Financial consulting firm Hamstreet & Associates has filed a blitz of lawsuits against several business entities with alleged financial ties to American Equities, the Vancouver-based investment firm that made headlines last year when more than a dozen of its mortgage investment pools were declared insolvent.
The lawsuits, all of which were filed last week, target five business entities, each of which allegedly received at least two loans between 2007 and 2017 at the direction of American Equities executives. Most of those loans have not been repaid, which contributed to the pools’ insolvency, the lawsuits claim.
Receivership
The 15 mortgage pools were declared insolvent in May and placed into receivership under the control of Hamstreet, which was tasked with liquidating their assets and recapturing as much value as possible for the pools’ roughly 250 investors, most of whom live in Clark County or the Portland metro area.
An initial assessment found that the pools collectively held about $34 million in assets against roughly $77 million in liabilities.
Until recently, the receivership process focused on selling off property in the pools’ portfolios, but Hamstreet signaled the start of a new phase two weeks ago when the firm filed a lawsuit against American Equities president Ross Miles, secretary Maureen Wile and the company itself.
American Equities isn’t part of the receivership process because the pools were managed as separate corporate entities, but Hamstreet’s lawsuit alleged that Miles and Wile mismanaged the pools by comingling their assets and repeatedly loaning money from the pools to outside parties — mostly business entities with personal or financial connections to Miles and Wile.
New lawsuits
The new cases are all similarly worded — they briefly recap the situation and then list the loan amounts allegedly made to the defendants, without detailing the circumstances. They all allege that Miles, Wile or both directed the issuing of the loans, and all but one of the lawsuits state that Miles or Wile had a financial interest in the defendant entity.
All of the targeted business entities are described as being based in Oregon or Washington, and all but one of them is described as doing business out of a principal location in Vancouver.
The targeted companies are:
• American Securities Inc. allegedly received two loans totaling $89,631.25. The lawsuit also seeks to recover $3,503.27 in interest.
• R.C. Hanes Limited Partnership allegedly received two loans totaling $370,000. The lawsuit also seeks to recover $475,080.50 in interest.
• Ridgecrest Development II LLC allegedly received eight loans totaling $594,034.21. The lawsuit also seeks to recover $561,966.52 in interest.
• Ridgecrest Development III LLC allegedly received 19 loans totaling $837,410.80. The lawsuit also seeks to recover $606,890.39 in interest.
• Hanes-Zoller Joint Venture and Zoller Family Limited Partnership allegedly received two loans totaling $97,000. The lawsuit also seeks to recover $114,267.08 in interest. The two entities are described as being based in Washougal, and the lawsuit does not allege that Miles or Wile had a financial stake.
Report to investors
Last week, Hamstreet issued a broad report to investors outlining its progress to date, the third such report since the receivership began.
On the real estate side, Hamstreet wrote that it had put up 35 Oregon and Washington properties for sale in a fall real estate auction, most of which sold or have sales pending. The net proceeds to date are listed at just over $1.5 million.
The pools own an additional 28 properties from other states, 25 of which have been put up for auction, although only four have sold so far with two more pending, for a total net proceed amount of about $120,000.
At the time Hamstreet was appointed as the receiver, the pools held 141 domestic real estate contracts and 21 partial purchase agreements known as “streams.” According to the update, 14 of them have since been paid off or (in the case of the streams, sold), while one has been foreclosed and five were found to have ownership issues.
The face value of the remaining 142 contracts and streams was $5,676,549, Hamstreet wrote. Including pending payments as of the end of January, the receivership process has brought in slightly less than $440,000 from that segment of assets.
The pools held 32 delinquent contracts when the receivership process started, Hamstreet wrote; that number has since dropped to 25 after Hamstreet began sending out demand letters. The 25 remaining delinquent contracts make up about 27 percent of the total portfolio value, about $1.57 million.
Next steps
The update mentions 47 other nonperforming loans that were made to what it calls “Affiliated Parties,” and Hamstreet wrote that it intends to file lawsuits against those parties in the coming weeks.
Hamstreet wrote that it has considered multiple options for the portfolio including trying to sell the entire thing in one shot or to try to break it up and sell the pieces. Either way, the company estimated that the net recovery would be about 55 percent to 65 percent of the total outstanding balances on the contracts.
The pools originally included 16 loans to borrowers in Mexico, Hamstreet wrote, only one of which was performing. That loan has been paid off, netting $560,000. Another loan was not enforceable under Mexican law, Hamstreet wrote, but the company is taking action to collect on the remaining 14.
The foreclosure process on some of the underlying properties in Mexico could take years to complete, Hamstreet wrote, although it expects to be able to take possession of eight properties within the next six to eight months.
Additionally, Hamstreet wrote that it is evaluating a request made by several investors to establish a trust for the benefit of investors, which could be tasked with holding and managing the nondelinquent contracts in the long term.
The estimated cost of the receivership, as of the end of January, was $2.1 million, according to Hamstreet’s update.
