Hard Money Investors Sue

The Harknesses say in court papers they went to Kantor at Sunset in July 2002 to seek investment advice and opportunities. They claim Kantor convinced them to close on $637,000 in home equity financing from Sunset and use the proceeds to fund hard money mortgages. They were allegedly persuaded to lend to creditworthy individuals for one-year periods at 11.5 percent or 12 percent a year plus five points and a 10 percent late fee.

The couple said they were told the loans were to be secured by notes and trust deeds on the borrowers’ homes and construction lots, and they would always be in at least a second lien position on the properties. The couple claim they were assured their loans would also be cross collateralized with plenty of equity in the properties.

But the Harknesses claim the borrowers were actually not creditworthy and, in many instances unbeknownst to them, were Kantor’s friends and relatives.

They claim to have invested more than $1 million drawn from their home and a rental property. They say much of the funds were not paid back to them and that in several instances they discovered that Kantor did not secure liens or record the notes.

Directors and Sunset have both denied the allegations against them, offering in court papers that Kantor acted alone and outside the scope of her duties as an employee.

While employed at Sunset, Kantor apparently advised The Harknesses they could make private hard money loans, Directors’ attorney Brian B. Williams explained in an e-mail to MortgageDaily.com.

“These loans,” he wrote, “were in violation of Sunset’s company policy.”

“Directors has a specific written policy prohibiting its employees from participating in private hard money loans,” he continued. “That policy was covered in Kantor’s orientation.

The attorney went on to say Directors prohibits moonlighting.

“In violation of those policies, and on her own time, Kantor appears to have facilitated one private money loan for the Harkness during the time that she was employed by Directors,” Williams added. “The private money loan did not go through Directors’ Mortgage. Kantor concealed this activity from Directors Mortgage.

Sunset’s former attorney in the litigation said the company had no knowledge of Kantor’s actions.

Kantor denied the allegations in court papers and responded that she was acting as an agent or employee of Sunset and Directors’ Mortgage for part or all of the transactions alleged in the Harkness’ complaint.

Kantor worked for Sunset Mortgage from June 2002 until July 2003. She left Sunset to go to Directors Mortgage where she worked until November 2006.

Reached by telephone at HomeStone Mortgage where she is now employed, Kantor once again denied the couple’s allegations and said the Harknesses were aware of the relationships of the loan recipients.

“They were completely aware of who the loans were being made to and what they were being made for,” she said.

The case is expected to go to trial this summer.

Williams, Directors’ attorney, offered a cautionary statement for the industry.

“Directors Mortgage employs an independent third party to randomly audit loans, it had a rigorous quality assurance process, it has an independent loan approval department with strict standards, and it is deeply committed to ethics and integrity,” he said. “The lesson to share within the industry is that no matter how specific your policies and how detailed your procedures, at some point you must trust your employees to do their jobs correctly, and you must trust that your employees will conduct themselves appropriately in their private activity outside the office.”