In Re Robert Lee Thomas, Debtor. Robert & Karen Lucas v. Robert Lee Thomas, California Real Estate Recovery Fund, Real Party in Interest

Appellants, Robert and Karen Lucas, applied for payment from the California Real Estate Recovery Fund to satisfy a judgment they obtained against appellee Robert Thomas in their adversary complaint in Thomas’s bankruptcy proceeding. The district court approved the bankruptcy judge’s recommendation denying the application on the ground that the Lucases had not proved the facts required to recover under Cal.Bus. & Prof.Code § 10471 (West Supp. 1985). We reverse and remand.

FACTS and PROCEDURE

The Lucases invested in the Southern California Management Co., a sole proprietorship owned by Robert Thomas. They received some promotional material about the company. The material represented that investors would receive a rate of return on their investment of 28%, that the investments were secured by first deeds of trust on single family homes in desirable neighborhoods, and that the properties would never be encumbered by liens in excess of 40% of the properties’ value. The Lucases invested $32,000 in the company. In return they received two promissory notes for $18,000 each, secured by deeds of trust on two condominiums in Indio, California, which were part of a 52 unit condominium…