Central Federal and a seedy tale of San Diego bankruptcy court

Debtor: The inglorious road to financial ruin

Jay and Geri Sobarnia: "It's worse than your worst nightmare."
  • Jay and Geri Sobarnia: "It's worse than your worst nightmare."
  • Image by Craig Carlson

When Jay and Geri Sobarnia filed for bankruptcy in 1980, they owned a $550,000 house, a couple of small businesses, and two apartment houses, and their monthly payments were current on the $1,670,000 they owed on various properties, according to court records. When they came out of bankruptcy four years later, the house had been repossessed, the small businesses were long gone, and they owed $1,765,000. Not coincidentally, they had paid $100,000 in attorney’s fees.

They decided to build their own custom home in the exclusive Rancho Vista Grande neighborhood, southeast of El Cajon.

They decided to build their own custom home in the exclusive Rancho Vista Grande neighborhood, southeast of El Cajon.

Oh, and the bankruptcy judge who had heard the case (whose brother was a vice president in the loan department at the Sobarnias’ largest creditor, Central Federal Savings) and generally ruled against them later took a job with the law firm that had represented the Sobarnias — the same law firm the Sobarnias would unsuccessfully sue for malpractice. The moral of this story is, bankruptcy is'like surgery; if you’re going to let strangers muck around in your vitals, be prepared to come out of it missing some parts.

The worst was not having the money to bury Geri’s mother when she died of cancer.

The worst was not having the money to bury Geri’s mother when she died of cancer.

Jay Sobarnia came out of it missing his faith in the justice system and with a rage that refuses to die. Sobarnia and his wife were real-estate brokers who were living well in the late 1970s, benefiting from the ever-expanding real-estate bubble. They decided to build their own custom home in the exclusive Rancho Vista Grande neighborhood, southeast of El Cajon.

The bankruptcy judge who had heard the case (whose brother was a vice president in the loan department at the Sobarnias’ largest creditor, Central Federal Savings) and generally ruled against them later took a job with the law firm that had represented the Sobarnias.

The bankruptcy judge who had heard the case (whose brother was a vice president in the loan department at the Sobarnias’ largest creditor, Central Federal Savings) and generally ruled against them later took a job with the law firm that had represented the Sobarnias.

They swapped another piece of property for the land and figured that they could build the home with a combination of cash and a construction loan from a bank. They could have borrowed the construction funding from the Pt. Loma Federal Credit Union, which they had done to build an earlier home in Lakeside, but they decided to go to a bank instead because the credit union wouldn’t provide the long-term refinancing of the house after it was built.

A common way to build a house is to ask a bank for a short-term construction loan, complete the building, then refinance the construction loan with the same bank. This is called a “take out," because it takes you out of the construction loan. In 1979, when the Sobarnias decided to build their house, the obvious place to go for financing was California First Bank.

Jay Sobarnia says he and Geri had had a long, mutually beneficial relationship with California First. As real-estate brokers, they had directed twenty-five or thirty escrows into the bank each year in the late 1970s. The bank had financed a motor home, a boat, and an airplane for the Sobarnias. Bank officers had sent flowers to the hospital when Geri gave birth to the couple’s first child. The Sobarnias’ checking and trust accounts were with California First. So it was no problem securing, at twelve percent interest, a construction loan from California First for $214,000. Sobarnia says he and the bank’s loan officers had a spoken agreement that the bank would refinance the construction loan when it came due in a year, which was standard practice for custom home construction.

The home would be a dream incarnate: 4800 square feet, four bedrooms, three bathrooms, three fireplaces, three-car garage, swimming pool, spa, and a view of the rolling hiUs surrounding the 1.3-acre lot. They assumed this would be the place their budding family would inhabit for the foreseeable future. As the construction progressed, the Sobarnias took out an additional $35,000 loan in order to complete the house, using a piece of property they owned in North Park as collateral. Their total encumbrance on the project was about $250,000. When the home was completed, it was worth between $450,000 and $550,000, according to later estimates by the bankruptcy judge, Ross Pyle. Which means that, since the lot was free and clear and there were no other loans on the property, the Sobarnias had about fifty percent equity in the house when they moved in.

But just as they were unpacking boxes in their new house, in 1980, the home mortgage industry was breaking down. After a decade of inflation, the nation’s economy burped and interest rates shot upward. The prime interest rate (which is currently stable at about eight and one-half percent) topped twenty percent in 1980. Numerous savings and loan institutions failed because people couldn’t afford new loans, and the old loans at lower interest rates were money-losers. The banks and S&Ls couldn’t sell the assets they were taking over in foreclosure, causing a severe cash shortage. In an atmosphere of panic, many banks started calling in loans and refusing to refinance.

In the spring of 1980, California First had some bad news for the Sobarnias. The short-term construction loans were due and payable in full, as agreed, but there would be no refinancing. California First loan officers demanded the $250,000 in cash immediately. “The bank said the market had changed,” Jay Sobarnia recalls, “and they were no longer interested in giving new loans at that time.”

Other lenders, Sobarnia found, were willing to give new loans but would not refinance his existing loan. And now with the real-estate market suddenly depressed, the Sobarnias’ income was minimal. They could barely make the payment of $2200 per month on the construction loan, using proceeds from their two apartment houses. Sobarnia told California First he couldn’t find other financing; about six weeks after the initial demand for the payoff of the construction loan, California First offered a deal the Sobarnias could only refuse: a new loan at twenty-two percent interest (prime plus one and one-half percent), plus a $5000 “loan fee” every three months. The monthly payments on such a loan, which represented just interest, not principal, would have been about $6250 a month. The Sobarnias declined; the bank started foreclosure proceedings.

Jay Sobarnia figured he had only one option: filing for bankruptcy to protect his house. He hired San Diego attorney Keith McWilliams, a former bankruptcy judge who has practiced law for thirty years, and according to the malpractice lawsuit he later filed, he was assured by McWilliams that he would not lose his house because of the large “equity cushion” in the property. In August of 1980, he stopped making the $2200-a-month payments to the bank, he claims on McWilliams’ recommendation. While his attorney was working up the papers to stave off the foreclosure, Sobarnia diverted the money from the construction loan payment and paid off the remaining bills from contractors who built his house.

On October 17, 1980, Sobarnia, a self-described workaholic who was current on all his debts and had no unsecured creditors (that is, whatever outstanding loans he had were undergirded by significant assets), officially became a debtor under the terms of the U.S. Bankruptcy code, Chapter 11. “It’s the flip side of the American success story,” remarks Michael MacKinnon, one of Sobarnias former attorneys. “The guy worked his butt off and did very well in real estate, but then through no fault of his own it all turned around on him."

But unbeknownst to the Sobarnias at that time was another possible course of action that many people in similar circumstances were following: filing a lawsuit against the bank for fraud, bad faith, and breach of contract. “Had defendants exercised proper care and skill in the foregoing matter,” reads part of Sobarnias lawsuit against McWilliams, “they would have recommended that plaintiffs bring a motion for a temporary restraining order against the foreclosure based upon discussions and representations made by the bank to plaintiffs." In the early 1980s, major lending institutions found themselves defending lawsuits brought by customers who claimed the banks had reneged on promises to loan money. By requesting injunctions staving off the foreclosure proceedings brought by the banks, bank customers bought time while they waited for interest rates to settle down again, and then they refinanced.

“McWilliams should have known there was another approach, besides Chapter 11” Sobarnia fumes. “I assumed, being a former bankruptcy judge, he’d have a state-of-the-art knowledge of what all the options were.” McWilliams angrily declined any comment regarding Sobarnias case.

So the Sobarnias were bankrupt, but they never believed they’d lose their home. McWilliams and his junior associate, Michael MacKinnon, repeatedly assured the Sobarnias that the bankruptcy judge, Ross Pyle, would not allow the bank foreclose, according to Sobarnia and court filings.

McWilliams didn’t tell Sobarnia that he, McWilliams, was on the bankruptcy bench in 1975 when Pyle became a bankruptcy judge, at a time when there were only three bankruptcy judges in San Diego. Sobarnia also learned later from other bankruptcy attorneys that McWilliams had helped to train Pyle as a judge and that the two men were friends. If he had known this, Sobarnia would have felt even better about his chances of being protected from foreclosure.

In early 1981, Sobarnia took McWilliams’ advice to sell off a $35,000 first deed of trust so that he’d have operating funds. That note had been providing $350 a month, a significant portion of the Sobarnias’ income at that time. (Rent from the two apartment houses covered the mortgage payments on those properties.) Permission to sell the note was sought from and granted by Judge Pyle.

Sobarnia says that McWilliams didn’t tell him that the proceeds from the sale of the note (which amounted to $31,000) would be impounded by the court. This became another cause of action in Sobarnia’s suit against McWilliams. Sobarnia presumed, wrongly, that he would have the discretion to spend this money as he thought fit, and he wanted to use it to try to start another business and pay off some small remaining bills on the house. But what really shocked him was McWilliams’ move for attorney’s fees right after the note was sold. On March 31, 1981, Judge Pyle authorized the transfer of the note to a buyer Sobarnia had found.

The next day, April 1, McWilliams applied for $5600 in interim attorney’s fees, which were later granted, according to bankruptcy court records. Sobarnia’s attempts to use some of the money to start another business were denied. Payment of any expenses were made subject to court approval.

The Sobarnias began to feel that they had been sucked into a kind of bankruptcy opera, in which each player, other than themselves, already knew the particular part he was playing and only wanted to get on with the inevitable outcome of the drama. The onrushing climax wasn’t slowed a bit by a document filed in April 1981, from Central Federal Savings and Loan. Central Savings, the Sobarnias’ largest creditor, filed the document listing its claim as $834,685.71, which was the amount of its loan one of the Sobarnias’ apartment buildings. All payments were current. John Pyle, brother of Judge Pyle, signed the document as a vice president of the bank.

The American Bar Association’s Code of Judicial Conduct, Cannons 2 and 3, seem to support Sobarnia’s contention that Judge Pyle should have “recused” himself — declined to sit in judgment on the case — because of his brother’s position at Central Federal. Canon 2 states that “judges should avoid impropriety and the appearance of impropriety in all their activities.” Canon 3 more specifically states that a judge should disqualify himself from hearing a case when a relative, including a brother, is an officer, director, or trustee of a party to the proceeding. Bankruptcy rules, the California Code of Civil Procedure, as well as voluminous case law also raise questions about whether the judge should have disqualified himself from the case.

Pyle declined the opportunity to respond to questions on the matter.

Attorney Michael MacKinnon, who was not named as a defendant in Sobarnia’s legal malpractice suit, says he learned that Pyle had a brother at Central Federal (which merged with Coast Savings and took that name in 1987) in the latter stages of his work for Sobarnia. “I know Judge Pyle recused himself from other cases involving Central Federal," recalls MacKinnon, “but only when the company was directly involved. In Jay’s case, Central Federal wasn’t foreclosing on the house. They were a secured creditor on a different piece of property.” A piece of property, Sobarnia argues, which was his largest asset and which became a principal focus of the bankruptcy proceedings.

For several weeks in the summer of 1981, while California First pursued foreclosure on his home, Sobarnia had only sporadic contact with his attorneys, who were then in the process of merging with Jennings, Engstrand, and Henrikson, an expanding San Diego law firm that specializes in municipal and state government affairs, as well as issues relating to public water supplies in Southern California. Sobarnia was growing increasingly anxious about the possibility that the judge might allow California First to foreclose on his house. On July 15, Judge Pyle approved the change in law firms (McWilliams and MacKinnon still represented the Sobarnias) to Jennings, Engstrand; six days later, what the Sobarnias believed would never happen, happened: Judge Pyle allowed the bank to take the house within eight months if the couple couldn’t pay off the $250,000 construction loan, and in addition he ordered the Sobarnias to pay $31,000 in interest that had accrued on the bank’s loan since the Sobarnias stopped making payments.

The payment plans worked out by the judge were these: the Sobarnias would have to pay the bank $5000 cash immediately; they’d have to pay $1500 a month for the next two months, then $2500, then $3480 a month for six months. At the end of this six-month period, on March 31, 1982, if the Sobarnias hadn’t yet sold the house or refinanced it, the bank could officially take ownership of the house. Pyle also ruled that the Sobarnias would have to pay the bank’s attorney’s fees.

If that news weren’t bad enough, the Sobarnias would have to pay $551 a month to the bank for the next fifteen years on the $35,000 loan they had taken out to complete their new home construction. This loan was secured by a duplex the couple owned on Lincoln Avenue in North Park, which served as the Sobarnias’ office and the home of Geri’s ailing mother. "Can you imagine what it feels like to lose your home like that and then to still have to pay the bank $550 a month for a house you no longer own?’’ Jay Sobarnia asks. “It’s worse than your worst nightmare.” Even after the judge ruled that the foreclosure could proceed, Sobarnia says his attorneys still insisted that they would be able to block it.

From the bank’s point of view, foreclosure was fully justified. The Sobarnias had stopped making payments on their loan, had not been able to refinance it through another bank, and had not been able to find a buyer for the home. From the Sobarnias’ point of view, their home was snatched from them in a fit of panic by the bank, backed up by a blind bankruptcy system that was skewed to represent the lending industry against deadbeats and money manipulators. The Sobarnias had secured assets worth almost three million dollars, and a fifty percent equity in the property the bank was foreclosing. The bank’s $250,000 loan was safe, the Sobarnias reasoned, and they were supported by case law and bankruptcy rules. (Conversely, the hank’s position was also supported by case law and bankruptcy rules.) When interest rates settled back down, it was reasonable to expect that the couple could easily refinance their home or else take out a second mortgage on their two large apartment buildings. Later, the Sobarnias sued their attorney for, among other things, failing to appeal Pyle’s order allowing the foreclosure.

Oddly, after the bank took possession of the house and the Sobarnias moved into a small apartment on Utah Street in North Park, California First seemed in no hurry to sell the house and get the cash it had seemed so eager for. The house sat vacant for about a year before the bank finally sold it. Sobarnia says the bank was offering, in the multiple-listings service, a low-interest loan on the property to potential buyers.

But the Sobarnias lived in the house until the end of February 1982. As they struggled in vain to make the payments ordered by Judge Pyle, Jay Sobarnias anger grew exponentially. Before he had to give up the house he’d built he decided to strip it of what he regarded as personal items. These included special gold-brushed bathroom fixtures, a bidet, toilets, a microwave oven, several lighting fixtures, a fireplace mantel from the master bedroom, stained-glass windows, a custom-made front door, twelve other solid-core doors, and other assorted household items. The Sobarnias say they replaced some of these personal items with other, less expensive items and that they made the switch prior to March 3, 1982, the date the bank took ownership of the property.

The bank, however, had a different view of what happened. In court filings, bank officers accused the Sobarnias of theft in taking the items from the house, claimed many of the items weren’t replaced and others were replaced with far inferior substitutes, and even filed a theft report with the sheriffs department. A deputy tracked down Jay Sobarnia but decided it was a civil matter and didn’t arrest him. The bank contended it was theft because the items were taken from the house after March 3, when the Sobarnias no longer were the home’s owners. (The bank had given the Sobarnias access to the house for two weeks after March 3 so they could show it to potential buyers.) The bank estimated that the property removed by the Sobarnias was worth about $42,000, according to court documents.

But the Sobarnias have receipts and witnesses who helped them move, evidence that supports their contention that the items were removed, packed, and transported to storage between February 26 and March 2. Invoices filed in the court record show purchases and installation of some of the replacement items on March 1 and 2. Signed affidavits from people who helped them remove some of the items and move out of the house state that this was done over the weekend of February 27.

But a bank officer’s affidavit states that he inspected the property on March 5 and the original doors, fixtures, and appliances were still in place then. This assertion, although it was refuted by documented invoices and receipts, became the basis for an “adversary claim” filed by the bank against the Sobarnias, which served to paint them as untrustworthy and led to numerous complications adverse to them, including the appointment of a trustee to take over their financial affairs.

Certainly the propriety of stripping the house is questionable. “Jay’s a wildman,” comments one of his friends. “Gutting the house may have been legal, but I don’t know that it’s moral. Plumbing fixtures? Lighting fixtures? No wonder nobody trusted him." A party to the bankruptcy action who requested anonymity states, “Jay’s the one who created the problems for himself when he lost his head and stripped the house. The thousands and thousands of dollars that had to be paid in attorney’s fees were his own fault; he’s just very contentious, and he has a w~ay of getting under your skin. He’s the one responsible, and then he complains about the consequences.”

The bank filed an insurance claim (on the Sobarnias’ former homeowner’s insurance policy) for “theft or vandalism” of the items and was eventually reimbursed $17,500 by State Farm. The bank also pursued a settlement from the Sobarnias, which started out as a $150,000 punitive claim but eventually amounted to $15,000. That settlement was still a year away, however. In March of 1982, the Sobarnias were just tasting of the humiliation they would be gorging on after moving from a mansion to a small, two-bedroom apartment in North Park.

On May 7, the Sobarnias were dumbfounded to learn that their original attorney, Keith McWilliams, had filed a motion to withdraw as their counsel, citing “irreconcilable differences" and offering to explain these to the judge “in camera," outside of open court. The Sobarnias hadn’t worked with McWilliams for almost a year, McWilliams having assigned the case to his associate, Michael MacKinnon. They say MacKinnon was just as surprised as they were about McWilliams’ motion, and MacKinnon assured them that he wanted to remain on the case. Jay Sobarnia says that MacKinnon instructed him to oppose orally in court McWilliams’ motion, whereupon MacKinnon got up and stated his agreement with Sobarnia. The motion to withdraw was withdrawn. McWilliams wasn’t present at the hearing.

The Sobarnias, in their suit against McWilliams, stated that no irreconcilable differences existed and his motion to withdraw "caused prejudice to plaintiffs standing with the court.” Their suit against McWilliams was recently dismissed because the statute of limitations governing legal malpractice claims had run out before the suit was filed.

It appears that Pyle ruled against the Sobarnias at virtually every turn. In June of 1982, California First Bank, three months after taking over the Sobarnias’ house, continued to press for appointment of a trustee to take control of the couple’s assets. The bank had asked for such an appointment shortly after the Sobarnias filed for bankruptcy, but the judge had continued to allow the Sobarnias to be “Debtors in possession” of their assets while the two sides argued in court papers over the legality and appropriateness of the action. Appointment of a trustee is a radical step in bankruptcy, as the intent of the bankruptcy code is to allow the debtor to remain in possession of his own assets whenever possible. But the bank argued successfully that the Sobarnias may have violated the judge’s order regarding the foreclosure by removing many of the fixtures and replacing them with less costly items. Pyle appointed an examiner, Herbert Weiss, to investigate the incident and recommend to him whether the case should be converted to a Chapter 7 (in which all the Sobarnias’ assets would be liquidated) or continue as a Chapter 11 and appoint a trustee.

Weiss’s report, filed in July, was highly critical of the Sobarnias. He stated that it was impossible to determine whether the items were removed before or after the foreclosure date, notwithstanding the receipts and affidavits the Sobarnias filed that supported their claim that the items were taken before the bank owned the house. Weiss also implied that he believed the bank officers more than he did the Sobarnias and their friends. Regardless of when the items were taken, he termed the removal “improper conduct on the part of the Debtors” and stated that Jay Sobarnia had exhibited “animosity" toward the bank. “On two separate occasions... Mr. Sobarnia stated that he would rather destroy some of the items before he would return them to the property,” wrote Weiss. “The attitude and conduct of removing items such as thermostats from the property leads the Examiner to the conclusion that this Debtor should not be allowed to remain in possession of the other assets currently before this court.” Weiss went on to warn that Sobarnia might similarly strip the apartment buildings. He recommended a trustee take over the Sobarnias’ assets.

This report infuriated the Sobarnias. They say it contained false and misleading information and wrongfully discredited them in such a way as to give the court a false pretense to take over their properties. Jay Sobarnia can’t see it as the inevitable result of his improperly stripping the house; to him, it looks as though he simply came too close to a whirlpool of . interlocking judges, lawyers, trustees, accountants, and property management firms and got drawn in because he had assets that could be liquidated. The cronyism and country-club atmosphere of bankruptcy court have been a constant complaint all over the country for quite a while. The number of formal complaints filed nationally against bankruptcy judges has climbed steeply in recent years, as have the sentiments expressed by one debtor to the Wall Street Journal in a recent bankruptcy court expose: “It’s kind of ridiculous,” commented the man, who was in bankruptcy in Oregon. “It’s just a place where attorneys make money. The people it’s trying to serve don’t get served.”

In his suit against McWilliams, Sobarnia alleged that his attorneys "knew or should have known that the report contained, inflammatory and grossly negligent information designed to discredit plaintiffs ... (and) that the report was incorrect, inaccurate, and misleading. Defendant failed to object or dispute the report.” In August of 1982, Judge Pyle appointed a trustee to take over operation of the Sobarnias’ estate.

The trustee, Eric Wolf, took immediate steps toward auctioning off the apartment houses. He hired a real-estate auctioneer to investigate the properties and found that the Sobarnias had missed the last few payments on the apartment mortgages.

Sobarnia says he had diverted the money to get the house in shape in a failed last-ditch attempt to sell it. He claims that getting behind on the apartment house payments was not a big problem and that the banks holding the notes had not taken any adverse action. The rents on the two buildings — one containing forty-seven units and the other containing twenty-five units — were due to be raised anyway, and this would rectify the arrearages. But they had to hand over the properties to Wolf before they were able to raise rents.

Just as Wolf was taking over, the Sobarnias changed attorneys. They figured their original attorneys had failed them, since the lawyers had been unable to stop the foreclosure on their house and had not prevented the appointment of a trustee who was now trying to liquidate their whole estate. Jennings, Engstrand claimed it was owed another $19,263.25 from the Sobarnias, but the couple contested it and held the payment in abeyance for several months.

Meanwhile, Eric Wolf started acting like a trustee in charge of dissolute deadbeats, even though in his own report to Judge Pyle he stated that “the debtors show balance sheet solvency based upon valuation of assets over liabilities." He acknowledged that there were only two unsecured creditors, with small monetary claims against the Sobarnias, but still recommended that the Sobarnias’ properties be liquidated, that an accountant (other than the CPA employed for years by the Sobarnias) be hired to examine the books, and that a property management firm should take over the apartments until they were sold. The judge concurred in all of this.

The Sobarnias’ accountant later came to court to testify that the value of the work performed by the accounting firm hired by Wolf was at most $3000; the judge awarded the full amount of $13,259.67 requested by the hired accountants. The trustee made many such decisions that were extremely costly to the estate; he stopped paying the $168-a-month mortgage on the Lincoln Avenue duplex, which served as the couple’s office and the home of Geri’s mother, prompting the mortgage holder to initiate foreclosure proceedings on that property. "That note was always current until the trustee took over," remarks Geri Sobarnia. "We certainly had enough to make a $168 payment." The trustee didn’t pay property taxes on the apartment buildings, since the rents collected weren’t covering all of the expenses. (Sobarnia admits that he himself hadn’t paid taxes on the property for two years before the trustee took over.)

Back taxes eventually amounted to $27,000. “The trustee is supposed to protect and maximize income from the estate,” Jay Sobarnia argues. “But on the contrary, it looks to me like their basic game plan is to really maximize expenses and minimize cash flow so they can go to the judge and say, ‘The property is losing money, we have to sell it.’ ” Eric Wolf declined any comment on the case.

The Sobarnias say Wolf kept rents in the buildings well below market levels, and this hampered their efforts to find a lender who would refinance the apartments. They toyed with the idea of selling the buildings themselves but decided that borrowing money-on the apartments was their one hope of getting free of bankruptcy. Debts from creditors began piling up once the trustee took over, but the Sobarnias’ efforts to find a lender were hampered by the trustee himself. Not raising rents to market levels limited the amount of money that could be borrowed on the properties, because it held down the amount of cash that could be generated for a mortgage payment. Plus, the trustee was hostile to the Sobarnias’ efforts to borrow on the apartments. “The trustee is aware that the debtors are attempting to refinance the existing secured loans in order to cure the present arrearage problem,” Wolf wrote in his first report to Judge Pyle. “But this solution only substitutes a new debt for the old one, and the trustee is not confident that the debtors can borrow their way out of debt.”

Borrowing their way out of bankruptcy is precisely what the Sobarnias were able to do, two years later. Remarks Sobarnia, “I was lucky, through perseverance, to save my ass; they wanted to sell off everything I owned."

Wolf seemed determined to block the couple’s attempts to make a deal with a lender. In one such case, the Sobarnias had made a loan application at Jones Mortgage Service, which has been in business in San Diego for twenty-five years. In an affidavit signed by a loan broker for the company, Joanne Seipp stated, "I was contacted by Eric Wolf, who represented that he was a Trustee in the Chapter 11 proceedings in which Mr. and Mrs. Sobarnia are the debtors. I was immediately struck by Mr. Wolf's belligerent and aggressive manner. He challenged who I was and what I was doing in regard to the property. He interrogated me in a very intimidating manner. He was further very uncomplimentary about the Sobarnias and made what I believe to be derogatory comments about their character and intentions. He advised that the Sobarnias were trying to get the money from any loan proceeds paid to them directly. He further intimated that they may try to take the money and leave the state. He indicated that he had witnesses to that and that he had supporting evidence on tape. The general indication of the Sobarnias was that they were not ‘good people.’ ” Seipp also stated that Wolf made it clear that no appraisers would be allowed onto the properties.

The Sobarnias didn’t get a loan from Jones Mortgage, just as earlier they didn’t get a loan from Central Savings, even though they say the lender’s loan committee had approved a loan of just over one million dollars that would have taken the Sobarnias out of bankruptcy. This one was foiled in early 1983 when California First Bank increased its claim on the household items removed by the Sobarnias to $150,000, claiming $100,000 in punitive damages. The bank had previously upped its claim to $54,000, after originally stating the value of the removed property was $42,000. The Sobarnias had taken this $54,000 claim into account when they penciled out the Central Savings loan, but there were insufficient funds in the loan to cover the bank’s $150,000 claim. The Sobarnias were unable to get a quick hearing before Judge Pyle to argue that the bank’s claim belonged more properly in a civil court, not in bankruptcy court. In a June court appearance, the Sobarnias say Pyle decided that the earliest he could hear the argument was in October, four months away. “This was ludicrous!” fumes Sobarnia. “If any of the banks had requested a hearing, they would have gotten it yesterday." The Sobarnias believe the judge’s inaction effectively blocked the loan and kept them in Chapter 11. Three months later, California First settled its $150,000 claim against the Sobarnias for $15,000.

“You come out of court just feeling lower than a dog,” Geri Sobarnia says of her experiences in bankruptcy.

The Sobarnias had to make a request to the judge for a monthly allotment of money from their estate for normal living expenses. They asked for $3000 to pay monthly bills and to supply food and other essentials for themselves and their two toddlers. The judge awarded them $2300; some months they say they received considerably less than that from the trustee, because the estate wasn’t producing much extra cash. But the worst of it wasn’t the inability to buy toys for the kids or run to the corner on an impulse for frozen yogurt nor the way the Sobarnias had to become adept at charging meals on credit cards at the end of the month in certain restaurants they knew wouldn’t send in the bills right away. The worst wasn’t even having to borrow money from Jay’s mother to purchase food on occasion. The worst was not having the money to bury Geri’s mother when she died of cancer in May 1983.

As her mother’s body lay in Sharp Hospital, Geri called around to crematoriums but found she couldn’t afford any of them. She checked with the county but couldn’t qualify to receive a pauper's cremation because the Sobarnias technically had assets. They were finally able to get a few hundred dollars from the trustee for cremation and the cost of shipping the ashes back to Buffalo, New York, for internment. “I felt so embarrassed," she says now. “It was almost like I was letting my mother down, letting her lay there in the hospital for five days after she passed on.”

A month later, Geri had to sell her piano in order to finance an emergency trip to Buffalo to see her brother in the hospital before he died of brain cancer. “To be rendered financially impotent after having worked all your life and taken care of other people is about as humiliating as you can get’’ Geri explains. “We couldn’t even buy a baseball and bat for our son.’’

At about the same time they were trying to find the money to cremate Geri’s mother, Judge Pyle was settling a dispute between the Sobarnias and their original attorneys at Jennings, Engstrand, and Henrikson. The Sobarnias had opposed the law firm’s final application for attorney’s fees, which amounted to $19,263.25 (the lawyers had already been paid about $5600), on the grounds that the lawyers had been ineffective. Despite the attorneys’ assurances to the contrary, the Sobarnias’ house had been taken back, a trustee had taken over their affairs, and they had lost at virtually every turn in court. In response to the Sobarnias’ opposition to payment of the fees, the lawyers stated, “The opposition of the debtors is a direct attack upon the integrity, skill, and good faith of the applicant. In order to properly defend itself, the applicant must be permitted to reveal certain actions and communications of the debtors which otherwise might be protected by the attorney-client privilege." This was the second time that McWilliams had attempted formally to speak with Judge Pyle outside open court about the Sobarnias. The judge awarded Jennings, Engstrand all the money it asked for. Two years later, Judge Pyle resigned from the bench and joined the law firm as a bankruptcy attorney. He declined to answer questions about that subject.

In the summer of 1984, the Sobarnias were finally able to borrow $450,000 from Unity Savings and Loan of Los Angeles, at sixteen percent interest, which allowed them to pay off their unsecured debts and get out of bankruptcy. Geri describes the efforts to secure the loan as a “car race" against Eric Wolf, the trustee, who was trying to sell off one of the apartment buildings. Even as their loan was receiving tentative approval in March, Wolf was filing in court a notice of intent to sell one of the apartments at a private trustee’s sale. And just as the loan was coming through, attorneys for California First, Central Savings, World Savings, and Great American Federal Savings were filing objections to the closing out of the Chapter 11. By now, Sobarnia was accustomed to what he perceived as efforts on the part of various parties to keep him in bankruptcy. In a Felliniesque twist, soon after he escaped the clutches of bankruptcy, World Savings — which had objected to the Sobarnias’ final plan of reorganization — refinanced the Sobarnias’ holdings, loaning them just over two million dollars.

In the final accounting, the Sobarnias’ second set of attorneys received about $75,000 in fees; Jennings, Engstrand got $25,000; attorney’s fees for lawyers representing California First came out of the bank’s foreclosure sale of the Sobarnias’ house and couldn’t be determined. Today the Sobarnias live in a new home they built near Escondido, using funds from a second mortgage taken out on one of their apartment buildings. They didn’t take a construction loan this time. “No way am I ever going to take another construction loan from a bank,” Sobarnia remarks. “No way in hell.” □

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