Wednesday, January 28, 2009

Cliffs at High Carolina Developer Fails to Disclose Financial Risks

The Cliffs Communities, Inc. initiated sales for High Carolina, its 3,200 acre/1,300 lot Tiger Woods’-sponsored subdivision, on November 8, 2008. Cliffs' press releases and web promotions imply that High Carolina land is prime real estate but are these advertisements true? Pre-sale High Carolina disclosure documents reveal that there are substantive risks associated with buying land in this undeveloped Buncombe County, North Carolina subdivision.

The Cliffs at High Carolina Property Report

During the November sales presentation prospective buyers were given financial risk-disclosure documents titled “The Cliffs at High Carolina Property Reports.” Cliffs Communities, Inc. activities are governed by federal law under the Interstate Land Sales Full Disclosure Act and all interested parties must receive these Reports prior to signing a contract. A Property Report is similar to a prospectus in that the developer is forced to disclose any and all information that would materially affect the future value of the real estate.

The Cliffs at High Carolina Property Report begins with this caveat: “The future value of any land is uncertain and dependent on many factors.” The Report dutifully notes the various adverse contingencies that could affect property owners' investments. The factors include: bankruptcy, subdivision liens, failure to complete infrastructure, resale competition, natural hazards, and flood insurance.

Hazard Insurance Coverage for High Carolina Property Owners

The developer states in the Property Report that
The subdivision is not located within a flood plain or an area designated by any federal, state, or local agency as being prone to flooding. Insurance is available, but is not customarily required in connection with financing for improvements on
lots.
Concerning other real property risks, the developer recognizes that the subdivision... "may contain localized areas subject to the natural hazard of landslides."

What the developer should have disclosed is
The subdivision is located in a federal, state, and county designated high-risk landslide hazard district. Insurance is not available. Homeowners policies universally exclude property damage caused by earth movement and single-peril providers will not write insurance in defined hazardous areas.
Cliffs Communities, Inc. acknowledges that portions of the subdivision site are geologically hazardous, yet fails to warn its clients that landslide insurance is not obtainable. The developer should be obliged to disclose all relevant risk information in both its advertising and in its Property Report.

1 comment:

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