2 State Agencies Probe O.C. Mortgage Lender : Real estate: Lincoln Mortgage & Loan reportedly stopped making interest payments to some investors.

NEWPORT BEACH — State agencies are scrutinizing the books of an old-line mortgage lender here after investors, some of them retirees, complained that their monthly interest checks recently stopped showing up.

Lincoln Mortgage & Loan, which lends investors’ money to home buyers, is being audited by the Department of Real Estate. That agency said it recently called in the Department of Corporations, which among its duties investigates irregularities in the sale of investments.

In late September, a lawyer for Lincoln said in court papers that the company was on the verge of bankruptcy. The company said this week, however, that it may avoid that.

Neither state agency will say why it is investigating Lincoln, which is owned by 68-year-old Kenneth E. Sarvak of Newport Beach, or how much money may be at stake.

Lincoln, which sports a profile of Abraham Lincoln on its stationery, has operated for 27 years with no known problems until now. And a lawyer for Lincoln said that “right now it appears to be just an accounting problem.

“Mr. Sarvak’s been in business a long time,” said Larry Smith, one of his lawyers. “He’s looking forward to continuing many years into the future and making sure everybody gets paid what they’re due.”

There are “hundreds and hundreds” of investors in Lincoln, Smith said. The amounts put up by people interviewed by The Times are substantial: They range from the $50,000 invested by one retiree of modest means to $500,000 or more invested by several more affluent retired people.

Some of the retired investors say that, if they lose the money they have invested with Lincoln Mortgage, they will be destitute.

One elderly Orange County investor, Nancy O’Hara, alleges in a lawsuit that she was misled by Sarvak about her $275,000 investment: Her money was not secured by the deeds to real estate, as she alleged Sarvak had assured her.

Those deeds are important to lenders because, if the borrower doesn’t repay the loan, the lender can foreclose, sell the property and get the money back. Real estate investments without collateral, of course, can be riskier.

Those allegations are false, another Lincoln lawyer said.

“All these people knew what they were getting into,” said John B. Casoria, who is defending at least four lawsuits by disgruntled investors. “The contract speaks for itself--there was no hiding.

“Most people knew the agreements allowed Lincoln very broad power” to invest the money.

When O’Hara and others who sued have demanded over the past year that they be repaid, Sarvak told them that at the time he did not have the money to repay them, according to their lawsuits.

Some of the investors, like O’Hara, agreed to one or more yearlong extensions because Sarvak was still paying interest on their investments.

O’Hara said in her lawsuit that she spoke with Sarvak last fall about getting her money back. She said he told her that, “If I pursued these matters, it would be very difficult for me without receiving the interest payments, and these things could drag out for three years or more. This prospect is, of course, not only upsetting to me, but disastrous to my livelihood and well-being, since I cannot survive without this money.

“I believe Mr. Sarvak knows this and is attempting to prey upon my need for income . . . to get me to accept something less than (that to which) I am entitled.”

Sarvak eventually agreed to pay her and her lawyers’ fees by Sept. 15, but has only repaid a little while continuing to pay interest on the rest. Her lawyers went back into court recently to demand all of the money.

Sarvak, who lives on Newport Beach’s fashionable Lido Island and who was once a car salesman, is known as an amiable man. The investors interviewed by The Times say they either knew him socially or were referred by friends, part of a network of investors drawn to the relatively high interest rates of as much as 12% that he was paying in the late 1980s.

But they complain that in the past few months they often cannot get Sarvak to come to the phone. Some complained to state agencies and local police, they say, after their monthly interest checks for September didn’t show up.

Not all of the investors are wealthy.

“I never made more than $1,500 a month when I was working, and what I’ve invested with Lincoln is all I have to live on now,” said Virginia E. Perry, 75, a retired UCLA employee who lives in the Leisure World retirement community in Laguna Hills.

She said she has invested $50,000.

“I’ve called Mr. Sarvak sometimes four or five times a day,” she said, “but he rarely calls back.”

Sarvak sometimes tells them, investors say, that his firm’s money is tied up in a project to build 325 homes on nearly 600 acres in Riverside County. The partnership developing that project, called Belle Meadows, filed for bankruptcy in August, 1992.

Sarvak loaned the partnership about $10 million, according to the developer, Alexander R. Bellehumeur, who is a Long Beach Harbor commissioner. Bellehumeur’s partnership defaulted on the loan; Sarvak foreclosed and now owns the property, which his lawyers say he is trying to sell.

Howard B. Palmer, a Santa Ana investor, has sued Sarvak over Belle Meadows, demanding the return of $50,000 he invested.

And Bellehumeur, the developer, has filed a particularly acrimonious lawsuit. He alleges that Sarvak intended to foreclose on Belle Meadows all along, so that Sarvak would wind up owning the land. Bellehumeur alleges in his suit that Sarvak paid out the loan slowly so that Bellehumeur would run out of money and time and would have to default on the loan.

He also alleges that Sarvak has transferred part of his interest in the property to associates so that Sarvak’s creditors will not be able to collect money from him.

Lincoln says those allegations and others are nonsense.

“Bellehumeur has a great story to tell, but he’s got no facts to support it,” said Casoria, the lawyer representing Lincoln in the Bellehumeur suit.

Casoria got the Belle Meadows case postponed in September because, he said in court papers, Lincoln would soon file for bankruptcy.

That may be off now, he and Lincoln’s other lawyers say.

“I don’t know if that’s currently the case,” Larry Smith said. “We’re looking at various options available, but the feeling here is that this is a viable corporation.

“It just got too big too fast and lost a little accounting control. People didn’t apply payments to the right account.”

As for the state investigations, “we supplied them with all the material we’ve got,” Smith said. “We think no negative action will result.”