Lender seizes desperate borrowers' homes
A Seattle Times examination of numerous Emiel Kandi loan deals shows that they are set up so he can quickly take borrowers' homes and in some cases flip them for a profit. And he gets away with it.
Seattle Times staff reporter
Borrower bewareSome precautions to take when getting a loan
1. If you are seeking a loan to avoid foreclosure or pay off personal debts, use only a licensed loan originator. Verify his or her license at www.dfi.wa.gov
2. Shop around for the best terms, getting several good-faith estimates of the loan's costs.
3. Have all fees, the interest rate and true cost of the loan put in writing. Determine if there are prepayment penalties and late fees.
4. Get an immediate copy of all loan documents.
5. Take time for a careful review of the documents. If possible, have a lawyer go over them.
6. Do not sign a quitclaim deed or statutory warranty deed to get a personal or residential loan.
7. Insist on receipts for your payments.
Seeking the state's help
For concerns or to file a complaint: 877-RING-DFI (746-4334) or www.dfi.wa.gov/consumers/complaint.htm
Also: 800-551-4636 or www.atg.wa.gov/FileAComplaint.aspx
Sources: interviews with lawyers, lenders and the Department of Financial Institutions
About this story
This story was built from dozens of interviews and thousands of pages of public records obtained from numerous state and county agencies and courts. Among them are Washington state's Department of Financial Institutions, Gambling Commission, Secretary of State's Office, Liquor Control Board, Department of Revenue and Department of Licensing; U.S. Bankruptcy Court and U.S. District Court for the Western District of Washington; superior courts in King, Pierce, Thurston and Cowlitz counties; as well as the assessor, auditor and recorder offices for King, Pierce, Snohomish, Cowlitz and Spokane counties.
Emiel Kandi forever changed the lives of a pregnant hairdresser, a jobless mechanic and a single mom when he loaned them money.
These unsophisticated, desperate borrowers thought a short-term loan from the well-dressed professional could save them from financial collapse or foreclosure. But the very asset they were trying to hold on to — their home — was what Kandi was determined to take.
Kandi is the lender of last resort for some people who've been turned down by banks because of poor credit or limited income. He says his requirement for a borrower is merely "a pulse and a legal ability to sign."
He admits he charges borrowers as much as he can get away with — 45 percent interest in one case — and makes it clear to them that if they fail to comply with the loan agreements, he will take their property.
"I am a wolf," he explained.
A Seattle Times examination of numerous Kandi loan deals shows that they are set up so he can quickly take borrowers' homes and in some cases flip them for a profit. And he gets away with it.
"He's in the business of taking people's property," said Martin Burns, a lawyer who sued Kandi on behalf of the mechanic. "He finds vulnerable people and exploits them."
Kandi, 34, of University Place, Pierce County, is part of the hard-money lending industry. It provides short-term commercial loans to people with businesses or real-estate investments who can't get conventional bank loans or have poor credit. Lenders charge high interest rates, typically 10 to 14 percent, and require real estate as collateral.
Hard-money lending has quietly served knowledgeable commercial borrowers for centuries, providing quick capital or solving cash-flow problems.
When the recession hit and conventional lenders tightened their standards, some people desperate to keep their homes turned to hard-money lenders such as Kandi for salvation.
But in this lending world there is little protection for a consumer, and Kandi, a former mortgage originator, knows it.
Kandi skirts mortgage requirements and disclosures by writing up his loans as "commercial." Mortgages have interest-rate caps, consumer protections and full disclosure of all costs. Commercial loans do not.
State authorities do not regulate commercial loans and the hard-money industry. There are no registrations, licenses or education requirements for the lenders.
Regardless of what Kandi is calling his loans, Burns and others say they were really mortgages, and the borrowers should have been protected by state regulations.
"They borrowed money at an exorbitant rate and cried foul when they couldn't pay it back," he said. "Everyone who borrows from me is desperate — that doesn't change the fact they knew the terms of the deal prior to signing."
In this Wild West of lending, Kandi has been able to make hundreds of thousands of dollars.
And so far, he has been untouchable.
"I didn't understand"
Desperate borrower signs away his longtime home
Jefferson Marsh, a 56-year-old car mechanic, owned his Puyallup home free and clear for a decade. After he lost his job several years ago, he struggled to pay the bills, picking up an occasional repair job and recycling scrap metal and cans.
By October 2007, he was desperate. He owed $13,400 in property taxes and was about to lose his home in a sheriff's sale if he didn't act fast.
He turned to the bank where he had a checking account. He had never taken out a loan for a car or house, and he didn't even have a credit card. With no credit history or job, he was turned down.
Marsh contacted Kandi, who had been recommended by an acquaintance. Kandi agreed to help. There was no application, no proof of employment required and no credit check.
In November 2007, Marsh, Kandi and his notary, who also had worked as Kandi's bodyguard, met at The Keg, in University Place, to sign paperwork for a $17,000 loan.
Following Kandi's instructions, Marsh signed a promissory note for $170,000, even though he was getting only $17,000. Kandi later said he inserted the tenfold figure to protect himself financially and to pay for any future legal costs.
Kandi also had Marsh sign over his rights to the property using what is known as a quitclaim deed. According to the terms of the loan, if Marsh missed repaying any amount, Kandi could take possession of the house immediately, using the deed. This maneuver enabled Kandi to take the home without going through foreclosure, which includes a 190-day waiting period and several consumer protections.
Deb Bortner is director of Consumer Services for the state Department of Financial Institutions, which regulates banking and mortgage lending. She said making a borrower sign a quitclaim deed for a loan to save his house is a red flag. "That's a scam," she said.
It was common practice for Kandi to have borrowers sign quitclaim deeds.
Marsh knew he was paying about $7,000 in fees and interest for the loan. But he had no idea he had signed his house away. Nor did the documents state the true interest rate of the loan, later determined to be 45 percent.
"I can read and write, but my word comprehension isn't good," Marsh said during a recent trial in Pierce County Superior Court. "I didn't understand half of what I was signing. ... I was told that's the way the loan is written up."
Kandi required Marsh to repay him in person, cash only. Marsh said that after he made the first four payments, Kandi wouldn't meet with him to accept an April 2008 payment of $1,000.
Kandi denied that, saying Marsh didn't have the money.
Six days after that payment was due, Kandi used the quitclaim deed to record a new owner of the property — 619 South Howard LLC, a company in his mother's name.
Then he flipped the property, selling it for $235,000 to a former banker who had borrowed money from Kandi in the past. The new owner had most of Marsh's belongings tossed into the yard. Marsh's great-grandmother's hurricane lamp, his grandfather's banjo and his dad's ukulele were gone, he said.
And the Kandis walked away with more than $200,000.
Another homeowner, one who had clashed with Kandi, learned of Marsh's plight. He referred him to lawyer Burns, who filed suit against Kandi, alleging mortgage fraud. When the case went to trial in September, Kandi defended his actions, saying Marsh wanted the money to start a scrap business. He also argued that it was a commercial loan and therefore not regulated by the state or subject to the same disclosure requirements that mortgages are.
"This was a business commercial note, and if I want, I can charge someone a thousand percent a week compounded by the minute if they sign it and agree to it," Kandi said under oath.
Kandi said his borrowers have signed paperwork that describes the loans as commercial.
But several borrowers interviewed by The Times said they were unaware of what that meant and only wanted to get money to pay outstanding debt. Other borrowers didn't want to talk about their deals with Kandi, saying they were too upset or feared retaliation.
After a three-day trial in the Marsh case, Pierce County judge pro tem Clint Johnson determined Marsh had no scrap business and that almost all of the money paid his delinquent property taxes. "Kandi engaged in a scheme to misrepresent and defraud the plaintiff in a lending process and also acted in such a scheme to take plaintiff's property with substantial equity," Johnson said.
He also determined Kandi had violated the Washington State Consumer Protection Act by using "unfair and deceptive practices." The judge ordered Kandi to pay Marsh $211,538. Kandi has yet to pay.
Marsh now lives in a rundown 1984 RV next to the house he lived in for 25 years.
Other homeowners who borrowed from Kandi have had different outcomes. A single mother of two children took out a loan for $5,000, missed a payment, and lost her Graham home and $70,000 in equity. In another case, a Puyallup woman who borrowed from Kandi filed a lawsuit against him, but lost.
Trail of an entrepreneur
From catering to casino to the hard-money world
Kandi was lending money even before he graduated from Tacoma's Stadium High School in 1995. From early on, he thrived on being self-employed, starting a catering company and a memorabilia business.
Just a couple of years out of high school, Kandi became a borrower himself, buying a six-bedroom, four-bath house with a pool for $575,000. He also bought four duplexes in Gig Harbor with loans from banks and from the sellers, E.L. and Christa Milton. He rented the units but stopped repaying the couple.
The Miltons obtained a $184,000 judgment against Kandi and have tried to collect from him for years.
"He sat there like the arrogant rich boy," Christa Milton said. "He had the most expensive suits, Rolex watch and gold jewelry, and he was trying to tell us he had no money."
When Kandi didn't pay the banks either, they foreclosed on the duplexes and his home.
"I know what it's like — I've been foreclosed," he said.
In 1999, Kandi, with money from his grandfather, opened and co-owned the Habana Cafe and Casino in Tacoma. But, he said, it lost money. Kandi sold the business in 2002 to Silver Dollar Casino for $840,000, according to state Gambling Commission public records.
That same year, he became a mortgage-loan originator and branch manager for American Dream Mortgage, which also did business as Villa Mortgage.
While Kandi was handling residential loans, he was being pursued by the Internal Revenue Service for failure to pay employment taxes when he operated the casino. The IRS filed four liens against him, totaling $948,000, according to the Pierce County auditor's records. He hasn't paid them off.
When the housing industry collapsed, Kandi focused on the other end of the lending spectrum — hard-money loans, which gave large returns.
He worked both sides of the fence, not only lending money but buying up troubled promissory notes that had collateral. In one case, a Lakewood man said Kandi promised him a loan to avoid foreclosure in 2008. Unknown to the man, Kandi purchased the real-estate note the man owed, refused to lend him any money, and continued the forfeiture.
While most hard-money lenders have a pool of investors who provide the cash, Kandi primarily uses his own money and his mother's. Juanita Kandi, a former real-estate broker, has worked as a judge's secretary at the Western District bankruptcy court since 1998.
Over the past decade, they have set up a dozen companies, mostly for handling real-estate transactions and hard-money loans. One company, Diversified Financial, is based out of Belize.
When she and her son were sued over two hard-money deals, she settled. She could not be reached for comment.
Kandi has done business in at least five counties, running his operation out of his mother's home and a P.O. Box, closing deals at bars and restaurants. He networks with loan officers, mortgage brokers, real-estate agents and lawyers, who refer borrowers to him.
Known for his suits and gold jewelry, occasionally packing a gun and wearing a bulletproof vest, Kandi comes across as helpful to some borrowers and intimidating to others. He says he doesn't care what people think of him.
"I'm not your friend," he said. "If you step off the tightrope, I'll take your house."
Rushed and scared
Woman signed in a hurry, then got a shock
Borrower Christine Provost quickly realized he wasn't her friend, and when she sought help from state agencies, she found none.
She grew up in Seattle with five siblings in a three-bedroom house on 32nd Avenue that has been in the family for 50 years.
"If anyone needed a place to go, you could go to the house," Provost said. "My mom would take anyone in."
Provost, who lives in Lakewood, Pierce County, tried to support her elderly mom and disabled brother who lived at the Seattle home by paying the mortgage. But as a single mom and part-time hairdresser, she couldn't make the payments.
A loan officer told her the best chance of saving the family home from foreclosure was getting a loan from Kandi of Villa Mortgage. Kandi later paid that officer a $2,400 referral fee, public records show.
When she met with Kandi at a title-escrow company in April 2009 to sign the paperwork, Provost, pregnant with triplets, felt rushed and scared. She recalls seeing a holstered gun on Kandi, and another on his attorney.
She said she didn't really understand the paperwork, and that Kandi assured her the loan documents were standard. She signed and initialed page after page with Diversified Financial that stated she was getting a commercial loan.
"He said, 'just go ahead and sign it, and we can change it if there's a problem,' " she recalled. "I was two days from losing my house, so I didn't have leeway to say anything."
She believed she was getting a $240,000 loan with 14 percent interest that would pay off the previous mortgage and provide a bit of cash to repair the house.
In reality, she had a loan with almost a 90 percent interest rate and $26,400 in origination fees.
When Provost realized the loan had an exorbitant rate and was due in full in 60 days, she hired lawyer David Leen. Her meeting with him was cut short when she had to go to the hospital because of trouble with her pregnancy.
She was in the hospital for three months, losing two of the triplets during childbirth. When Provost came home, she said, she found a foreclosure notice on her door.
Leen filed a lawsuit to stop the foreclosure and lodged a complaint with the Department of Financial Institutions, which investigates lenders.
But DFI did little. Based on the wording of the loan, it appeared to be a commercial loan, which DFI does not regulate. It dismissed Provost's complaint against Kandi, as well as a similar one from another borrower, DFI records show.
"We didn't clear him of wrongdoing," said Bortner, of DFI. "We said we don't have jurisdiction."
Leen was disappointed. "I thought the agency could have seen or dug deeper," he said.
All the agency had to do, Leen said, was simply read the paperwork to see it was a residential loan. It showed that almost all of the loan went to paying off Provost's previous mortgage.
In the fine print in her loan papers, Provost signed away her right to even complain to DFI.
After recently reviewing Provost's complaint file, Bortner said she was alarmed Kandi had inserted that language, but she also defended her agency.
"We have 2,000 complaints coming in a year, and we do the best we can," she said.
DFI mistakenly had licensed Kandi as a loan officer in 2007, giving him legitimacy that may have helped him with his loan deals. The agency's background check missed several large liens filed against Kandi, which should have disqualified him from getting licensed.
After The Times raised questions and DFI learned that a judge ruled in Provost's favor, Bortner said the agency will reopen the case.
In May, the judge, in King County, ruled Kandi's actions were in "bad faith" and ordered him to pay Provost $110,932 in damages. The judge also awarded her the family house free and clear.
Leen also had sent a complaint about Kandi's treatment of Provost and others to David Huey, state assistant attorney general in consumer protection.
That agency did nothing. Huey doesn't recall why. "We're overworked and under-resourced," he said.
Huey said it wouldn't surprise him if lenders were taking advantage of a loophole by writing some loans as commercial to avoid disclosures and the interest-rate cap. "You can paint stripes on a horse and call it a zebra, but it's still a horse," he said.
It is difficult to determine the size of Washington's hard-money industry and how many lenders may have taken advantage of homeowners, in large part because these transactions are private.
Huey said his agency has not received a lot of complaints.
Established hard-money lenders, some of whom handle multimillion-dollar loans, say people like Kandi undermine the reputation of their industry.
"They are trying to fly under the radar with these tactics that are embarrassing," said John Odegard, president of Seattle Funding Group, the Northwest's largest private lending company. "It isn't at all what our industry represents."
Erik Egger, co-president of WADOT Capital, one of at least two dozen hard-money lenders that offer loans in the state, said no reputable lender would use a quitclaim deed to secure a loan.
"It circumvents foreclosure," he said. "Those borrowers can be put in a bad situation."
Kandi fights back
Lender vows "bloody and protracted legal war"
Kandi said he is the real victim, having to temporarily curtail his hard-money lending business and spend money on legal fees to defend himself in several lawsuits.
The two lawyers who filed suit, Leen and Burns, have a vendetta against him, Kandi said. At one point, Kandi vowed to Leen that he'd seek revenge.
"When I am finished with you I will remove the last dime from your bank account, foreclose on your home and personally take the wedding ring from your wife's finger," he wrote in an e-mail. "I will do so with glee and aplomb that only the inevitable victory that a bloody and protracted legal war can bring. ... From the gates of Dante's 9th layer of Hell and with my last breath I shall spit on thee."
Kandi filed a 600-page complaint against Leen and Burns with the Washington State Bar Association, but it found no unethical conduct.
Despite winning in court, Marsh and Provost are still waiting for Kandi to pay.
But Kandi told The Times he has no plans to pay them, and he has appealed the Marsh verdict. Marsh and Provost cannot go after Kandi's assets because he apparently doesn't have any properties under his name. Even if they could find assets, they'd have to get in a long line. There are several unpaid judgments against Kandi, including nearly $1 million to the IRS.
Meanwhile, Kandi has started another business, one he sees as "a growth industry" — medical marijuana. Last summer he opened a marijuana-patient cooperative in Tacoma, Cobra Medical Group, which he says has 800 clients.
He said this venture is about "giving back."
Staff reporter Sanjay Bhatt contributed to this report. Christine Willmsen: 206-464-3261 or firstname.lastname@example.org
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