Defunct investment firm offered alternative to banks.
It all began at Sunburst Associates, a one-person real estate management firm located next to an insurance office and a car dealership in a Thousand Oaks, Calif., strip mall.
According to Manta.com, an Ohio-based online service that collects details on firms around the world, Louis James "Jim" Borstelmann launched Sunburst in 1979 and had annual revenue of $190,000 as of last year.
Clients and business partners say Borstelmann was in the business of selling high-value second trust deeds - privately funded second mortgages - on Southern California real estate. The loans were typically made in amounts exceeding $100,000, to clients who, for whatever reason, didn't want to deal with banks.
"According to him, these people wanted their privacy," says Douglas Huntingdon of Florence, a longtime business associate of Borstelmann's. "Like me, they didn't want to tell the bank everything.
"These were not as strict about documentation," Huntingdon says. "Our only interest was in the collateral (in the event a foreclosure would become necessary to pay off the loan). He tried to maintain an average of 50 percent loan-to-value." After the loans were made by Borstelmann, they were sold to investors.
The borrowers were charged interest rates of 10.5 percent or more, and Borstelmann kept a half-percent share while passing along the remaining 10 percent to those who bought each loan, according to several of the investors.
At that rate of return for Sunburst, the $190,000 of annual revenue reported by Manta.com would indicate a portfolio of outstanding trust deeds totaling $38 million - assuming all of the company's income was derived from the half-percent portion of loan interest.
According to Huntingdon, the loans were typically made for initial terms of three years, but loan clients often extended the pay-off terms in one-year increments.
Investors could buy shares of the Sunburst trust deeds in amounts as low as $5,000. Payments on the trust deeds were forwarded to investors at the beginning and middle of each month.
Huntingdon says he was a Sunburst client for 30 years, and acknowledges being a primary recruiter of other investors for at least the past dozen years.
In return for bringing in buyers for the loans, Huntingdon received a commission of 2 percent on all investment income he generated for Borstelmann - for example, $100 on a $5,000 investment.
According to a pair of lawsuits that have been filed, Borstelmann's company fell apart early this year after it had begun selling what are alleged to be fraudulent trust deeds to investors.
The lawsuits allege that Sunburst's loans were legitimate for many years, but some if not all of the outstanding trust deeds at the time of the company's collapse were forgeries. Those trust deeds were not backed by equity in real estate and their sale proceeds were likely used to pay Sunburst's debts rather than loaned to borrowers, the lawsuits claim.
Borstelmann did not respond to a written request for comment for this story.
In January, he sent a letter to all of Sunburst's investors, announcing that his company was closed and had no assets, and that he was $500,000 in debt.
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|Title Annotation:||City/Region; It catered to people who wanted big loans with few questions asked, an investor says|
|Publication:||The Register-Guard (Eugene, OR)|
|Date:||Jun 14, 2009|
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