Tuesday, August 12, 2008

The Financial Risks of Buying Land in Western North Carolina

A California landslide devastated a La Jolla neighborhood in early October 2007; a Western North Carolina landslide claimed lives and homes in the Peeks Creek community in September 2004.

Slope failures in California and North Carolina are common and constant threats to lives and property. Both states have experienced repeated catastrophic landslide events and both have received federal disaster declarations. How have these two states responded to natural hazard events?

In 1998 the state of California passed an urgency statute in recognition of the fact that landslides and other natural hazards posed significant dangers to the residents of the state. The Natural Hazards Disclosure Act recognized that regulatory inconformity and lack of oversight were allowing developers to build on hazardous ground. To reduce the possibility of future slope failures the state defined landslide areas as zones of required investigation. For safety reasons, development permits in natural hazard areas are granted only after professional geologic site specific studies have been conducted.

Equally important the California legislation established an immediate new risk classification for all real property sold in natural hazard areas. For the first time interested buyers were advised of the material risks with a pre-sale "show and tell" disclosure statement. The statement provided clear warning to all investors that the purchase of land in natural hazard zones, "May limit owner's ability to develop property, obtain insurance, or to receive assistance after a disaster."

In 1998 the North Carolina Department of Emergency Management classified all 21 western counties at elevated risk for the dangers of landslides. Today the North Carolina legislature is studying the issues of safe slope regulation and risk disclosure while developers are building homes on untested and very likely unstable land. The disastrous 15 county Western North Carolina slope failures of September 2004 were not a unique, once in a life time happening. The state is cognizant of the Jackson County landslides, the extensive landslide property damage inside Mountain Air Resort and the condemnation of the Hunters Crossing homes. These are the stories that have made the news but they are just a small representation of regional homeowners' costly battles with eroding unstable slopes.

The public should be aware that Western North Carolina mountain property is a definable risky asset regardless of whether this material information is disclosed on current real estate contracts. For financial protection, prospective buyers of individual homes should ask the seller of the property to provide an engineering report that states the site is stable. Sellers are not qualified to make these assessments. Slope stability can only be determined by state licensed engineers and geologists. The costs for site specific geologic stability analyses are affordable, generally less than $2,000.

It isn't clear whether Western North Carolina mountain developers are performing due diligence for their expansive mountain slope communities. Concerned buyers of said property should request certification from the developer that all home sites, roads, and common areas have been professionally examined for slope stability. Developers often complain that the costs for determining slope stability are prohibitive but this is not true. The Town of Boone was professionally mapped for $20,000.

Since the institution of the February 2005 Western North Carolina "Is it Safe to Build Here?" mapping program only two series of landslide maps have been completed. As intended the Macon and Watauga County hazard maps show high to low risk building locations. These maps also show that a significant number of homes have been built in dangerous areas, such as in the path of previous landslides. These vulnerable properties are now identified on hazard maps. This land risk information will soon be required on real estate contracts.

Even though state regulators and legislators have declined to require disclosure of material risks, those involved in the sale of Western North Carolina real estate should consider whether they have a common law obligation to reveal the region's high risk landslide designation, the absence of insurance, and the existence of the landslide mapping program.

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