Judge Wrests Mortgage Firm Control : Investing: Action comes after the state Department of Corporations accused operator Kenneth E. Sarvak of defrauding investors he owes $27 million.

A judge Friday wrested control of a company from Kenneth E. Sarvak after the state Department of Corporations accused him of defrauding investors.

A receiver immediately took over Washington Trust Deed Service Corp. and will begin poring over the records of the Newport Beach concern for evidence of what the state contends is fraud.

Through a lawyer, Sarvak, 68, denied any wrongdoing.

For years, Sarvak loaned investors’ money to homeowners through first and second mortgages with no known problems. The investors, many elderly, were drawn by interest rates as high as 14%. Some invested their life savings.

Recently, though, as troubles mounted at his companies, Sarvak stopped paying interest to some investors and didn’t return others’ money.

The Department of Corporations disclosed Friday that there are 275 of those investors who are owed at least $27 million.

The agency also said that last fall--when Sarvak was promising one elderly widow that her investment was safe--his Lincoln Mortgage & Loan Co.’s debts exceeded assets by $11 million, or $29 million in debts to $18 million in assets. At the same time, the investors had sunk $30 million into mortgage loans--but Sarvak had deeds to only $9.4 million worth of property with which to repay them, the Department of Corporations said.

Several dozen investors have already sued Sarvak, Washington Trust, Lincoln Mortgage and other Sarvak concerns in state and federal courts, alleging that he lied to them about how safe their investments were.

Sarvak filed for bankruptcy last month.

Over the objections of Sarvak’s lawyer, Orange County Superior Court Judge Randell L. Wilkinson Friday without comment appointed Denise Lamaute, a Los Angeles financial consultant and lawyer, as receiver for Washington Trust.

Sarvak will get a chance to challenge the order in a Dec. 22 hearing.

Unlike Washington, Lincoln Mortgage is not incorporated; as such, it is essentially part of Sarvak’s bankruptcy and at least for now beyond the reach of the Department of Corporations.

But investors may try to take control of Lincoln from Sarvak, too, by asking that a bankruptcy judge appoint a trustee to run the company, Sarvak’s bankruptcy lawyer said.