MURRIETA -- The California Department of Real Estate is trying to bar a local broker from the industry, accusing him and his company of arranging inflated appraisals in order to pocket huge commissions.

Hendrix Montecastro already faces a volley of lawsuits from investors who say that Montecastro made them pawns in a massive mortgage scam. Five sets of plaintiffs allege that Montecastro and a half-dozen other defendants led them to buy multiple houses and that Montecastro then squeezed tens of millions of dollars out of the resulting home equity.

Montecastro and his company, Stonewood Consulting Inc., inflated appraisals, failed to account for clients' money, and concealed mortgage brokerage fees, Deputy Real Estate Commissioner Janice Waddell wrote in an accusation filed Wednesday and released Thursday. The accusation is not a criminal charge; it triggers a hearing at which an administrative judge could revoke or suspend Montecastro's real estate license. Defendants can appeal penalties in state court system.

It isn't clear whether Montecastro is still active in California's real estate industry. Soon after the first lawsuit was filed against Stonewood on Jan. 5, the company abandoned and sold the house in northern Murrieta that it had used as an office. Montecastro also canceled his affiliation with Ocean Ridge Equity, though that mortgage company is nevertheless still registered at another Murrieta house owned by Montecastro's wife.

Neither Hendrix Montecastro nor his attorney, Bill Sauls of San Diego, could be reached for comment Thursday. Montecastro, Sauls and other defendants haven't returned numerous calls and e-mail messages seeking comment since early January.

The accusation filed this week cited more than two dozen alleged violations of California real estate laws. Several allegations centering on Stonewood's record-keeping were among the most serious, department spokesman Tom Pool said. Real estate brokers and mortgage brokers are required to keep detailed accounts of clients' money as a check against theft and fraud, Pool said. Stonewood didn't keep track of money in trust accounts separate from its own, as the law requires, according to the 16-page accusation.

"Record-keeping is a cornerstone responsibility of a real estate broker," Pool said. "If a broker wants to hide something, why would he turn over the evidence?"

In a series of civil lawsuits, plaintiffs allege that Montecastro, Murrieta-area residents James Duncan and Maurice McLeod, Fullerton resident Charlie Choi and Palm Springs-area businessman Chris Oetting recruited clients into an investment group from 2004-06, saying they could triple their money in as little as three years.

To round up cash for the investment pool, the men allegedly enticed the clients to cash out retirement accounts and borrow tens of thousands of dollars on credit cards that the men helped them obtain, according to the lawsuits.

But investors who are now suing say the defendants simply pocketed the money and are using it to fund lavish lifestyles. A sixth lawsuit, filed Tuesday, accuses Duncan of hiding much of the money in the accounts of the clothing boutique that his wife bought for about $100,000 late last year.

James and Andrea Duncan have declined to comment on the lawsuits.

The biggest source of cash for the investments was a series of more than 200 mortgage loans that Duncan, Montecastro and the McLeod allegedly pressured the clients into taking out. Plaintiffs allege that the three men convinced them to buy two, three or even five houses apiece using 100 percent financing. The loans typically added up to $50,000 to $120,000 more than sellers' asking prices, according to the Multi-Regional Multiple Listing Service, a Southern California real estate database. Real estate agents and the state agency say Montecastro openly acknowledged that Stonewood was taking that money as commission.

Montecastro allegedly promised clients that he would put that money into investments that Duncan and McLeod would manage, according to the lawsuits. In the meantime, the investment group would begin helping the clients cover mortgage payments, the clients allege in lawsuits.

But the group allegedly stopped making those payments last summer, according to the lawsuits. Notices of default started rolling in from lenders in October, and about 100 of the houses are now in foreclosure. Several streets in the Copper Canyon area of western Murrieta and several others around the SCGA golf course in eastern Murrieta have been hollowed out.

Expecting lenders to auction or seize the houses, the owners have evicted several dozen families that rented from them.

Houses that Stonewood brokered were typically sold for $50,000 to $100,000 more than nearby comparable houses, according to the real estate database. Managers at local real estate offices noticed the unusual transactions in early 2005 and several warned their agents to steer clear, said Gene Wunderlich, a director at the Southwest Riverside County Association of Realtors.

The Realtor group notified the Department of Real Estate, the Riverside County district attorney's office and the FBI, Wunderlich said. The District Attorney's office began investigating the matter in 2005 or 2006, a senior official said in January. A spokeswoman for the office said its policy prevented her from commenting on ongoing investigations.

Criminal charges have not been filed in either state or federal court.

Several of the plaintiffs said they have been interviewed by FBI agents. The bureau hasn't returned calls seeking comment.

Regardless of the legality of Stonewood's actions, Wunderlich said, Stonewood and similar but smaller operations appear to have played havoc with home prices in several local neighborhoods. That can complicate negotiations over what should be the price of a house, Wunderlich said.

But the more immediate issue is the rising number of foreclosures, Wunderlich said, a trend that he attributed to lower lending standards, a marked slowdown in real estate markets and unusual investment arrangements -- such as Stonewood's -- that have come to light in the last year.

"It's kind of a three-way whammy," Wunderlich said.

Contact staff writer Chris Bagley at (951) 676-4315, Ext. 2615, or cbagley@californian.com.

See also:

Sixth lawsuit alleges money laundering

New player emerges in fraud suits

Scope of alleged scam grows

Investors' legal battles span 5 years

Renters latest victims of alleged scam

Real-estate investors bought on faith

High-ball offers raised flags in 2004

Suit alleges massive mortgage scam