Tribune special report: Hard lessons for hard-money investors

If it seems too good to be true, then it probably is.

That could be the mantra repeated by scores of investors entangled with several local hard-money lenders responsible for San Luis Obispo County residents losing millions of dollars.

Some of the investors were professionals and business owners who considered themselves to be savvy enough to know better. Others were ordinary people willingly following friends or colleagues who had made healthy returns on their money.

Whatever their reasons for investing, many of these local people say the demise of these hard-money lenders (Karen Guth and Joshua Yaguda, principals of Estate Financial, were sentenced Monday to 12 years and eight years, respectively, in state prison) has left them less trusting of others, particularly those who claim to have their best financial interests at heart. It’s also left them wondering how the regulatory system designed to oversee such firms failed to protect them.

The Tribune spoke with three county residents — two Estate Financial investors and one who invested with Hurst Financial — who shared how their involvement with these firms has forever changed their lives.

He saw 15 years of earnings go down the drain

Robert Ryan was too fickle to play the stock market, so he hedged his bets on first-trust deeds.

“It was attractive because it was real property,’’ he said. “It was secure. I could look at it and measure it based on the local real estate market. It was something tangible.”

For years, the former Santa Maria businessman had luck investing his own and his business’ retirement in first-trust deeds, enjoying 10 percent to 13 percent annual returns from Estate Financial Inc. The Paso Robles firm never missed a payment, he said.

Then, the real estate market collapsed, the economy tanked, and Ryan discovered that it wasn’t as secure as he thought.

The 64-year-old is out hundreds of thousands of dollars, “a sum of money that probably equates to 15 years of work,” and is relying on income from a building he leases out.

“It’s my lifeline now,’’ he said.

While the implosion of Estate Financial was difficult to deal with personally, he worries about the toll on all of the investors. He’s concerned that the cost of the legal battle will leave investors with less than their fair share.

As for Karen Guth and Joshua Yaguda, the principals behind Estate Financial who were sentenced Monday, Ryan said they were one part of an overall system built on greed.

“This is not just a Josh and Karen thing,” he said. “It’s coming all the way down from Wall Street.”

Ryan isn’t certain what the future holds for him, but he knows it’s too late to start over.

“I don’t blame myself, although I think I would be more diligent (about watching his investments),’’ he said. “What is done is done.”

Plenty of anger to go around

Kelly Christensen is angry at the former operators of Hurst Financial, but he’s just as mad with himself for believing in what turned out to be a faulty investment.

The Los Osos man says he is barely holding on after investing almost all of his savings with Atascadero hard-money lender Jay Hurst Miller, who is accused of operating a Ponzi scheme with developer Kelly Gearhart.

Miller, whose assets were seized by the FBI, has put the company into Chapter 7 bankruptcy. Courtney Brard, Miller’s daughter and company vice president, has also filed for bankruptcy.

“Courtney Brard made a personal friendship with me,’’ said Christensen, one of three creditors who filed a petition in July in U.S. Bankruptcy Court to force Miller into an involuntary Chapter 7 bankruptcy. “They built that trust, and they used it to conduct a Ponzi scheme.”

Christensen said he found out about Hurst Financial through his father, who has also lost a vast sum of money.

A cement mason who has trouble working because of an injured back, Christensen said the interest payments from Hurst Financial were a source of much-needed income for his immediate and extended family. Besides supporting his wife, Cristy, and 5-year-old daughter, Alice, the returns from Hurst Financial allowed him to send $400 a month to his wife’s family in the Philippines and have enough left over for savings.

He also had plans to return to college and change careers.

Today, Christensen spends much of his time on the Internet to find out more about the case and navigate the legal system in an attempt to recover the $73,000 he has lost, and see to it that those who took his investment get jail time.

He blames himself for having too much faith in Hurst Financial.

“I want to believe they are not criminals,’’ he said. “I want to believe there are good people in this county.”

Debacle will leave her forever leery

When Debbie Highfill decided to invest with Estate Financial about five years ago, she thought she was crossing her I’s and dotting her T’s.

Highfill, a teacher who retired from the Lucia Mar school district, had experience with hard-money lending, having invested previously with other such local firms. So, when she walked into the Estate Financial office in Paso Robles, she asked to see the lender’s credit rating.

“I felt I was being cautious. I read through the paperwork, looked at their credit rating and had them pull the files on the people they were lending money to.”

At the time, the Morro Bay resident had no idea that Karen Guth and Joshua Yaguda, the mother and son whom she trusted with her money, would turn out to dupe her and hundreds of other investors.

Highfill, 60, lost some of her retirement savings and is now teaching part-time to replenish her nest egg.

“Anybody who was involved with this will not simply take someone in the hard-money lending business at their word again,’’ Highfill said. “Yeah, they fooled us, and we bought it. It’s an easy thing to buy.”

Yet, Highfill doesn’t harbor ill will against Guth and Yaguda. She believes the pair started the business without intending to defraud anyone.

“As the market kept booming, and getting bigger and bigger and more complicated, they gave into the temptation to roll with it,’’ she said.

Rather than focus on anger or revenge, Highfill, who did not attend the sentencing Monday for Guth and Yaguda, is turning her attention to getting some of her money back.

“This whole thing has made me realize that you cannot be conservative enough with money,’’ she said. “Once it’s gone, it’s gone.”