Millions in real estate loans to Jay Soderling, convicted of bank fraud in 1987, went unpaid

Jay Soderling went to prison again for six months in 1998 for violating his probation by passing bad checks on a construction project in Marin.

After that, Soderling would disappear from local headlines for the next decade. But his name would still stun some investors who remembered the 1980s S&L debacle all too well.

"That really threw me," said Brown, who is one of the largest investors in the Borax Lake property, investing $450,000 in loans that Carinalli made to Soderling.

Douglas Provencher, Brown's attorney, said the revelations about Soderling were "a real turning point" for Brown and other investors as they agonized over whether to force the bankruptcy.

But Soderling's background isn't the only thing some investors didn't know when they agreed to loan their money to Ripp It.

Several investors now say they were also unaware that:

Soderling had been arrested in Sonoma County in 2006 for methamphetamine possession after a bizarre incident involving a $150,000 RV and claims about the Mexican Mafia.

Throughout 2007, Soderling's properties were being foreclosed upon all over Lake County, many half-built and laden with unpaid debts and taxes.

Soderling did not have a contractor's license, and would later be cited and fined thousands of dollars by the Contractors State Licensing Board for building homes without a license.

And in the spring of 2007, his Borax Lake development plans had already been laughed out of Clearlake City Hall, literally.

Lakeside development

Soderling once had big plans for Borax Lake.

In 1996, he purchased 850 acres of undeveloped land in an old mining area just inside the city limits in the northwestern corner of Clearlake.

Its previous owner, J. Paul Dumont, once sought to build a resort on the property, but concluded it was too remote and moved the project to Calistoga.

Soon after purchasing the Borax Lake property, however, Soderling was sent back to prison in 1998 for six months. He admitted he had violated his probation after bouncing about $7,500 in checks related to a Marin County housing project.

After filing bankruptcy in 1999, Soderling began trying to develop the Borax Lake property. He partnered with another developer and began cutting hundreds of oak trees on the property.

"They destroyed groves of oak trees that were 150 years old," recalled Frank Brumfield, a Clearlake resident who used to hunt in the area.

Tree stumps and brush piles now litter the property, and old refrigerators and tires lie sunken in the mucky shoreline crusted with borax, a mineral first discovered in the area in 1857 and mined for use in detergent.

According to stories in the Clearlake Observer-American in 2000, Soderling wanted to plant vineyards on the property, but was having trouble financing the project. The mass cutting of oak trees outraged some members of the community, and prompted the city to pass a tree-removal ordinance.

"I just feel the entire area has been raped," area resident Jim Metzger said at the time.

Soderling then turned his attention from Borax Lake to building individual homes on existing lots around Lake County.

Initial loan small

Land records show that Windsor resident Irene Bianchi was the first person to make a loan to Ripp It. In October 2002, a month after Soderling formed Ripp It, Bianchi loaned him $6,790.

It was the first of about a half-dozen small construction loans Bianchi made to Soderling to help him acquire properties and build homes. The loans were arranged by her son, Dennis De La Montanya, a Healdsburg appraiser and close business associate of Carinalli.

De Le Montanya said he was well aware of Soderling's role in the S&L scandal, but believed Soderling had "long since been rehabilitated" and was "rebuilding his life in Lake County."

Bianchi said she also knew Soderling's track record, but never loaned more than she could afford to lose, and the loans went just fine.

"He paid me back every penny," Bianchi said.

Ripp It soon started borrowing larger sums through Sonoma Mortgage & Investment Co. As the housing market gathered steam, so too did Soderling's aspirations. He again turned his attention to the potential he saw in the 850-acre Borax Lake property.

According to land records and people familiar with the matter, between 2005 and 2007 Carinalli made a series of loans totaling $4.5 million backed by property around Borax Lake.

During this time, in the spring of 2007, Soderling approached the City of Clearlake with grand plans for the property.

"He said 1,000 homes and I just laughed," said Dale Neiman, city administrator.

The steep slopes around Borax Lake, narrow access roads, lack of sewer and water service and numerous American Indian archeological sites in the area all made such an ambitious development project inappropriate, Neiman said.

Nevertheless, in August 2007, Carinalli began selling interests in the Borax Lake loans - $2.25million worth - to various investors. They were given a packet of information about the property that included an $8.25million appraisal for the property and a loan application from Soderling.

In efforts to further convince them of the safety of the loans, some investors were given a financial statement for Clem Carinalli and his wife, Ann Marie, that showed the couple was personally worth $389million.

The deals generated more than $44,000 in fees for Carinalli, investors said. He also earned money on the difference between the interest rate Soderling was paying, 12 percent, and the 9 percent investors were earning on their money.

Soderling not mentioned

Petaluma insurance broker Mike Feeney, who has $1.2million invested with Carinalli, including $350,000 in Borax Lake, said loan documents he received listed Soderling as "sole director" of Ripp It, but he didn't take notice and no one from Sonoma Mortgage & Investment Co. ever mentioned it.

"I didn't know it was Soderling," he said.

Brown said he, too, did not notice that Soderling was behind Ripp It until after the deal was done. Brown and other investors took a closer look at their loan documents this year after their payments ceased. Carinalli foreclosed on the Borax Lake property and numerous other Ripp It properties earlier this year.

A mortgage broker has a fiduciary duty to disclose all material information about the loan they are brokering or note they are selling, said John Graziano, president of Bay Sierra Mortgage, which also makes hard-money loans. Printing the name of a borrower on loan documents doesn't necessarily mean a broker has met his or her disclosure requirements, he said.

A person's criminal history of bank fraud is certainly something that might influence a person's decision to invest, and therefore something Graziano believes would be a material fact.

"If the average person was looking at an investment and says &‘Yeah, that's a material fact,' then it's probably a material fact," Graziano said.

Tom Poole, spokesman for the state Department of Real Estate, said brokers are not specifically required to disclose the criminal background of borrowers to lenders, just whether the borrower has filed bankruptcy in the past 12 months.

But brokers do have a responsibility to disclose all material facts to their investors. The question of what is or is not a material fact varies from case to case, he said.

Asked if he believes he had an obligation to disclose Soderling's criminal past to investors, Carinalli said, "That sounds like a question for an attorney."

Carinalli recently acknowledged he knew of Soderling's involvement in the S&L scandal and imprisonment, according to Acciari, the former Petaluma resident who made two loans to Ripp It through Carinalli. She now lives in Arizona.

Carinalli founded Sonoma National Bank in 1985, the same year regulators shut down Golden Pacific Savings and Loan.

Carinalli said he was unaware Soderling had other legal or financial troubles at the time he made the loans or sold them to investors.

"I have never heard of such a thing," Carinalli said of Soderling's methamphetamine arrest.

Land records show that before August 2007, when Carinalli began selling interests in the Borax Lake loan, lenders had filed 17 default and foreclosure notices on other Ripp It properties.

Some investors complacent

Investors aren't laying all the blame on Carinalli or Soderling. Many admit they did not do all the research they should have, and may have become complacent following years of solid returns and trust in Carinalli.

"We became lax in doing our due diligence about who we were actually lending money to," Acciari said.

But several also said they would never have invested in the Soderling loans if they had more information about him.

James Noonan, a retired drywall contractor, put $250,000 of his retirement savings into loans that went to Soderling for the Borax Lake project.

He and other investors did receive some security in the form of a first deed of trust on the property, which means they will be paid something once the property is sold. Carinalli has a second deed of trust on the land, and will only get paid if the investors receive their money, an arrangement that his supporters say puts investor interests before his own.

But a sale of the property seems unlikely anytime soon. Since Carinalli has foreclosed on the property, it has sat on the market for $2.5 million. Listing agent Bobby Dutcher said there's little interest in it at the moment.

It is unclear how much money Carinalli and his investors loaned to Soderling over the years, or how much they now stand to lose.

In the meantime, investors such as Noonan have seen the interest payments they used to live on evaporate.

Noonan is one of those who knew of Soderling's past, but wasn't terribly worried about it because of his trust in Carinalli and the appraisal on the property that showed a value well in excess of the $2.25million loan.

He now wishes he had taken a closer look at the man with big plans for Borax Lake.

"I thought the people we were working with were savvier than we were," Noonan said. "If we would have known some of this stuff beforehand, we wouldn't have invested in this property."

You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com.