State takes aim at practices of loan 'wolf'
Legislation could ban Emiel Kandi and other commercial lenders from using a primary residence as collateral for a loan if they are not licensed mortgage lenders.
Seattle Times staff reporter
About the bill sent to the governor• Commercial lenders would not be able to use a primary residence as collateral for a loan if they are not licensed mortgage lenders.
• A lender could not force a borrower to sign a quitclaim deed at the time of the loan or in advance of a default.
• A lender would be prohibited from obtaining a release from the borrower for damages and penalties.
• "Hard money" loans would have a 25 percent interest-rate cap and would be required to disclose fees, interest and penalties.
• The state Department of Financial Institutions would have more authority to investigate complaints.
Emiel Kandi, a lender of last resort for homeowners down on their luck, admitted he charged borrowers as much as he could get away with. He also made it clear that if they missed a payment he'd take their homes, explaining, "I am a wolf."
But the Tacoma-area businessman is about to be stopped in his tracks by legislation heading to the Governor's Office for a signature.
"In plain English — Emiel Kandi is out of business," said state Rep. Steve Kirby, D-Tacoma.
Kirby introduced HB 1405 after reading a Seattle Times investigation into Kandi's unscrupulous business practices that, in the lawmaker's eyes, amounted to "stealing people's homes."
The November story highlighted how Kandi operated a loan scheme that took advantage of loopholes in the state's consumer-protection laws by describing his loans as "commercial."
Commercial loans, also called "hard money" loans, are unlike mortgages because they do not have interest-rate caps, consumer protections and full disclosure of all costs.
A Times examination of numerous Kandi loan deals showed they were set up so he could quickly take borrowers' homes and, in some cases, flip them for a profit. State regulators at the time said there was little they could do.
Kandi handed out confusing, high-interest loans to borrowers who needed quick money, often to pay back taxes or missed mortgage payments.
He forced borrowers to put up their houses as collateral, typically through quitclaim deeds, which gave Kandi immediate rights to the property if they defaulted.
Kandi then made it impossible for the borrowers to pay back the loans and he snatched their homes.
For example, Christine Provost, of Lakewood, Pierce County, borrowed $240,000 from Kandi, thinking it was a 14 percent interest loan. But the loan had an undisclosed 90 percent interest rate, with $26,400 in origination fees, and was due, in full, in 60 days. She lost her home within several weeks.
A Puyallup man lost his house, which he owned free and clear, to Kandi after the man couldn't keep up with the monthly payments on a $17,000 loan.
The legislation would ban Kandi and other commercial lenders from using a primary residence as collateral for a loan if they are not licensed mortgage lenders.
The bill also would prevent a lender from forcing a borrower to sign a quitclaim deed at the time of the loan or in advance of any default. It also would prohibit the lender from obtaining a release from the borrower for any future damages and penalties — language Kandi frequently used in his loan documents.
Basically, such loans would be mortgages, which have certain protections for borrowers, including a 25 percent interest-rate cap. Lenders would be required to disclose fees, interest and penalties.
"It's high time predatory lenders were regulated," said David Leen, a lawyer who helped Provost get her house back and win damages from Kandi. "It's going to save a lot of homes."
Rep. Troy Kelley, D-Tacoma, who co-sponsored the bill, said it "corrects a loophole in existing state law that allowed unscrupulous lenders to take advantage of people who needed a loan simply to ride out these tough times."
The bill, which passed both the House and Senate with little opposition, would amend the Consumer Loan Act.
"The benefit is that people's most valuable asset — where they live — will be protected in a way that it hasn't been before," said Deb Bortner, director of Consumer Services for the state Department of Financial Institutions (DFI), which regulates banking and mortgage lending.
DFI has said it didn't know how prevalent hard-money lending problems were in the state, primarily because it doesn't regulate commercial and private loans.
But after the bill was introduced, DFI found 36 complaints over the past two years that specifically dealt with borrowers being required to use their residences as collateral on private high-interest loans.
"It's a bigger problem than we first envisioned," Bortner said.
The bill would give DFI more authority to investigate these types of complaints.
DFI is investigating Kandi and has subpoenaed records from Ticor, a title and escrow company that handled his loan transactions.
The FBI also is looking into Kandi to determine whether he broke any laws, according to two sources with knowledge of the investigation.
In his appeal of a civil judgment in Pierce County, Kandi asked the court in February for an extension, saying he recently became ill, was hospitalized, and admitted to an Arizona "in-care facility" for a four-week recovery.
Last summer, Kandi opened Cobra Medical Group, a marijuana-patient cooperative in Tacoma. Erron Jett, who has worked at Cobra, said he bought the cooperative from Kandi on Feb. 16, the same day Kandi was admitted to the Arizona facility.
Jett said he lives next to Kandi in a duplex Jett rents from Kandi's mother. Records of the state Secretary of State's Office still indicate Kandi is president of Cobra.
The Times attempted several times to reach Kandi for comment.
Kandi, who has no properties in his name, said several months ago in an interview that he has no intention of paying $744,000 in lawsuit judgments against him.
Pierce County records show he also owes the IRS more than $1 million.
Christine Willmsen: 206-464-3261 or firstname.lastname@example.org