Quick Loan Funding, which Sadek founded in 2002, wrote about $4 billion in subprime mortgages before it collapsed in 2007. Sadek made, and eventually lost, a fortune through Quick Loan. He bought a Newport Coast mansion, a fleet of exotic cars and a condo in Las Vegas where he became a high roller at the blackjack tables.
Mark Goldman, a lecturer in real estate at San Diego State University, said lenders have nothing to gain by giving a break to borrowers who probably won’t repay their loans.
“It doesn’t serve the lender to do a loan modification that’ll result in a default,” he said. Which raises the question: Why did Citi give Sadek more time?
Daniel Sadek was one of the princes of subprime lending in Orange County whose high-risk mortgages helped bring Wall Street to its knees.
This summer, Citigroup, the Wall Street bank that has received this year’s biggest federal bailout, offered to modify its loan terms and help Sadek keep a home after he fell two months behind on his mortgage.
But on Dec. 18, Citi Residential Lending filed a notice of default after Sadek failed to make the new payments on the house at 65 Briar Lane in Irvine, one of at least four residential properties he owns in Orange County
That Sadek even got a second chance with Citi angered industry watchers who complain that banks have done too little, even with billions in federal assistance, to help borrowers facing foreclosure.
“There’s a big irony, when thousands of people are struggling to get affordable loan modification offers from servicers that aren’t responsive, that someone who has perpetrated harm would get a loan modification,” said Paul Leonard, of the Center for Responsible Lending. “It’s incredible.”
Reached by phone, Sadek said he “did not want to be rude,” but he did not want to talk. His attorney, Thomas Borchard, said he was unaware of the Citi loan modification.
“I know he and Quick Loan Funding have a long-standing history with Citi,” Borchard said. “I’d assure you there’s some logical explanation.”
The original mortgage isued by Sadek’s Quick Loan Funding in August 2006, was for $768,000. Under Citi’s loan modification, the principal rose to $800,000, records show. Zillow.com estimates the home is worth $632,500.
The original mortgage was an interest-only loan. Under the Citi loan modification, Sadek’s monthly payments increased almost 50 percent to $6,445 – the interest, principal, taxes and insurance on an $800,000 mortgage.
The latest notice of default said Sadek owed $34,888 as of Dec. 18, indicating he had not made a single payment since the loan modification. The notice says Sadek still has 90 days to catch up with his payments before he will lose the house.
The record is unclear how Citi got authority to modify Sadek’s original mortgage. Citi declined to discuss Sadek’s loan, citing client privacy rights.
Sadek’s original loan – No. 106087598 – was not part of the three Citi mortgage pools. Bank of America, Bear Stearns, Countrywide Home Loans, Lehman Brothers, Merrill Lynch and Morgan Stanley also securitized and sold Quick Loan mortgages.
Filings with the Securities and Exchange Commission show at least $2.3 billion of Quick Loan’s $4 billion mortgages were sold to investors after Wall Street firms packaged them as mortgage-backed securities, collateralized debt obligations and other complex financial instruments.
“In some cases, Citi purchases loans which may have been modified by another servicer,” Rodgers said. “If a loan is owned by an investor, the right to modify is subject to the agreement under which the loan is serviced.”
On the Citi loan modification, Sadek said 65 Briar Lane is “owner occupied” and that he “will suffer a hardship” if the terms of the loan are increased too much.
Other public records list his home address as 3 Longboat in Newport Coast, where Sadek was interviewed by the Register in April 2007. Borchard said he could not comment on the address discrepancy. Rodgers said borrowers can demonstrate their residence by producing a utility bill.
When a Register reporter visited the Briar Lane house, a woman living there said Sadek was “not here.” But she would not say if he lived there.
Lou Pacific, a real estate and mortgage consultant from Mission Viejo who was a vice president at Quick Loan Funding in 2004 and 2005, said he was surprised by the Citi loan modification, given Sadek’s financial resources and multiple residences.
“The usual way you qualify for a loan mod is if you live in the home and you have a valid hardship,” Pacific said.
Most borrowers would have a hard time getting a hearing from a bank if they were already in default on a million dollars in other debts.
Records on file with the Orange County Clerk-Recorder show that Sadek faces $1.5 million in debts, including:
•State Franchise Tax Board liens totaling $545,922 in taxes and penalties.
•Orange County tax collector liens totaling $8,998.
•Liens from the Newport Coast homeowners association, for $1,588, and The Marquee Park Place Homeowners Association in Irvine, for $7,517, both for monthly association fees.
•Court judgments from Wells Fargo Bank, for failure to make payments on leased
equipment ($603,289) and Wells Fargo ($294,341) for other debts.
No effort to hide
Wells Fargo has placed writs of attachments on Sadek’s Newport Coast home, an undeveloped Newport Coast lot, his condo in Irvine and 65 Briar Lane.
Dennis Fabrozzi, an attorney for Wells Fargo, said such writs would normally be a red flag for banks considering a loan modification. “I would think most banks would pull a preliminary title report,” Fabrozzi said. “Most of the information is online. It’s easy to pull. You could probably do it in about five minutes.”
Borchard said Sadek intends to make good on his debts.
“Mr. Sadek has not filed for bankruptcy. He has not made efforts to conceal, hide or transfer his assets,” he said. “For him, every day is another day of looking to try to resurrect a business interest to repay creditors,” Borchard said.
Sadek’s other troubles were documented before the Citi bailout.
In May 2007, The Orange County Register reported that Sadek took out a $1 million marker from the account of his escrow company, Platinum Escrow, to gamble in Las Vegas.
In June of this year, the state Department of Corporations revoked all of Sadek’s lending and escrow licenses for his failure to safeguard the money and records.
On Dec. 17, the Department of Corporations banned Sadek from the escrow industry for a year and seized accounts totaling $515,000.
Sadek and Citi
Citi’s business dealings with Sadek date to the founding of Quick Loan Funding in 2002.
Citi’s subsidiary, First Collateral Services, gave Sadek a line of credit – known as a warehouse line – to fund his mortgages. As Quick Loan grew – issuing a peak $218 million worth of mortgages in December 2005 – other warehouse lenders gave the company lines of credit. At its peak, the Citi warehouse line was $100 million, Pacific said.
When Quick Loan’s collapse accelerated in the spring of 2007, Citi was the last warehouse lender left, Sadek said during an April 2007 interview at his Newport Coast mansion.
During the interview, Sadek said Citigroup provided a $16 million line of credit to help him market his feature film, “Redline,” which starred his then-girlfriend, Nadia Bjorlin, and his fleet of Ferraris, Porsches and Saleen S7 exotic cars. Sadek said he spent $31 million to make, distribute and publicize “Redline.”
The film earned $8.2 million in ticket sales worldwide, according to Box Office Mojo. Sadek is being sued in federal court by the Cartoon Network for failing to pay $845,000 in advertising for the film.