Call it the Emiel Kandi loophole.
Pierce County’s Kandi is a hard-money lender – making high-interest loans that require real estate as collateral, typically to businesses or real estate investors who can’t get a conventional bank loan.
The Seattle Times reported last year that Kandi writes these loans to people who use their house as collateral. He avoids mortgage requirements by writing the loans as “commercial.” When the borrower can’t pay, he takes their home – sometimes just a few weeks later. Several people in Pierce County have lost their homes this way. “I am a wolf,” Kandi told the newspaper in November. A phone message left Thursday at Villa Mortgage in University Place was not returned, and a cell phone number associated with Kandi’s Sixth Avenue medical marijuana dispensary no longer works.
In light of the Times’ report, the Legislature is considering amending the Consumer Loan act, which regulates consumer lenders in Washington. Under a bill sponsored by Reps. Steve Kirby, D-Tacoma, and Steve Kelley, D-Lakewood, new language would spell out that the law applies to loans using people’s primary residences as collateral.
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That means any lender writing such loans must be licensed by the state and would be subject to other rules of disclosure and practice, including limits on interest rates. It also would put those lenders under the regulation of the state’s Department of Financial Institutions. Licensing fees will pay for the employees needed for regulation, said Deb Bortner, the DFI’s director of consumer services. A companion bill is moving through the state Senate.
Kelley said Thursday that he’s working on more language to House Bill 1405 that would be aimed at preventing another tactic used by Kandi: borrowers signing documents that relinquish their rights to the properties at the same time they are signing loan documents.
Kelley said Kandi brought the issue to the forefront, but the problem is larger than one man. It’s unclear, though, how many lenders use these tactics.
Bortner said that because of limited resources – nine lawyers to investigate about 2,500 complaints annually – the agency doesn’t investigate unless it receives a complaint. And people who are victimized by these kinds of lenders often don’t know they can complain, she said.
“This is the tip of the iceberg. There’s a lot more out there,” Bortner said. “When you’re about to oversee the hidden economy, it’s really, it’s an educated guess at best.”
Amending the law isn’t enough, but it’s a good start, said David Leen , who represented Christine Provost of Lakewood in her court fight against Kandi. According to the Times, Provost believed she was getting a $240,000 loan with 14 percent interest when she actually had a loan with 90 percent interest that was due, in full, in 60 days.
Provost ultimately won her house and $110,932 in damages from Kandi. Leen tried, without success, to get DFI to look into Provost’s case. The DFI said it didn’t have the authority because the loan was commercial.
"This gets the right agency the right authority,” he said last week after testifying on behalf of the changes at a House committee hearing.
The amended law would allow DFI first crack at the problem instead of it being left to the courts, Leen said. Lawyers typically won’t take these kinds of cases, Leen he said, because the victims don’t have any money.
People using these kinds of loans, Leen said, are “vulnerable. Desperate. In distress, always.”
Kathleen Cooper: 253-597-8546 kathleen. firstname.lastname@example.org