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News Summary:
June 13, 2008- Estate Financial responds to letter from SJLM, click here
June 12, 2008- Mortgage Fund members meeting confirmation letter, click here
June 11, 2008- SJLM letter, click here
June 10, 2008- Viewpoint for The Tribune by Estate Financial, click here
June 6, 2008- Estate Financial Notification Letter, click here
May 14, 2008- Letter to Members in response to recent call for Mortgage Fund meeting, click here
May 14, 2008- Open letter to the Community to acknowledge publicly our awareness of the concern this has caused, to clarify our position, and to communicate our continued dedication to our staff, to our investors, and to the community at large. Click here
May 12, 2008- Letter to Investors in response to recent messages and inquiries, click here
November 28, 2007- Letter to Investors on condition of loans in the Mortgage Fund
November 19, 2007- Letter to Members announcing for the first time in company history that there are No Distributions for this month.
October 31, 2007- Letter to Members providing additional information on the housing market
October 23, 2007- Questions and answers pertaining to interest payments and fund distributions
October 15, 2007- Letter to all Estate Financial, Inc and Estate Mortgage Fund, LLC Investors regarding Interest Payments and fund Distributions and On-going Daily Operations.
September 14, 2007- Letter to Investors addressing concerns about investment in Estate Financial Mortgage Fund, LLC
September 2, 2007- Letter to Investors on current real estate market and condition of Estate Financial's investment portfolio.
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Sent November 28, 2007
Dear Mortgage Fund Investor:
The following is intended to provide you with some specific details about the condition of loans in the Mortgage Fund. The Fund currently has assets of $172,687,619.32. Of that amount:
$36,160,142.99 is invested in current, performing loans. Construction on all of these projects is proceeding and there are interest reserves waiting to be funded.
$34,371,696.71 is invested in projects which are in various stages of completion but will require that additional funds be raised to finish them. In some cases the method used for raising addition funds will require the investors to convert their debt into equity and subordinate to new construction financing.
$40,436,406.37 is invested in projects which are currently in forbearance or the borrower has asked that it be placed in forbearance. Generally these projects are completed houses waiting to be sold or completed subdivisions waiting for construction financing.
$17,407,550.49 is invested on loans where we have accepted deeds in lieu of foreclosure. Several of these loans are to projects which have not yet been built out. Depending on the community in which the project is located, our recommendation to investors is that no new construction begin a this time.
$37,319,356.46 is invested in projects which are in various stages of foreclosure. If these foreclosures result in the return of the property to the investors, decisions will be made on a case by case basis about the disposition of the asset.
$6,992,466.30 is invested in loans which are being refinanced with other lenders.
While both the real estate and the credit markets continue to worsen, we are still optimistic that we will begin to be able to start redeeming shares by the middle of next year. For those of you receiving this letter by mail, we encourage you to call us with an email address so that as we are able to provide additional details on individual loans, we can communicate with you more quickly.
Sincerely,
Karen Guth, President
Joshua M. Yaguda, Vice President
Sent November 19, 2007
Dear Members:
For the first time since its inception, the Mortgage Fund has made no distribution this month. The net proceeds available to the Fund were $235,274.75. Of this amount $147,598.04 was taken for applicable fees and the balance was applied to the loss reserve.
It is anticipated that distributions will resume next month but that they will remain relatively small through the beginning of 2008. There are projects in the portfolio which are either in forbearance or foreclosure but additionally there are development projects for which interest impounds are exhausted. In some cases Estate Financial is recommending that these projects not be built out at this time. Further, there are a large number of loans which are performing as agreed; however, our ability to raise funds in the conventional way is severely impaired. Between now and the end of the year we expect to receive payoffs in excess of $7,000,000.00. This should provide some funds for these projects and their interest reserves as well. We are also in the process of identifying other sources of funding.
We are adding some additional resources to our existing staff to assist with client relations and asset management. Don Vaughn of Country Financial will be consolidating his operation in our offices. Don is the original founder of Estate Financial, a mortgage broker, and owner of All American Foreclosure. Mel McCulloch has joined us full time. He will supervise construction where needed on projects which we will finish out. Mel is also an investor in the Mortgage Fund and will make himself available for your questions.
We believe that the best approach today with the portfolio is to be patient for at least a year and allow the existing inventory of housing to be more fully absorbed. The values for properties in most areas will recover and continue to increase over time.
We recognize that the current fund performance is less than desirable at this time. However, we need to manage the process through this downturn to ensure the highest possible return of capital. A “fire sale” liquidation of property at this time would serve no one except the buyer. We appreciate your patience through this troubled market and pledge our best efforts to maximize your return.
Sincerely,
Karen Guth, President
Joshua M. Yaguda, Vice President
Sent October 31, 2007
Dear Members:
This letter is intended to provide additional information for all members of the Estate Financial Mortgage Fund. Acting as the Manager in accordance with the Offering Circular, Operating Agreement, and Subscription Agreement we’re obligated to respond to the continued deterioration of the housing market and the direct impact upon the performance of the Fund. To this end we’ll address some of the most pressing issues below:
Status of the Fund:
We have for the time-being closed the Fund to new investors. This closure includes the funds many of you have been automatically reinvesting every month. EFI would consider reopening the fund when the real estate market improves and we are more confident about the underlying value of the collateral.
Liquidation Requests:
As we stated in our prior communications we have received partial or full liquidation requests from numerous members and we continue to receive additional requests. As it was never contemplated that the Fund would set aside cash for sole purpose share liquidation, the only source of capital for those members wishing to sell their interests would necessarily come from new investors or loan payoffs, either through the sale or refinance of the underlying security properties.
Protection of the Fund:
As we’ve discussed with most of you it will be necessary to work through this down real estate market. Many projects will need to be completed, refinanced, or foreclosed upon. We expect there will also be some projects where a portion of the amounts owing will prove to be uncollectable and others should recover their full loan values over time. For the time-being we will use all available funds from payoffs and pay downs to protect the interests of the Fund by ensuring all projects are completed to maximize their value.
Market Health:
For those of you seeking to liquidate your membership interests it is likely, based on the current status of the real estate market, that you will be unable for some time to redeem your interests. Preliminarily we anticipate it may be twelve to eighteen months before the Fund has sufficient liquidity to resume redemptions, but this estimate is heavily dependent on the rate of recovery of the housing market and of the national and international capital markets which provide funds for home mortgages. Your monthly distributions will continue to vary during this period.
Our main objective as always is to keep you apprised of the developments affecting the Fund’s value and liquidity. We’ll be preparing the pertinent information about the Fund’s overall condition and will update you in writing by the 1st of December and, commencing in 2008, on a quarterly basis.
As always we are available to answer any questions you may have. We are encouraging everyone who can to submit their questions via email or facsimile.
Sincerely,
Karen Guth, President
Joshua M. Yaguda, Vice President
Sent October 23, 2007
Re: Questions and answers pertaining to interest payments and fund distributions.
Dear Investor:
As events in the real estate market are unfolding rapidly so too are the goings-on here at Estate Financial, Inc. Based on the majority of the investor responses we’ve received from our last letter dated October 15th, it is clearly evident that a quick follow-up is called for. Again we’d like to begin by thanking those of you who have been so very patient with us as we make every effort to respond to your calls, emails, and personal visits. We are, as you might expect, receiving many calls each day and the number of investors dropping in for an update increases daily as well. We will continue to do our very best to respond to your inquiries in a timely fashion and we hope to answer some of your most pressing questions below. If you would like to meet with us in person we ask that you call or email to schedule an appointment.
Q: I have not receive all my interest payments this month, when are they coming?
A: By the time you receive this letter EFI will have processed all the payments we have received from our borrowers. With a very few exceptions, if you’ve not received your payment this month, it is not forthcoming. You should assume for now that future payments will remain unpredictable.
Q: So what should my expectations be going forward? What about next month?
A: Without having had the benefit of time to do a thorough inquiry and analysis for each of the loans which did not pay this month; we respectfully suggest that you assume for at least for the time-being, that these loans are now non-performing and that future payments, while accruing to you, will not be made.
Q: How is that so many borrowers failed to make their payments this month?
A: The continued inability of our borrowers to sell or refinance their projects as we discussed in our October 15th letter, is likely the most common reason for so many defaults all at once. Estate Financial’s liquidity has been impacted by the lack of new investment and the slowdown in payoffs. As we have indicated in earlier letters we have begun foreclosure or forbearance on more loans.
Q: Can you tell me about the status of my loans?
A: We’ve begun work on a comprehensive analysis of each of our loans that can be made readily available to all of our investors. We ask that you continue to be patient with us as this project is currently slowed by the steady flow of incoming calls and visitors.
Q: Am I going to lose all my money?
A: NO. Please remember that your investments consist of secured loans on real property. A total loss of your investment would require a corresponding total loss of the property’s value. Given that ownership of California real estate is and will continue to be a sought after commodity, it is only a matter time before the market improves.
Q: What is Estate Financial going to do about these loans?
A: Estate Financial will analyze each of these loans on its own merits, and recommend a course of action in each case. For many, a simple forbearance will be the obvious choice; in other cases taking a deed-in-lieu of foreclosure will be best. But it is safe to assume that for some loans, foreclosure will be the only option. Once these steps have been taken, our immediate focus will turn to the liquidation of the completed projects, the refinancing or workout of the uncompleted projects, as well as the consideration of the many other possible alternatives.
Q: What can I do?
A: Please be patient with us. Remember that Trust Deed investments carry risk; they’ve paid a very high rate of return over the years and at some point will do so again.
We sincerely hope that many of you will find some answers to your pressing questions above. Please know that our commitment to our investors is stronger than ever.
Thank you for your support,
Sincerely,
Karen Guth, President
Joshua Yaguda, Vice President
Sent October 15, 2007
To: All Estate Financial, Inc. and Estate Financial Mortgage Fund, LLC Investors:
Re: Interest Payments, and Fund Distributions and On-Going Daily Operations
Dear Investor:
On behalf of the entire staff we would like to thank those of you who have been so patient with us during the last few months. We especially appreciate the letters of support and the many positive phone calls we’ve received. As many of you have pointed out; we’ll need to work together diligently during the next twelve to eighteen months in order to achieve the best possible outcome for all our investments. To this end, this letter is intended to help you, the investor, understand the nature of our situation relative to the entire real estate market, and specifically Estate Financial, Inc. and the Estate Financial Mortgage Fund, LLC.
The Current Market
Overall the market for new homes in California has slowed considerably. The liquidity crisis brought on by the fallout in sub-prime lending arena has now spread to virtually all sectors of the mortgage banking world resulting in a dramatic tightening of available credit. This means that in spite of the historically low interest rates on conventional take-out loans, fewer people are qualifying for the limited funds banks have to lend. One of the major consequences of this tightening of credit is that our borrowers continue to have difficulty selling their homes, nor can they readily refinance them. These same issues are affecting sellers of raw land, improved lots, and commercial products. Not to be over-looked is the subtle and sometimes not so subtle impact of the media on the collective conscience of the potential home buying public. The demographic trends and forecasts for California have not changed, new households are being formed, the population of California is still growing and all these people will need a place to live. But at present, these future home buyers seem to be sidelined or perhaps waiting for what they perceive to be the bottom of the market. Also apparently sitting on the sidelines are a multitude of potential new investors which EFI needs to fund it current loan commitments, as well as create an opportunity for Fund investors to liquidate some of their shares.
The Future
Please remember that your investments consist of secured loans on real property. A total loss of your investment would require a corresponding total loss of the property’s value. Given that ownership of California real estate is and will continue to be a sought after commodity, it is only a matter time before the market improves. Over the next few months it is likely that more of our borrowers may default on their loans, simply unable to continue making payments indefinitely. Estate Financial will analyze each of these loans on its own merits, and recommend a course of action in each case. For many, a simple forbearance will be the obvious choice; in other cases taking a deed-in-lieu of foreclosure will be best. But it is safe to assume that for some loans, foreclosure will be the only option. Once these steps have been taken, our immediate focus will turn to the liquidation of the completed projects, the refinancing or workout of the uncompleted projects, as well as the consideration of the many other possible alternatives.
Estate Financial, Inc.
For both the Mortgage Fund and our individual trust deed investors, this month will be the first time in EFI’s 20 year history where many borrowers have failed to make their payments on time, or failed to make their payments at all. Today, we do not have all the accurate figures available for each of you but we’ve begun to compile them, along with the many details of each of the corresponding loans. We ask that you continue to be patient as we all work diligently here to ready this data so that we may share it with you. It is safe to assume that there will continue to be some irregularity in our traditional processes for some time. The consequences and the inconvenience of this loss of regular, monthly income is not lost on us; rest assured we will use this knowledge as motivation to work our very hardest to protect your investments and expedite a return of your former income.
On-Going Daily Operations
As existing loans pay off and new money is received our priorities are to pay construction vouchers so that our borrowers can complete their projects, to make interest payments to our investors and to redeem shares in the Mortgage Fund. In the next few weeks we will be communicating with you in more detail about specific projects.
As always we are here to answer any questions you may have regarding your investments. We have already received great number of phone calls from many of you, and we anticipate the number of people calling in will continue to increase for some time. Please be patient with us as we do our best to respond to everyone. In addition we’ll readily respond to written communications, faxes and emails.
Sincerely,
Karen Guth, President
Sent September 14, 2007
Dear Investor:
I know that some of you are concerned with recent media reports about other mortgage investment companies and I wanted to write to you in order to alleviate concerns you might have about your investment in the Estate Financial Mortgage Fund LLC.
There is no doubt that the recent downturn in the real estate market in California has had an impact on builders and developers, and that sales of completed projects have slowed significantly. As a result, we are working with several borrowers through these market conditions, and are arranging forbearance agreements where it appears prudent to do so. We have had to commence foreclosure proceedings against certain borrowers, and where properties are obtained through foreclosure, we are prepared to assume or assign responsibility for the completion of the construction and sale of any of those properties.
Fortunately, the scope of the investment portfolio of the Mortgage Fund is such that the overall portfolio, with interests in over 600 loans, can weather the fluctuations of the market. The vast majority of our loans continue to perform well.
Some of you have requested a withdrawal of your investment accounts and I assure you that your requests will be addressed under the terms of our Operating Agreement, and honored as funds become available through new investors and loan payoffs. The number of borrowers with good projects continues to be quite large, and the opportunities for quality loans on such projects remain strong. Obviously, if funds from completed loans are transferred to withdrawing investors, they are not available to maximize these new opportunities.
I won’t tell you that the last few months have not been difficult, as a significant number of you have contacted us with your concerns. We have tried to respond promptly to your inquiries and we will continue to do so. I would ask you to consider that Estate Financial has been in business for over 20 and has successfully addressed similar business conditions in the past.
Sincerely,
Karen Guth
Sent August 2, 2007
Dear Investor:
Several of you have called me over the past few months to discuss the current real estate market and specially the condition of Estate Financial’s investment portfolio.
Overall the market has slowed considerable and in many cases it is taking our borrowers much longer to sell the homes they are building. In some cases, where builders have completed houses and put them on the market, we have issued forbearance agreements for a limited period of time to allow for the suspension of interest payments until the house is sold. There are a small number of projects currently in foreclosure and it is likely that this number will increase. Estate Financial will handle these foreclosures as it always has in the past, which is, if the property is returned, we will make every effort to arrange for the completion and/or sale of the project on behalf of our investors. We continue to lend, albeit in a limited way, with lower loan to value ratios and with an emphasis on commercial projects.
Meanwhile, we remain in close contact with our borrowers. They are professional builders and we value their input on market conditions. Conditions are mixed throughout the state. Higher priced properties, such as those we finance in the Los Angeles and San Francisco areas, have held their values and seem to sell swiftly once they are completed.The Inland Empire and desert areas of Southern California have seen a significant slowdown in potential buyers, although this differs project by project. The Central Valley overall has slowed with the exception of the Tehachapi area. The impact is the greatest on those projects which catered to low income or first time buyers. This is the demographic most impacted by the sub-prime lending issue we hear so much about. Homes in Fresno, Hanford and Bakersfield continue to sell if they are properly priced. Properties along the Coast in San Luis Obispo County are holding their value or even appreciating slightly. Overall, the commercial projects we finance throughout the state seem to be doing well.
We recognize that if you are invested on an individual trust deed where interest payments have been suspended pending sale or foreclosure the impact on your income stream can be dramatic, while those of you in the Mortgage Fund will have experienced little change. While we know that many of you may have specific questions or concerns, we ask for your patience during this point in the real estate cycle. Joshua and I remain positive about the long term outlook for California real estate and are committed to protecting your investment.
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