Mansion securing a ‘loan gone bad’ sold last month, creditors fight kids for $1.5M proceeds
By NATHAN HALVERSON
THE PRESS DEMOCRAT
Creditors of bankrupt developer Clem Carinalli are suing his children in an attempt to gain control of more than $1.5 million he deeded to his adult children last year.
On June 29, 2009, Carinalli added his children’s names to loan documents that entitled them to receive millions of dollars. Three months later he filed for bankruptcy protection.
The loan documents at the center of the lawsuit date back to 2005, when Carinalli issued a series of loans totalling $3.5 million to another prominent Santa Rosa developer, according to county land records and court documents.
By adding his children’s names to the loan documents last summer, he entitled them to receive interest and principal payments equal to about 82 percent of the $3.5 million loan.
The lawsuit is asking U.S. Bankruptcy Judge Alan Jaroslovsky to overturn that transaction unless the children can prove in court they helped fund those loans or adequately compensated their father to receive the 82 percent stake.
Carinalli said Monday that his children did help fund the loans and are entitled to their share.
“They put in the money as each of the advances were made,” he said.
He declined to explain why the children’s names were not originally included on the loan documents, and why they were added only last summer — three years after the last of the loans was made.
An attorney representing Carinalli’s children, Keith Carinalli, Kelly Suacci and Kerri Olhiser, declined comment Monday. Another child, Kevin Carinalli, could not be reached for comment.
The loans went to Robert O’Neel III, who used as collateral the opulent home he was constructing in Santa Rosa’s exclusive Shiloh Ridge neighborhood. When O’Neel failed to repay the money, Carinalli and his children foreclosed on O’Neel’s unfinished mansion last November.
Carinalli and his children sold the property last month, but a bankruptcy judge ordered that $1.9 million earned from the sale be set aside in order to determine who is entitled to the money, according to court records.
The children have resisted previous attempts by the court-appointed group of creditors to have the money returned to Carinalli’s bankrupt estate, where it would be divided among all his unpaid investors.
So late Friday, the unsecured creditors committee, who represent many of Carinalli’s investors, filed a lawsuit alleging that the inside deal between Carinalli and his children should be overturned.
Attorneys for the committee declined comment Monday. The lawsuit states that it appears Carinalli did not receive adequate compensation from his children for the 82 percent stake they received last summer, and suggests that Carinalli personally loaned the money to O’Neel.
Carinalli has partially blamed his financial downfall on borrowers who failed to repay him. O’Neel took credit for being one of those defaulters in an interview with The Press Democrat last summer.
“Clem is a bank,” O’Neel said at the time. “Clem was a vital cog in the developer world here. If we could have gotten traditional financing, we would have done it.”
O’Neel made no mention of Carinalli’s children in the interview, but it was not uncommon for Carinalli to loan money on behalf of others.
O’Neel lived a lavish lifestyle before his financial collapse. He took control of the family construction company, Young America Homes Inc., in 1997 from his father Robert “Bob” O’Neel Jr., who founded it in 1963. O’Neel spent freely while building his Shiloh Ridge mansion, and owned a $40 million Boeing 737 jet and a $385,000 Mercedes-Benz before he lost them all following the real estate collapse.
Doug Provencher, an attorney who represents investors in Carinalli’s bankruptcy case, said he is glad to see the creditors committee fighting for the money.
“Every penny that comes into the estate benefits the creditors,” he said. “If it isn’t (the children’s) money, they shouldn’t get to keep it.”
The children will now need to prove in court that they helped fund the loans to O’Neel, Provencher said.
No hearing dates has been set for the lawsuit as of Monday.