — Loney Brown of Riverside, Beverly Kovall of Arroyo Grande and Howard Searle of Las Vegas — claim that collectively they have not been paid back more than $700,000, according to their Nov. 3 petition to place Machado into involuntary bankruptcy.
They were seeking to place Machado into bankruptcy to force him to open his books so that they could look at his accounting, said Brown, who spoke to The Tribune on Wednesday.
“I’ve been trying to get something out of him for years. What options do I have?” Brown said. “All I know is he took money to build houses and did not build them. He claims he’s broke. Well, if he is broke, a bankruptcy case will show it.”
Brown stated on the involuntary bankruptcy petition that Machado owed him $77,500.
Kovall, who claims Machado owes her $51,666 in the bankruptcy filing, said she has been under such extreme financial duress because of the investment she lost with Machado that she had to sell her home.
“We invested with Hurst Financial. … It was our nest egg for our golden years,” Kovall said. “We lost it all. Now I’ve had to sell my home to help pay for my husband in a care facility (for Alzheimer’s).”
The case to place Machado into bankruptcy was dismissed when Machado told the bankruptcy court at a hearing Nov. 14 that he had not been served with the petition by the plaintiffs’ attorney, Peter Josserand XIII.
In her Dec. 1 court order, Bankruptcy Court Judge Robin L. Riblet said, “It appears Peter Josserand XIII, counsel for the petitioning creditors, habitually files involuntary petitions in this division without serving them with a summons.”
Josserand did not appear at the hearing in Santa Barbara. He had written a letter asking the Nov. 14 conference be delayed because he was out of state on a pre-scheduled trip, according to court documents.
Calls to Josserand were not returned. Brown said he did not know if they would refile an involuntary bankruptcy petition, but he will continue to search for a way to make Machado accountable, he said.
Josserand has acted on behalf of other Hurst Financial investors in earlier filings, when he petitioned to place Jay Hurst Miller, of Hurst Financial, and his daughter Courtney Brard into an involuntary bankruptcy last summer. That was avoided when the father and daughter ultimately volunteered to file for bankruptcy on their own in August.
Miller also placed Hurst Financial into bankruptcy at the same time. Although Hurst Financial held at one time more than $100 million in real estate-backed securities and loans — financed with money from more than 1,000 investors — Miller has claimed in his bankruptcy filing that all of the assets of the company are gone.