Mortgage Broker in Bankruptcy Filing Owes Rams’ Knox Money

The owner of Lincoln Mortgage & Loan Co. has filed for bankruptcy--and among more than 200 creditors are Chuck Knox, head coach of the Rams football team, and former Red Sox shortstop and Dodgers minor-league field coordinator Glenn Hoffman.

The coaches invested in mortgages through Lincoln Mortgage, according to other investors.

Lincoln Mortgage owner Kenneth E. Sarvak filed for bankruptcy Friday after more than a dozen investors sued him and Lincoln Mortgage to get back their money.

In addition, two state agencies are investigating the mortgage lender for allegedly mishandling investors’ money.

The Department of Real Estate two weeks ago barred Lincoln Mortgage from taking on new investors after auditors found at least $600,000 missing from an account holding investors’ money.

Lincoln Mortgage’s lawyers deny these allegations.

Both the Department of Real Estate and the Department of Corporations said Wednesday that their investigations continue and will not be affected by the bankruptcy.

Lincoln Mortgage, based in Newport Beach, loaned several hundred investors’ money to homeowners through first and second mortgages. Many of the investors are older, retired people, and some say it has been months since they received the interest payments that Sarvak promised them.

Many have invested tens of thousands of dollars and say they fear losing their life savings.

Baseball coach Hoffman, 35, is listed in bankruptcy records as being owed $225,000; the amount owed to football coach Knox, 61, is not stated.

Hoffman could not be reached Wednesday. He played for the Boston Red Sox from 1980 to 1987; he now oversees the batting, hitting and pitching coaches who train the Dodgers’ minor-league players.

Knox, asked three weeks ago about Sarvak, said: “Any role that I would have with him would be personal, so I don’t want to comment on it.”

Sarvak filed under Chapter 11 of the federal bankruptcy code what is known as an emergency petition, which among other things means that he has yet to list his assets and debts.

But the 20 largest unsecured creditors alone are owed $5.2 million, according to the filing. Unsecured creditors--among whom is Hoffman--are at the end of the line when creditors are paid off in a bankruptcy.

Sarvak filed in a hurry, said his bankruptcy lawyer, William M. Burd, because fighting the torrent of lawsuits was draining Lincoln Mortgage’s capital.

The bankruptcy puts investors’ lawsuits in limbo for the time being.

“If the litigation had kept on,” Burd said, most of the creditors “would have got nothing because his money would all go to lawyers’ fees.”

Lincoln Mortgage, a 27-year-old company, is essentially in bankruptcy too because it is a sole proprietorship.

Lincoln Mortgage owns what Sarvak’s lawyer says is his most valuable asset: Nearly 600 acres in rural Riverside County that Sarvak foreclosed on after lending about $10 million to a partnership that collapsed before it could build houses there.

Sarvak is also the major shareholder in several other corporations that are not in bankruptcy, Burd said, and Sarvak’s stock in those concerns could be sold to pay off investors.

Sarvak, 68, is a former car salesman who lives in Newport Beach’s affluent Lido Isle neighborhood. He found wealth in the so-called “hard money” second-mortgage business, where a lender generally charges higher fees and interest because the borrowers are often considered by banks and thrifts to be credit risks.

Hard-money lenders typically expect to foreclose on the borrower’s house and wind up owning it when the borrower cannot make the payments.

The interest rates that Sarvak was paying, as high as 14%, attracted a broad network of investors over the years--from retired millionaires to people of more modest means who in some cases have invested their entire nest eggs with Sarvak.

How much investors will get back is not yet known, Burd said, and may not be for a while. Sarvak “intends to do his best for investors,” Burd said.