‘Hell hath no fury like the people sitting in this audience’

Angry investors on Thursday demanded that a state regulator shut down hard-money lender CM Capital Services of Henderson because of alleged continuing misconduct.

Mortgage Lending Commissioner Joe Waltuch earlier reached a proposed settlement with CM Capital Services, formerly known as Consolidated Mortgage. The settlement doesn't specify any alleged violations but it would impose a fine of $200,000 on CM Capital.

Waltuch scheduled the meeting so investors could comment on the proposed agreement. About 75 gathered in a Sawyer Building meeting room to lambaste the proposal and CM Capital's handling of their investments.

Some investors urged Waltuch to revoke CM Capital's license. Others said the company should be put in receivership because of its insolvency and alleged regulatory violations.

CM Capital, like other hard-money lenders, uses investors' money to make loans secured by real estate. It manages $400 million in assets for 3,000 investors.

Investors are attracted by double-digit interest rates on these short-term mortgage loans, but the collapse of the Southern Nevada real estate market has devastated their investments.

Borrowers have defaulted on the loans and investors have foreclosed. The value of the real estate has shriveled, wiping out the retirement savings of many CM Capital clients.

Investors booed some comments by state officials and applauded comments from speakers with complaints about CM Capital.

"Hell hath no fury like the people sitting in this audience," said Kay Rodriguez, one investor.

Ann Bove, another investor, choked back tears and said, "I have lost everything. My husband passed away six weeks ago."

After the meeting, certified public accountant Dean Altschuler, another investor, read messages from numerous retired investors who lost large parts of their savings at CM Capital Services.

In one message, a woman, who depended on interest from CM Capital loans, said she lost her job, her house and her car. She was destitute for a time and now works for minimum wages.

In another message, an Arizona man said he lost $1 million at CM Capital and now relies on Social Security and his wife's part-time job for income.

"We're in danger of losing our house," the e-mail said.

Matthew Dushoff, an attorney representing CM Capital, said CM Capital "took responsibility for some of the violations" alleged by the Mortgage Lending Division.

"They want to do everything that's right by their clients, because, if they don't, they won't have any clients. They won't have any investors," Dushoff said. "A lot of people are upset about losing money in the market."

At the meeting Thursday, however, investors complained about CM Capital's handling of foreclosed property, not the real estate market collapse. Waltuch said he lacked authority to regulate real estate management.

CM Capital Services charges $80,000 to $100,000 to foreclose on collateral, Altschuler said.

Then, the company collects excessive fees, he said. CM Capital gets $20,000 a month to manage 35 acres of raw land in the Las Vegas area but only $14,400 monthly for management of a vacant medical office building at 1661 W. Horizon Ridge in Henderson, Altschuler said.

Real estate brokers who find buyers for foreclosed properties get no response from CM Capital, Altschuler said.

Complaints about hard-money lenders' handling of foreclosed properties have become common in Southern Nevada, but Altschuler took particular issue with a strategy followed by CM Capital.

The company is using investors' foreclosed property as collateral for loans that pay for taxes, expenses and management fees at CM Capital.

If the new loans go into default, investors in the original loan will lose all of their investment. Altschuler said he lost his investment in a property when the new lender foreclosed on the loan that was taken out to pay for property management and taxes.

Waltuch told investors that he has proposed that the Legislative Counsel Bureau accept several regulations designed to better protect investors in hard-money loans. But the commissioner said he cannot apply the proposed rules retroactively to CM Capital.

Attorney Tom Mason of Tucson, Ariz., however, said Waltuch could exercise authority over several issues not mentioned in the "grossly inadequate" settlement.

"It does nothing for past investors," Mason said. "It does nothing to protect current investors against ongoing and outrageous abuses at Consolidated Mortgage."

He suggested the commissioner force CM Capital executive Todd Parriott to make restitution to investors and add money needed to make the company solvent.

Contact reporter John G. Edwards at
jedwards@reviewjournal.com or 702-383-0420.