Monday, June 23, 2008

Laurelmor... "Extreme care should be taken to maintain the stability of these slopes at all times..."

The North Carolina Geological Survey has determined that building sites throughout Watauga County are threatened by landslides. Hazard maps reveal that 41% of the land in the county is located in the path of potential landslides and 20% of the mountain slopes are highly unstable.

There are many land developers currently selling "at risk" building sites in Watauga County but the most prominent is Ginn Clubs & Resorts. Laurelmor, the Ginn Company’s first North Carolina enterprise, covers more than 6,000 acres and is located in the southeastern section of the county. On November 11, 2006 the Ginn Company opened Phase 1 of the resort to prospective buyers.

In a recent interview Bobby Masters, executive vice president of the company, stated that 200 Laurelmor lots have been sold and that work on the infrastructure and the estimated $50 million golf course continues as planned. For additional information please read Scott Nicholson’s article “Growing Pains” The Mountain Times, June 19, 2008.

History of Laurelmor

On April 14, 2005 the Ginn Company purchased 5,700 acres of land from David Kaplan of Kaplan Holdings LLC for $57 million. The land was part of Kaplan’s Heavenly Mountain Resort. Prior to the sale Kaplan had received preliminary approval from the Watauga County Planning and Inspection Department for three Heavenly Mountain projects. Approval for these projects transferred to the Ginn Company at the time of sale.

State Memorandum discloses the likely consequences of construction of the proposed Heavenly Mountain Golf Course and Residential Development

On July 31, 2002 Ron Linville, Regional Coordinator, sent a memorandum to Fred Harris, Division Chief of Inland Fisheries concerning the impact of the proposed Heavenly Mountain Golf Course and Residential Development on aquatic resources. The report opens with this assessment:

As per our conversation on the soils at the proposed golf course at Heavenly Mt. The soils within the area are highly erodible with slopes ranging from 25 to over 60 percent. In order to move the stream they would have to cut into the side slopes which could destabilize the entire side slope which could cause slippage and landslides during heavy rain events. Extreme care should be taken to maintain the stability of these slopes at all times, and to keep undercutting of these slopes to a minimum.
Mr. Linville shares the following on page 3 of the memorandum:

Our main concerns focus on the proposal to relocate a significant length of deeply entrenched stream within a valley having a high gradient flood plain and steep valley walls. A consultation with Mr. Perry Wyatt, Regional Soil Scientist with the Department of Environment and Natural Resources, revealed that valley walls in the golf course range from 25-65% slope. Furthermore, because the soils in the area are highly erodible, landslide probability during high rainfall events are increased if these soils are disturbed to the extent proposed. Because of the nature of the stream valleys, relocation of the stream channel will result in increased slopes adjacent to the stream channel and the loss of riparian vegetation (primarily mature trees and shrubs) whose root systems bind the soils together. Such conditions will be present for many years. During this time, the soil saturation during heavy rainfall events or heavy snows will increase the probability of landslides occurring. Damage from a landslide would not be restricted to the project site.

The Ginn Company, like all other Watauga County land developers, is conducting business in a regulatory void. Laurelmor buyers should be aware there are no state or county regulations governing hazardous land development. Decisions on where and how to build are left to the discretion of paid consultants.

Friday, June 13, 2008

Legal Questions Concerning Laurelmor Land Sales

Laurelmor, a Ginn Clubs & Resorts mountain development, covers more than 6,000 acres and is located near the communities of Boone and Blowing Rock. Project plans envision the eventual sale of 1,500 single-family home sites and 400 condominium units.

Ginn Clubs & Resorts hosted a mountain party in the fall of 2006. They were celebrating the unveiling of Ginn Laurelmor, the company’s first North Carolina real estate venture. On November 11, 2006 Ginn reportedly sold 240 Laurelmor lots during the auction/sale event with signed contracts worth $150 million. For a description of the land sales please read Scott Nicholson’s “Laurelmor property: Ginn auction draws $150M” Watauga Democrat, November 13, 2006.

History of Watauga County‘s Landslide Hazard Designation
Mountain land in Watauga County, the primary location of the resort, was classified highly hazardous in 1998 by the North Carolina Department of Emergency Management.

In September 2004 Watauga County was declared a federal landslide disaster area. Inside the White Laurel subdivision one home was destroyed by embankment failures and eight were condemned. These properties are located near Boone.

North Carolina geologists warned in October 2006 that the county’s mountain terrain was likely to experience disastrous slope failures. ( "Watauga tops landslide list" Watauga Democrat, October 6, 2006)

On January 22, 2008 the North Carolina Geological Survey presented the following facts to the Watauga County Planning Board: 41% of the county lies within the path of potential landslides and 20% of the land is high hazard based on the landslide stability map. This risk rating is now applicable to individual properties.

Ginn Laurelmor and the Interstate Land Sales Full Disclosure Act
Ginn Laurelmor sales are subject to the Interstate Land Sales Full Disclosure Act and all buyers must overtly receive a Property Report prior to making a decision to buy land or condominium units.

Ginn Clubs & Resorts Lawsuit
A group of Ginn purchasers filed a federal class action lawsuit in May 2007. The disputed sales transactions involve a variety of Florida Ginn resort properties. Joseph Shallal, an attorney representing some of the plaintiffs, provides an overview of the complaints:
The Ginn Resorts failed to make material disclosures and failed to deliver a Property Report to many, if not all, of the purchasers prior to signing a purchase agreement and therefore violated the Act permitting the purchaser to rescind or cancel the deal even after closing. The lawsuit also claims that there were violations of Securities and Exchange Commission Rules and Regulations, and that Ginn engaged in a Ponzi scheme. Ginn marketed these properties as investment properties. This claim is similar to selling stock which requires registering with the SEC. Ginn did not do this and violated the SEC Rules and Regulations.
Mr. Shallal’s comments were extracted from Vanessa Denha-Garmo’s article “Paradise Lost” The Chaldean News, January 6, 2008.

Laurelmor and Landslides
Geologic studies have determined that some Laurelmor mountain acreage is unsuitable for development.

The sale of hazardous land exposes homeowners and property owners' associations to possible uninsurable financial loss. Laurelmor purchasers should be warned that they will be self-insuring for potentially costly or catastrophic earth movement damage. The insurance industry will not underwrite this peril. Red zones on landslide maps indicate high hazard building sites. Land in these areas require full investigation. Prospective buyers should engage their own professionals to determine slope stability. Costs for these surveys are reasonable, generally less than $2,000.

Failure to Disclose
The Ginn Laurelmor promotional/sales website does not disclose landslide hazards nor does it show the location of the resort on the Watauga County Landslide Hazard Maps. It is unknown whether Ginn Laurelmor purchasers were provided with a Property Report and what information was contained therein.

Wednesday, June 4, 2008

Cielo Falls and the Interstate Land Sales Full Disclosure Act

In 1968 Congress passed the Interstate Land Sales Full Disclosure Act to protect consumers from fraudulent sales practices. This bill requires land developers to register their subdivision plans for a 100 or more non-exempt lots with the U.S. Department of Housing and Urban Development (HUD). Developers offering 25-99 lots as part of a common promotional plan are not required to register but are subject to the anti-fraud provisions. Violations of the Act may result in criminal and civil penalties and the buyer's right of rescission.The law also stipulates that each purchaser receive a pre-sale Property Report detailing all material facts about the land offered for sale. The sale of condominiums is covered under this Act.

The Property Report is intended to be a revealing document. It is uniform in design and requires full disclosure of known potential land risks.

Western North Carolina Mountain Land is Hazardous.

The mountain terrain in the 21 county region known as Western North Carolina is inherently unstable: landslides are significant threats to lives and property. Western North Carolina mountain developers who are subject to the Act should disclose the following material information under the Land Characteristics and Climate/Hazard Section of their property reports:
1. The land in this subdivision is naturally hazardous. Geologists and soil experts have determined that the lots in this subdivision are at risk of slope failure. Homeowner policies will not cover this damage.

2. This project was approved without landslide hazard mapping and under regulations that did not require site specific stability studies. Please contact the North Carolina Geological Survey for information regarding the Western North Carolina Landslide Mapping Program.
Another section of the report defines financial responsibilities for the Property Owner's Association. If applicable, the following should be disclosed:
Roads in this subdivision are private and will be maintained by the Property Owner's Association after the developer's obligations are satisfied. Subdivision roads are presently stable but are subject to erosion and slope failure. All future road costs will be shared by members of the association.
The Cielo Falls subdivision is located near the communities of Boone and Blowing Rock. It is unknown whether landslide risks are revealed in the Cielo Falls property report. For additional information concerning consumer rights and protections please contact the U.S Department of Housing and Urban Development.