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approximately 30 homes. Later on his own, as described below,
petitioner developed a subdivision consisting of homes for low
income families; in addition, he also built and sold custom
designed homes.
In 1992, petitioner purchased a tract of land which he
subdivided into 58 lots and is now known as the Pajaro Dunes
subdivision. Petitioner obtained financing from The Savings Bank
of Stockton to construct homes in the subdivision. Additionally,
he hired his son’s construction company to supervise the
construction of the subdivision. Fourteen homes were completed
in 1994, while 44 homes were completed in 1995.
Petitioner hired Rancho Real Estate (Rancho) to market and
sell the homes. Rancho placed advertisements in local newspapers
and posted signs to market the properties. In 1994, Rancho
procured the sale of 14 homes. The next year, in 1995, the
remaining 44 homes were sold.
The purchase prices of the homes ranged from $63,900 to
$79,900. To facilitate the sales in 1995, petitioner accepted
promissory notes for part of the purchase prices on 41 of the 44
homes sold that year and requested second deeds of trust to
secure the notes.3 The promissory notes range in principal
3 The typical financing structure consisted of the
following arrangement (typically known as an 80-15-5 mortgage):
(1) The Savings Bank of Stockton financing 80 percent of the
purchase price with a loan at an 8.5-percent interest rate,
(continued...)
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