Saturday, July 26, 2008

Western North Carolina Landslide Fatalities

Western North Carolina landslides have killed 6 people since 2003. These deaths should have prompted an urgent landslide awareness-prevention plan but North Carolina lawmakers have failed to act.

The absence of hazardous land regulation and risk disclosure is not unique to North Carolina. In fact many governments neglect to mandate standards that would prevent these tragedies.

Death by Landslide

When a landslide causes a fatality it is generally classified an accidental unavoidable event, but in one woman's death a coroner has concluded otherwise.

In January 2005 Eliza Kuttner was killed when a landslide covered her North Vancouver home. Sam Cooper, a reporter for the North Shore Outlook, has written extensively about the Kuttner landslide. In his December 2007 article,"Homeowners cry foul over DNV landslide risk report" Mr. Cooper discussed the ramifications of the district's geologic hazard report which found that 41 homes were at risk of lethal landslides.

Mr. Cooper looks at who was responsible for Eliza Kuttner's death in his July 23, 2008 article, "Fatal landslide ‘predictable and preventable’: B.C. Coroner". The following is copy of his report:
The Seymour-area landslide that killed Eliza Kuttner “was both predictable and preventable” yet “nothing was done” by government to deal with known safety problems, says the B.C. Coroner’s Report into Kuttner’s January 2005 death.

The report, obtained by The Outlook Tuesday, for the first time outlines the causes of the slide and reveals the post-mortem details of Kuttner’s death – essentially from suffocation and traumatic asphyxia when soaked soil from the backyard of 2175 Berkley Ave. slid from the crest of the steep Berkley-Riverside escarpment, unleashing a 90-metre mudslide that slammed through Kuttner’s Chapman Way home at the base, crushing and burying her.

Drawing far-reaching conclusions from the North Vancouver tragedy, Coroner Tom Pawlowski says similar events are possible across the North Shore and province as development pressure pushes lots onto ever steeper terrain. He makes 12 recommendations, urging governments to define standard levels of risk and coordinate to mitigate danger.

Pawlowski details the results of a report that Baumann Engineering completed for the B.C. Coroners Service, listing six specific causes of the January 19 landslide, including: the presence of development at the top and bottom of the 50-metre escarpment; presence of loose anthropogenic (man-influenced) fill at the crest of the escarpment that had been pushed over the slope since the area was first developed in the 1920s; the presence of a steep slope and gully immediately below 2175 Berkley Ave.; and the occurrence of an unusually heavy rainstorm that saturated escarpment soil.

In the report’s harshest criticism of District of North Vancouver officials, Pawlowski states the district commissioned two studies in 1980 following a series of dangerous slides on the Berkley-Riverside escarpment in 1979 that damaged houses at the base of the slope and backyards at the crest, but did not act on safety recommendations that would have affected properties at the crest of the slope, including 2175 Berkley Avenue.

“The (Klohn Leonoff) report recommended a number of risk reduction measures, such as the removal of fill and improvement of drainage for all properties, including those with low and very low risk ratings,” Pawlowski writes, noting that the Klohn Leonoff report warns "greatest danger from future sliding is to properties at the base of the slope."

“It appears that very little, if any, of this preventive work was carried out prior to the event which resulted in Ms. Kuttner’s death," Pawlowski states.

Quoting the Baumann report, Pawlowski writes “potential land-sliding in the Berkley-Riverside area was both predictable and preventable, but the perception that there was an unacceptable risk was not recognized by government or the residents of this area, and furthermore nothing was done to deal with this problem, which directly led to the occurrence of the fatal landslide.”

For lawyer Jay Straith, who has figured prominently in ongoing litigation stemming from the landslide, including representing the Perraults of 2175 Berkley Avenue, the report is a stinging rebuke of DNV officials.

“The Coroner’s Report shows the Klohn Leonoff report was right from the start but the politicians and bureaucrats did nothing about it,” Straith said in an interview Tuesday. “Mrs. Kuttner died as a result.”

Straith says the district’s case against the Perraults hinges on the argument that a fishpond in the backyard of 2175 Berkley Ave. caused the slide, but as Pawlowski makes no mention of the fishpond in listing causes for the slide, it bodes well for the Perraults.

Straith called Larry Perrault as soon as he read the report, and said Perrault was extremely relieved to hear the results.

“The coroner’s report will be before a court and for a judge to address,” Straith said.

The report does credit the district for “embarking on a number of landslide hazard management initiatives,” in the aftermath of the fatal slide.

District spokeswoman Jeanine Bratina said she could not respond to Straith’s comments relating to upcoming litigation. Asked about Pawlowski’s statement that the district did little if anything to act on the Klohn Leonoff recommendations, Bratina said, “It’s my understanding that many of the recommendations related to private property ... but the district did complete recommendations related to public property.”

Asked if the district will act on any of the 12 recommendations that Pawlowski makes in the report, Bratina said “The district has already done quite a lot (on recommendations) and been proactive.” Mayor Richard Walton was not available for comment.

In essence, the report concludes that lessons should be learned from the Kuttner tragedy, and provincial and municipal governments ought to standardize risk acceptance criteria and response, plus make geotechnical risk studies more widely accessible.

“There are numerous other escarpments in North Vancouver and the Lower Mainland where homes are located in similar circumstances in proximity to escarpments,” the report states. “Whenever development occurs on sufficiently steep ground, as was the case (with the Kuttner death) some degree of risk to human life and property will always be present ... even though such risk cannot be fully eliminated, it is possible to assess the level of risk and apply appropriate control measures.”

As of now in B.C., geotechnical consultants are obliged to keep risk studies confidential unless their clients authorize disclosure. Straith says the province is full of “time-bombs” like the Seymour-area slide and argues that full disclosure of geotechnical risks should be legislated. He believes Pawlowski’s recommendations are prodding government to do so.

“This is a strong recommendation for government to show some leadership.”

Potential Legal Liability for Western North Carolina Mountain Developers and their Lenders

Western North Carolina mountain developers are marketing and selling hazardous land without risk disclosure. Developers knew when they purchased land for their subdivisions that the majority of mountain slopes throughout the 21 county region were identified as dangerous building locations.

Experts have determined that Western North Carolina's mountain soil composition is erodible and thus “unsuitable” or “poorly suited” for urban development. In addition landslides are endemic and they threaten building sites throughout the region. These findings were presented by the North Carolina Department of Emergency Management in 1998 and were validated by the landslide disasters of September 2004. The North Carolina Geological Survey has issued continual warnings about the consequences of constructing homes and roads on land that has not been investigated for landslides and soil stability.

Legal Jeopardy

E Richard Kennedy provides a review of liability issues in "Litigation Involving the Developer, Homeowners' Associations and Lenders." The following case histories were taken from his April
2004 article:

I. Developer Liability

4. Liability Based upon Common Law Fraud

In a California case, purchasers of homes in a subdivision brought suit against a developer, and others, after their homes began experiencing significant structural problems.43 The facts revealed that the developer had used a tract of land prone to landslides because of percolating waters just under the surface. In addition to the possibility of landslides, the soil was highly unstable. After homes had been constructed on the tract and sold to purchasers, cracks began to manifest themselves in the foundations of several homes. The rear section of one person's patio collapsed, and water accumulating around the left side of the house of another purchaser. As it turned out, the developer was acutely aware of the instability of the soil.44 Indeed, the developer had taken measures early on to remedy the situation. However, the developer neither informed prospective homeowners of the instability of the soil nor informed them of his unsuccessful attempts to remedy it.45

The California court stated that fraudulent concealment occurs when a developer conceals from a purchaser a material fact of the subject matter of the transaction which the developer has a duty to disclose. The court went on to declare that a developer has an affirmative duty to disclose to purchasers information that affects, or might affect, the value of homes which they seek to purchase.46 In the matter before it, the court concluded the developer committed fraud by failing to disclose to the purchasers that their homes might develop structural problems as a result of the instability of the soil.47

6. Liability Based upon Breach of an Implied Warranty to Develop in a Good and Workmanlike Manner

In a similar case from Indiana, Jordan v. Talaga,66 a developer sold land "to a builder who subsequently built a home [thereon] and sold it to the plaintiffs. A little over a year later, the plaintiffs' home began flooding once or twice a year."67 In addition to suing the builder, the plaintiffs sued the developer, who argued that he should not be liable since he had not built the home.68

The court found the developer "did more than sell raw land."69 The developer "platted, subdivided and engineered considerable improvements for [the planned community]."70 The developer also "put in sanitary sewers, storm sewers, and streets; they rough graded the lots all for the express purpose of facilitating the building of homes."71 Given the developer's degree of control over the project and because the developer designed the community, the Indiana court found the facts justified imposing an implied warranty of habitability on the developers.72

7. Developer 's Liability under Deceptive Trade Practices Acts

In a South Carolina case, State ex r el. McLeod v. C & L Corp., the court found a planned unit developer violated the South Carolina Unfair Trade Practices Act in a situation in which the evidence revealed that the developer's "sales agents told prospective buyers whatever they felt the buyers wished to hear."79 In particular, the developer's sales representatives had made empty and illusory promises about paving of subdivision roads, ready access to city water, and installation of streetlights throughout the subdivision. None of these representations turned out to be true. The court found these false representations constituted unfair and deceptive trade practices.80

D. Developer's Liability Under Federal Law

3. Developer's Potential Liability Under the Interstate Land Sales Full Disclosure Act

The Interstate Land Sales Full Disclosure Act128 ("ILSFDA") is primarily designed to insure that buyers are well informed of facts that would enable then to make an informed decision about purchasing property before buying certain kinds of real estate.129 According to courts which have interpreted ILSFDA, the act is to be construed liberally and broadly to effect its goal of prohibiting and punishing fraud in land development enterprises.130

Generally speaking, ILSFDA applies whenever subdivided property is offered for sale or lease through interstate commerce. Specifically, section 1701(3) defines "subdivision" as "any land which is located in any State or in a foreign country and is divided or is proposed to be divided into lots, whether contiguous or not, for the purpose of sale or lease as part of a common promotional plan. . . ,"131 This definition has been construed to include condominium projects as well as more traditional subdivisions.132

Basically, ILSFDA imposes three duties upon a developer offering property for sale through interstate commerce: (1) the developer must register the offered property with the Department of Housing and Urban Development,133 (2) the developer may not deliver to prospective purchasers any information that is inconsistent with the registered materials,134 and (3) the developer may not employ any device, scheme, or artifice to defraud or make an untrue statement of a material fact regarding the sale or lease of the property.135 The ILSFDA grants a private cause of action to any purchaser against a developer or its agent if a property sale violates any of the foregoing provisions.136

A plaintiff need not prove reliance or the defendant's fraudulent intent in order to recover under ILSFDA.137 Instead, the purchaser must only establish a material omission or misrepresentation, however innocent or unintentional, by the developer.138

ILSFDA liability is not limited simply to the developer. In Gibbes v. Rose Hill Plantation Development Co., aggrieved purchasers brought an ILSFDA action against the developer, its agents, and directors of the developer-controlled property owners' association alleging misrepresentations were made in the sale of lots.143 The court found directors of the developer controlled property owners' association could be liable under ILSFDA if they participated in the sale and promotion of lots.144


What happens in situations in which the developer is potentially liable to a homeowners' association or to individual home or unit owners but the developer is insolvent?

If the developer is insolvent, potential plaintiffs may want to sue the developer's lender because, after all, they assume, financially speaking, that lenders have deep pockets.

If the developer declares bankruptcy and the lender forecloses, those persons or entities who normally would have sued the developer may seek to hold the lender liable on the ground that the lender has, by foreclosing, stepped into the shoes of the developer.

Even if the developer is not insolvent, a lender makes a tempting target for homeowners' associations and individual home and unit owners in situations in which the lender has taken a highly visible and active role in the development. As discussed below, if the lender has done so, and has exercised an inordinately large measure of control over the developer's decisions, the lender could find itself a defendant in a lawsuit brought against the developer by homeowners or a homeowners' association.

A California decision, Connor v. Great Western Savings & Loan Ass'n,210 illustrates the fact that a lender may become subject to liability if it actively participates in the development of the planned unit development. In Connor, the lender, Great Western Savings and Loan Association ("Great Western"), made a construction loan to a developer of a large tract of land located in southern California. The provisions of the loan agreement significantly involved Great Western in the decision-making aspects pertaining to development of the tract.211 Great Western had the right of first refusal to make long-term mortgage loans to buyers of the homes, the right to warehouse the tract of land until the developer began using the property, and, perhaps crucially, the right to refuse to disburse funds if the construction work did not conform to the required plans and specifications.212

The Connor plaintiffs purchased single-family homes in the development. Because of poorly designed and constructed foundations, the homes "could not withstand the expansion and contraction of the adobe soil."213 As a result, the plaintiffs' homes sustained serious damages. The plaintiffs sought damages from the developer and the lender, Great Western. Finding the developer negligently constructed the homes, and ignored soil conditions prevalent at the site, the court allowed the plaintiffs to recover against the developer.214

The court also held that Great Western had a duty to the buyers of the homes "to exercise reasonable care to protect them from damages caused by major structural defects."215 In imposing this duty on Great Western, the court made it clear it was not doing so simply on the ground that Great Western loaned money to the developer. The court emphasized the lending agreement gave Great Western certain specific rights with regard to the project that far exceeded a lender's traditional role. In effect, the court held that Great Western became a partner of the developer with regard to the development of the planned unit development.216

It is important to note that the Interstate Land Sales Full Disclosure Act defines the term "developer" as,

any person who, directly or indirectly, sells or leases, or offers to sell or lease, or advertises for sale or lease any lots in a subdivision[,]
15 U.S.C. s. 1701(5).

Thursday, July 24, 2008

Slowing Sales and Environmental Issues Force Closure of Grey Rock

It has been more than three years since Land Resource, LLC began selling land in Grey Rock, the company's Western North Carolina mountain slope development. Grey Rock at Lake Lure received national publicity through the 2006 HGTV home giveaway promotion. Today the Dream Home is the only structure completed on the 3,917 acre site although more than 400 lots have been sold. Grey Rock lots were priced from $200-700 thousand.

John Boyle reported in his July 11, 2008 Asheville Citizen-Times article “Dream Home developer closes” that the Grey Rock operation has been closed indefinitely. Mike Flaskey, chief executive officer for Land Resource, LLC stated in the interview with Mr. Boyle that the company had “well in excess of $50 million” invested in Grey Rock alone, and would reopen sales when the economy picks back up. “We’ve been left with no choice but to shut down several of our communities. We’ve shut down five of our communities including two in Western North Carolina.”

Location and History of Grey Rock

Grey Rock at Lake Lure is located in the mountainous region of Rutherford County. This area shares the same geologic hazards as the rest of Western North Carolina. The North Carolina Geological Survey has reported landslides in the county and the 1997 Rutherford County Soil Survey determined that the soil composition on the majority of the mountain slopes was “unsuitable” or “poorly suited” for urban development.

Land Resource, LLC hosted Grey Rock’s grand opening on April 28, 2005. On September 21, 2005 the North Carolina Department of Environment and Natural Resources found that the developer had repeatedly violated erosion control regulations. The state halted all construction from September 21, 2005 through February 16, 2006 and fined the company approximately $94,000.

On June 29, 2008, the Asheville Citizen-Times advised that a lawsuit had been filed against Land Resource, LLC. The plaintiffs, a group of 15 property owners, claim that streams on their property were damaged by Grey Rock construction practices. For additional information please refer to Nanci Bompey’s article “Grey Rock developers sued over runoff.”

Land Resource, LLC

Land Resource, LLC, currently headquartered in Orlando, Florida was founded by J. Robert Ward in 1997. The company was based in Atlanta until mid 2007. Land Resource LLC is a privately held company so most assets and liabilities are hidden. On August 2, 2007 the Orlando Business Journal reported that Land Resource, LLC obtained a $60 million revolving line of credit from KeyBank Real Estate Capital and Wachovia.

The Land Resource, LLC Fact Sheet states that the company has 19 projects developed or under development. Projects under development are:

Bridge Pointe at Jekyll Sound-Waverly, Georgia
Cumberland Harbour-St. Mary’s Georgia
The Docks at Caney Creek-Kingston, Tennessee
Grey Rock at Lake Lure-Lake Lure, North Carolina
Laird Pointe-Panama City Florida
Roaring River-Fayetteville, West Virginia
Still Water Coves-Lincolnton, Georgia
The Villages at Norris Lake-LaFollette, Tennessee
Wild Ridges-Marion, North Carolina
The websites for these projects are currently inoperable.

Grey Rock and the Interstate Land Sales Full Disclosure Act

Grey Rock, HUD subdivision Id:31163, lot sales are covered under the Interstate Land Sales Full Disclosure Act and all purchasers must receive a detailed Property Report prior to signing a contract. The Property Report must include known land risks. If Land Resource, LLC neglected to provide Property Reports as required by ILSA, purchasers have two years to seek rescission of their purchase contracts and three years to seek damages. For additional information concerning consumer rights and protections please contact the United States Department of Housing and Urban Development.

Saturday, July 19, 2008

French Broad Crossing Wildfire

In the summer of 2007 wildfires swept mountain slopes of southern California. This scarred environment was now primed for the next natural disaster. "When rain follows the fire this closely, there's no vegetation to stop or absorb it," said Jim Whittington, a fire spokesman at Lake Isabella as reported by the San Jose Mercury News. On July 12, 2008 the rains came to this blackened landscape and the mud flowed. Rivers of ash and mud covered homes and roads in the distant communities of Lake Isabella and Independence.

Western North Carolina's natural hazard topography is much like that of southern California: steep landslide active terrain stayed only by native vegetation. These mountainsides are in equilibrium, it only takes rain on barren slopes to bring them down.

Developers are building thousands of mountain slope communities in this hazardous region of the North Carolina and they are currently allowed to hide these significant risks from their clients.

In April a wildfire burned more than 200 acres in the French Broad Crossing development. The mountain slopes in this project have been severely destabilized by this natural hazard event. Will the developer, The Preserve Communities, disclose these material facts to their prospective clients? A visit to their website does not mention the spring wildfire.

The following is a description of the French Broad Crossing wildfire.

On April 18, 2008 Jonathan Austin, Editor of the News Record and Sentinel reported the following:
A wildfire in the Walnut area of Madison County spread rapidly due to high winds and dry conditions Friday afternoon. The fire began along the French Broad River north of Marshall and roared up a mountainside under development as a low-density gated community.

Every fire department in Madison County was dispatched to the blaze, which officials say began to smolder near the railroad tracks that parallel the river.

Within two hours, Walnut Volunteer Fire Department sought help from firefighters from the entire county and two departments in Buncombe, as well as wild fire teams from the N. C. Forest Service. A Forest Service helicopter repeatedly dumped water on the blaze, which it picked up in the nearby river.

By nightfall, the blaze had scorched more than 200 acres of woodland. By midnight, firefighters had the blaze under control and crews were set to stay on the mountain throughout the night.

The development, French Broad Crossing, is located on hundreds of acres stretching from 25/70 to the French Broad River near the community of Walnut. The development is designed as a low-density development, with hundreds of acres managed by the Smoky Mountain National Land Trust.

That steep land was scorched Friday as the flames roared uphill, driven by 30-plus mile-per-hour winds.

At points, forest service vehicles were in danger of burning as the flames leapt roads and fed on dry pines and debris in the forest. Firefighters repeatedly warned of the risk of the roaring walls of flame.

The development has several established community buildings, including a lodge and pool,but the number of residences is limited. Firefighters protected a spec house located atop one of the ridges, and older homes along the river were in less danger.

Tuesday, July 15, 2008

Laurelmor Property Report

Federal law stipulates that all purchasers of land in Laurelmor, HUD Subdivision Id:31640, receive a Property Report. The Interstate Land Sales Full Disclosure Act requires that Property Reports reveal all material facts about the risks of buying land in specified Subdivisions. A review of the Laurelmor Property Report shows that the developer does not disclose landslide hazards.

The following land description was extracted from Sections of the April 25, 2008 Laurelmor Property Report provided by the developer, Ginn-La Laurel Creek Ltd.,LLLP, also doing business as the Ginn Company:

General Topography

The average elevation of the residential lot areas is between elevations 1,300’ to 4,000’.... Soils within the project site are moderately erodible and should not have any significant erosion problems.

There are no physical characteristics pertaining to the Subdivision which would prohibit construction on the lot.

There are steep slopes, rock outcroppings or expansive soils conditions which will necessitate the use of special construction techniques to build on or use any lot
in the Subdivision.


There are no known nuisances that may adversely affect the Subdivision, however, noise from club amenities, including without limitation, golf cart traffic, lawn mowing, and other maintenance, may affect your enjoyment of the lot....Golf and tennis balls from golf courses and tennis courts may fly over or enter the lot and could strike you, a member of your family or a guest or any other person or thing on the lot.


The Subdivision is located in close proximity to the Club which includes golf facilities. Use of the Club and the golf courses therein may cause certain noise or physical hazards to you and possibly your lot. Pursuant to the CC&R's, you must accept these potential nuisances and any risks associated therewith if you purchase your lot.
Ginn agents should have known when they performed due diligence prior to the company's land purchase in April 2005 that the 6,000 acre mountain tract was located in a state declared high hazard landslide region. The subsequent development and sale of lots in this Subdivision has exposed present and future purchasers to significant financial risk. The definition of significant financial risk can be defined as high probability of uninsurable landslide property damage.


The North Carolina Department of Emergency Management reported in 1998 that Watauga County, location of Laurelmor, was at high risk for landslide events. A 2002 state memorandum noted that the soils within the development site were highly erodible. In September 2004 Watauga County experienced significant landslide damage and was declared a federal disaster area. North Carolina geologists warned in October 2006 that preliminary studies showed extreme possibility for slope failures throughout the county. Hazard maps show 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.

Is the failure to disclose landslide hazards as outlined by the North Carolina Department of Emergency Management and the North Carolina Geological Survey a violation of the Interstate Land Sales Full Disclosure Act? For an answer to this question, please contact the U. S. Department of Housing and Urban Development

Monday, July 14, 2008

Lawsuit filed against Land Resource, LLC

It has been more than two years since Land Resource, LLC began selling land in Grey Rock, the company's Western North Carolina mountain slope development. Grey Rock at Lake Lure received national publicity through the 2006 HGTV home giveaway promotion. Today the Dream Home is the only structure completed on the 4,000 acre site although 400 lots have been sold. Grey Rock lots are priced from $200-700 thousand.

Why the delay in home building?

The Asheville Citizen-Times reported on February 18, 2007 that the North Carolina Department of Environment and Natural Resources had halted all construction in Grey Rock because of environmental degradation caused by road building. State inspectors documented erosion violations from September 21, 2005 to February 16 of 2006 and fined the developer, Land Resource, LLC approximately $94,000. In the article Janet Boyer, a regional engineer for the Land Quality section of NCDENR, stated:
They're still under a notice of violation on three sections--they're not in compliance. They're not allowed to proceed with any work until they comply with these notices. The company has not complied with ground cover requirements,re-seeding and some slope repair that needs to happen, and its work caused problems with stream sedimentation.
Please see John Boyle's article "Grey Rock Development in Lake Lure Area May Finally Arrive."

On June 29, 2008, the Asheville Citizen-Times advised that a lawsuit had been filed against Land Resource, LLC. The plaintiffs, a group of 15 property owners, claim that streams on their property were damaged by Grey Rock construction practices. For additional information please refer to Nanci Bompey’s article “Grey Rock developers sued over runoff.”

Questions Not Asked

Why would a nationally known land development company repeatedly violate state erosion regulations and suffer costly shut downs? There are several possibilities.

Is liquidity an issue?

Land Resource LLC is a privately held company so most assets and liabilities are hidden. On August 2, 2007 the Orlando Business Journal reported that Land Resource, LLC obtained a $60 million revolving line of credit from KeyBank Real Estate Capital and Wachovia. The Land Resource, LLC Fact Sheet states that the company has 19 projects developed or under development.

Is Grey Rock on Stable Ground?

It is unknown whether Land Resource, LLC performed due diligence before acquiring the Grey Rock mountain tract. If their agents had checked the 1997 Rutherford County Soil Survey they would have found that the soil composition on most of the county's slopes were classified "unsuitable" or "poorly suited" for urban development.

Grey Rock and the Interstate Land Sales Full Disclosure Act

Grey Rock property owners have purchased both a private and common interest in land that is difficult and expensive to maintain. When the project is completed the Grey Rock Property Owners Association will assume financial responsibility for roads and all common areas. It should be noted that there have been recent landslides in Rutherford County, but this region is not included in the Western North Carolina "Is it Safe to Build Here?" landslide mapping program.

The North Carolina Real Estate Commission does not require land risk disclosure but federal law does for certain subdivision lot sales.

Grey Rock, HUD subdivision Id:31163, lot sales are covered under the Interstate Land Sales Full Disclosure Act and all purchasers must receive a detailed Property Report prior to signing a contract. The Property Report must include known land risks. If Land Resource, LLC neglected to provide Property Reports as required by ILSA, purchasers have two years to seek rescission of the purchase contract and three years to seek damages.

On July 10, 2008 Land Resource, LLC closed their Grey Rock sales office.

Saturday, July 12, 2008

Insurance Requirements Threaten Slope Stability

Western North Carolina mountain homes and private developments are being evaluated for wildfire threats. As a result property owners are being confronted with the risky choice of whether to minimize an insurable risk or maximize an uninsurable risk.

The 2007 Hazard Assessment and Mitigation Plan for Leatherwood Development provides a look at the issues. This subdivision is located in western Wilkes County. The following was extracted from the Leatherwood Report:
The Leatherwood Development is located in an area with a potential of wildland fires that can threaten the structures within the development. As requested by the Leatherwood Development, the North Carolina Forest Service has surveyed the development for the purpose of assessing the fire hazards and to recommend practices that can lower the overall fire hazard rating.

Development Description:
The development currently includes approximately 120 homes including rental cabins and both part time and full time residences, however many more are planned to be constructed within the next few years. The development is located within an area of timberland that covers approximately 3800 acres. The topography is very steep and rugged with all slope aspect represented.

The structures were evaluated independently throughout the area and the development evaluated as a whole using the NC Division of Forest Resources hazard assessment rating system.
The Leatherwood Development received a high risk score of 111 points just under the >112 extreme risk rating. The Report concluded that:
By applying Firewise principles to the entire development, including additional structures that will be built in the future, the hazard rating can be decreased. The goal should be to decrease the rating to a moderate level, which will be difficult in this particular development.
Poor planning has placed Leatherwood property owners at substantial risk. Homeowners can reduce the probability of fire damage by removing highly flammable vegetation such as cedar, pine, hemlock, and rhododendrons from around their properties but they cannot move their homes, reconfigure roads, or easily provide accessible water. The Leatherwood Report found that:
Slopes range from 10% to 70% with side slopes and ridges that will greatly affect the overall fire behavior of a wildfire in the area. The homes currently located in the development are steep side slopes that are vulnerable to fast approaching upslope fire from below. As new homes are constructed in the rough topography, this will increase because of the limited level homes sites.
It is important to note the following recommendations concerning Fuel Clearance Zones and Vegetation:
Thin out the understory and midstory trees and shrubs within critical areas within the 300 feet zone around the home. Critical areas include areas with thick understory especially on the slopes underneath the structure. Create park like environments in these areas where fuel loading is lowered. The understory shrubs and trees can be felled and the stumps treated with herbicide to prevent resprouting.
Unintended Consequences

Insurers have determined that reimbursing property owners for landslide property damage is an unacceptable expense and as a consequence they have excluded earth movement coverage from all homeowners' policies. Insurance industry professionals have compiled data about the probability of slope failures and according to Robert Hartwig, President of the New York-based Insurance Information Institute, “Homes in these areas ( mountain slopes) are accidents waiting to happen."

The insurance industry is keenly aware of wildfire probability and the expense of insuring against this natural hazard. Homeowners are discovering that the availability and costs of fire insurance are predicated on complying with wildfire mitigation standards.

The Leatherwood Community is located in a fragile environment where erodible soils and landslides are easily activated. If native vegetation is removed to the extent proposed by the Forest Service, this already unstable ground will be further degraded.

Which of the risks should mountain slope property owners address: landslides or wildfires?

Wednesday, July 9, 2008

The Settings of Black Mountain 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 Settings of Black Mountain, HUD subdivision Id:31406, lot sales are covered under the Interstate Land Sales Full Disclosure Act and all purchasers must receive a Property Report prior to signing a contract. If The Settings Development Companies, LLC neglected to provide Property Reports as required by ILSA, purchasers have two years to seek rescission of their purchase contracts.

For additional information concerning consumer rights and protections please contact the U.S Department of Housing and Urban Development.

Saturday, July 5, 2008

Is Laurelmor's Funding at Risk?

Don Tobin, publisher of a Florida real estate news media company, reported on July 2, 2008 that Ginn Clubs and Resorts had failed to make principal and interest payments on Credit Suisse sponsored loans that are funding the development of five Ginn communities.

Mr. Robert Gidel, President of the Ginn Company issued the following statement in response to Mr. Tobin’s news story:

Today, Standard & Poor’s will release a statement that indicates two Ginn affiliated Companies, Ginn-LA CS Borrower, LLC and Ginn-LA Conduit Lender, Inc. did not make a principal and interest payment on a non-recourse $675 million credit facility led by Credit Suisse. It will also state that we have reached a 30-day forbearance agreement and are actively negotiating with our lenders.
There are four communities involved in this credit facility:

Ginn-LA St. Lucie, Ltd., LLLP, which owns Tesoro
Ginn-LA Quail West, Ltd., LLLP, which owns Quail West
Ginn-LA Laurel Creek, Ltd., LLLP which owns Laurelmor
Ginn-La West End Limited, which owns Ginn sur Mer

Due to the ongoing slowdown in the residential real estate market, it became clear that it would not be possible to meet the homesite sales objectives necessary to make payments due under the credit facility. We have been discussing these issues with the lenders for the purpose of seeking ways to restructure the terms of the credit facility. Today’s announcement of the forbearance provides an environment for both us as borrowers and the lenders to continue to work toward a restructuring of the credit facility, which we believe will occur in the next 30 days and will permit each of the communities to be completed as planned. Even though sales throughout our industry have been lagging, nearly all development work has been completed at Tesoro and Quail West. While there is work left to do at Laurelmor, we have commenced work on much of the infrastructure, including the paving of miles of roadway and substantially completing the delivery of water and electric to the homesites.

Mr. Tobin’s article “Florida Real Estate Developer, Ginn Clubs and Resorts, Misses Principal and Interest Payments,” The LCD Report and Mr. Gidel’s statement can be found on

On April 3, 2008 Mr. Tobin wrote an article titled “The Lupert-Adler Connection-Where does Bobby Ginn’s Development Money Come from?” In the article Mr. Tobin stated:
I recently uncovered some information regarding the relationship between Ginn’s Company and the Lubert-Adler Fund, his long time funding source. The relationship extends beyond that of lender and borrower. An undated document attributed to Lubert-Adler, reports that they own 50% of The Ginn Company and 80% of each project. It also states that the Ginn Company is the only residential asset in the fund and is the largest component and best performing Asset in the fund over the past ten years.

Institutions reported to be investors in the fund include:

Wells Fargo
Kodak retirement plan
Duke University
Harvard University
Princeton University
Pennsylvania State Teachers fund
Ohio Police and Fire
City of Philadelphia

Since it was founded in 1997 by Dean Adler, Lubert-Adler has invested in over $15 billion in real estate assets, according to its website….Both Ginn and Lubert-Adler are private companies, making it difficult to get detailed and complete information, but the ties between the two are obviously strong and deep (as deep as Lubert-Adler’s pockets).