Macon Bank Alleges Fraud Re Wildflower Development Franklin, NC Lot Sales

At Issue: Ultima Carolina, LLC Wildflower Development Lot Sales

The Franklin Press reported on November 4, 2009 that Macon Bank, a major underwriter of Wildflower development mortgages, has filed lawsuits claiming it was “duped into making questionable loans in excess of $3.5 million.”

Macon Bank vs. Beverly-Hanks Mortgage Services

Macon Bank asserts in one lawsuit that Beverly-Hanks Mortgage Services of Asheville violated the bank’s loan standards by persuading land speculators to buy Wildflower development lots, “pay the interest with cash-back from the developer, and then ‘flip’ the property at a profit when the money from the interest cash-back ran out.” Macon Bank claims that its lot-loan program was limited to primary or secondary residence mortgagors.

Macon Bank is suing Beverly-Hanks for breach of contract, fraud, constructive fraud/breach of fiduciary duties, negligent misrepresentation, unfair and deceptive trade practices and participation in racketeer influenced and corrupt organizations.

Franklin Press reporters, Quintin Ellison and Barbara McRae, note in their article that of the 151 completed Wildflower sales, more than 30 property owners have defaulted. Macon Bank expects a “wave of defaults.”

Wildflower’s steep slope 2,000-plus acreage subdivision site is located in Macon County near the town of Franklin. Lots that were selling for up to $300,000 are now listed for $18,000 to $35,000. Wildflower’s private subdivision roads are a matter of public concern.

As to the Question of Fraud— Ultima Carolina’s Failure to Disclosure Wildflower Subdivision Hazardous-Land Conditions

It is not known whether Robert Ullmann and Hardy Smith co-partners of Ultima Carolina, LLC, ( registered as Ultima WNC Development, LLC in Macon County), have notified property owners of the recent Wildflower Subdivision hazardous-land report.

On November 17, 2009 a section of Thompson Road, a major Wildflower road, collapsed covering the neighboring down slope home site with a half-acre of debris. State geologists have determined that this slide poses a threat to home owners outside the subdivision. In addition to the Thompson Road landslide, geologists have found more than 20 endangerment areas on Wildflower’s 30-mile road system.

The Smoky Mountain News reported on December 16, 2009 that Macon County has notified the developers that since Wildflower Subdivision roads are private, they are liable for stabilizing the Thompson Road debris flow and for addressing other potential road-related hazards.











Digitized Macon County, NC Soil Hazards Map—NCGS

Wildflower roads were built on colluvial soils. The developers, Ullmann & Smith, knew or should have known that these soils are not recommended as a road construction base because of inherent instability and cost to repair. If Ultima Carolina declares bankruptcy, Wildflower property owners will be obliged to assume responsibility for the subdivision’s private roads.

Interested parties should visit the North Carolina Real Estate Commission ( Subdivision Street Disclosure Statement) Web-site for an explanation of property owners’ liability when developers become insolvent.

Pertinent Information for Wildflower Property Owners

1998— Federal Emergency Management Agency requires the state to notify Macon County and 22 other counties that land under their jurisdiction is landslide-hazardous.

2000— Western North Carolina real estate landslide hazard mapping program is instituted.

September 16, 2004— The Peeks Creek landslide kills five people and destroys 15 homes in Macon, N. C. Fifteen Western North Carolina counties are declared federal disaster areas in September 2004.

November 6, 2004 — “Wildflower Celebrates Its Grand Opening”

January 2005—Ultima WNC Development, LLC registers Wildflower subdivision with Department of Housing and Urban Development as mandated by the Interstate Land Sales Full Disclosure Act. Perspective buyers, by law, must receive a highly detailed Property Report. The Interstate Land Sales Full Disclosure Act requires developers to disclose hazardous-land conditions that are present in their proposed subdivisions.

February 2005 —North Carolina General Assembly recognizes the urgent need to accelerate Western North Carolina real estate landslide hazard mapping program.

October 2006—Macon County real estate landslide hazard maps are released with a press statement from then-governor Mike Easley:

These maps will show which areas are prone to landslides, and that will help developers, county officials, and residents decide where to safely build homes, roads, and other structures.

While Macon Bank is pursuing litigation, Wildflower property owners should be asking why Macon Bank loan officers, its closing attorney Steve Philo, Beverly-Hanks Mortgage Services sales staff and developers Robert Ullmann and Hardy Smith failed to disclose hazardous-land conditions on sales contracts and Subdivision Street Disclosure Statements.

Wildflower Development Franklin, NC Threatened by Landslides

Wildflower Subdivision—Thompson Road Landslide—November 17, 2009












Macon County Digitized Soil Hazards Map—
Additional Macon County landslide hazard maps are available through
the NCGS. On September 16, 2004 the Macon County Peeks Creek debris
flow killed five people and destroyed 15 homes.


“Road failures cast uncertainty on Wildflower’s future” The Smoky Mountain News-December 16, 2009 —Staff Reporter Giles Morris

As reported by The Smoky Mountain News, a section of the Wildflower subdivision road failed in mid-November. The half-acre debris flow covered the neighboring down slope home site and according to the North Carolina Geological Survey, potentially endangers property owners outside the subdivision.

Warren Cabe, Director of the Macon County Emergency Services, said

After we noticed there was a slide there, we notified property owners in the valley just so they could know what was going on above them. We wanted them to hear it from us instead of reading it in the newspaper.

State geologists have identified 20 other potential road-construction landside areas within the subdivision.

The County has notified Robert Ullmann, the developer, that his company Ultima Carolina, LLC is responsible for repairing and stabilizing the Thompson Road landslide and is also liable for all other road endangerment issues. Ultima Carolina has indicated that they will hire a geo-technical engineer to assess the at-risk areas and will address future erosion (landslide) issues.

Wildflower’s 30-mile private road system was built on colluvial soils, a highly unstable, difficult to control base. The costs to repair these types of road failures are expensive and pose substantial financial risks to homeowners' associations. For example: In 2003, rain set off landslides on several miles of roads in the Maggie Valley, North Carolina Horseshoe Cove subdivision. McGill Engineers, an Asheville-based firm, provided property owners with the following estimates: $307,021 for road and drainage repairs; $2,868,750-5,230,000 for slope repairs. Horseshoe Cove roads were built on colluvial soils.

Who’s Responsible Should Ultima Carolina, LLC Declare Bankruptcy?

There are concerns regarding Ultima Carolina’s financial well-being. Of the planned 250-Wildflower lots, 151 have been sold. As of November 4, 2009, more than 30 property owners were in default and Macon Bank, a major mortgage underwriter, expects more.

Stacy Guffey, a former Macon County planning director, has raised an relevant question: Who will pay for Wildflower's landslide road damage should the developer become insolvent?

The North Carolina Real Estate Commission advises that Wildflower property owners are responsible for the subdivision’s private roads should Ultima Carolina declare bankruptcy. Road ownership is transferred from the developer to property owners via a document titled the Subdivision Street Disclosure Statement. When Mr. Ullmann sold Wildflower lots, his clients were obligated to sign the following road conveyance document.

Sample Subdivision Street Disclosure Statement

Pursuant to N. C. G. S. Section 136-102.6 _______, as the Declarant of _______, issues this statement indicating that all of the roads within_______ are private. It is the obligation of _______ Homeowners' Association, Inc. (hereafter "Association") to maintain and keep in good repairs all of the private roads in _______Subdivision. It is mandatory for all property owners in _______ to be a member of the Association and the property owners, with the exception of the Declarant, have an obligation to pay assessments to maintain the private roads. The Declarant specifically states that the streets have not been constructed in such a manner to allow inclusion on the State highway system for maintenance.

The standardized Subdivision Street Disclosure Statement which was authorized on October 1, 1975 was not intended as a disclosure document for hazardous-land subdivisions. The statute reads in part

If the street is designated by the developer and seller as a private street, the developer and seller shall include in the disclosure statement an explanation of the consequences and responsibility as to the maintenance of a private street, and shall fully and accurately disclose the party or parties upon whom such street or streets shall rest....

Stakeholders should take notice that there is no explanation of the financial commitment required on the part of property owners for the maintenance of roads built on landslide-hazardous soils.

Mr. Ullmann could have fulfilled his obligation by giving his clients factual information. Wildflower property owners should have received the following full disclosure statement:

Wildflower Steep Slope Subdivision Street Disclosure Statement

Wildflower's private mountain roads were built on unstable soils. Landslides and erosion are recognized chronic hazards above a 15% slope. Soil assessments for the Wildflower subdivision can be found at the Macon County Soil & Conservation Office. Ultima Carolina, the developer, was not required to conduct geotechnical, hydrologic or soil suitability studies for this subdivision. Should this subdivision’s roads be damaged by predictable natural occurrences, the members of the homeowners’ association will be liable for all repairs.

It is unlikely that property owners will be given copies of the Wildflower Roads Evaluation Report commissioned by the developer. In the absence of that Report, property owners can read the Horseshoe Cove Roads Evaluation Report to understand the cost and complexity of repairing and stabilizing failed slopes. McGill engineers advised the property owners that

...due to the nature of the colluvial soil found within the failure areas and the unknown depth to rock or a solid bearing surface, additional geotechnical exploration and testing will be needed during project design to verify the subsurface conditions and more clearly define the extent and cost of the repairs. Therefore, we have estimated a range of repair costs for slope failures. These vary from $25 to $50 per SF for repairs 1, 2, 3, 9, and 10 on the Creekside, Saddle, Stirrup, and Bridle Drives, and from $40 to $60 per SF for the repairs 4-8 on Bridle Drive.

It is clear that Wildflower property owners were disadvantaged by the absence of material information on their road conveyance documents. The question is, will they challenge Ultima Carolina's actions in this matter?

State Acknowledges Western North Carolina Real Estate Landslide Hazards

In February 2005 members of the North Carolina General Assembly had no difficulty recognizing the fact that hazardous-land real estate development would result in the continuing loss of lives and homes. Prompted by the catastrophic Western North Carolina landslide events of September 2004 and the need for federal emergency funding, legislators recommended hazardous-land identification maps as protective measures:

Hurricanes Frances and Ivan wrought havoc upon Western North Carolina impacting the region on a scale not experienced before in that area of the State. The President issued two federal disaster declarations for the Western Region of the State. During Hurricane Ivan, the community of Peeks Creek was devastated by a debris flow triggered by heavy rains. The debris flow traveled speeds as great as 33 miles per hour for two and a quarter miles from the top of Fishhawk mountain. Five persons were killed and 15 homes destroyed by the flow that was estimated to be several hundred feet wide and up to 40 feet high. Other communities that were particularly hard hit by landslides include the Starnes Creek area in Buncombe County, the Little Pine area in Madison County, the White Laurel community in Watauga County, and the Bear Rock Estates in Henderson County. Further...people could not know the landslide risks associated with their housing location because such maps are not readily available. The State needs to…prepare landslide zone mapping for the region so that homes may be rebuilt in safe areas.

Those regional real estate landslide maps are currently unpublicized works-in-progress. Only three out of twenty-five landslide-hazardous counties have been mapped: Macon 2006 , Watauga 2008 and Buncombe 2009.

Thanks to pressure from the North Carolina Association of Realtors, the federally-mandated landslide identification maps remain out of view and hazardous-land information is not communicated to at-risk clients.

Buying Favors

The North Carolina Association of Realtors touted its successful lobbying efforts on May 15, 2009 with the following legislative update:

Mountain Property Development and Disclosure Legislation

Legislation to regulate mountain property transactions and require local governments to more stringently regulate development in those counties was thwarted and instead the issues will be studied. Reps. Ray Rapp (D-Madison), Phil Haire (D-Jackson), and Susan Fisher (D-Buncombe) introduced HB 782 (Safe Artificial Slope Construction Act), which would require local governments to enforce more rules for development in the mountains and amend the residential property disclosure statement to include disclosure of certain mountain property. In response to opposition from REALTORS® from the western part of the state and most other mountain legislators, this bill was turned into a study bill to research landslides and have public hearings. There is to be a bipartisan, eight member panel which will report to the legislature in May of 2010.

The Failure to Disclose Material Facts

Western North Carolina Realtors have been apprised of the region’s hazardous-land conditions. They are also aware that all steep-slope (land above 15% grade) home sites will be evaluated and rated for landslide probability. Buncombe County real property was assessed for potential landslide loss in April 2009 but this data is not available to the public nor is it revealed on sales contracts or Subdivision Street Disclosure Statements.

Members of the North Carolina Association of Realtors may trust that they have no liability in this disclosure matter but they are mistaken. Anti-fraud statutes are clear. It is illegal to profit by schemes or tricks, by issuing untrue statements, by failing to disclose material facts, or by participating in deceitful and fraudulent business practices.

Western North Carolina Realtors can correct substantive contractual omissions by providing two addenda disclosure statements. The first is applicable to sales contracts and the second to private road ownership.

Western North Carolina Hazardous-Land Real Estate Disclosure Statement

Please be advised that you are buying property in a federally designated landslide-prone county.

The decision to buy a landslide-hazardous home site should be well-considered. Flood and fire property insurance is available. Landslide insurance protection is not obtainable. The inability to insure this high-risk real property will have an adverse effect on property values and perhaps the ability to refinance. Please seek legal advice concerning landslide liability.

Steep Slope Subdivision Street Disclosure Statement

This subdivision’s roads were built on likely unstable soils. Landslides and erosion are recognized chronic hazards above a 15% slope. Soil assessments for this subdivision can be found at the county Soil & Conservation Office. The developer was not required to conduct geotechnical, hydrologic or soil suitability studies for this subdivision. Should this subdivision’s roads be damaged by predictable natural occurrences, the members of the homeowners’ association will be liable for all repairs.

The Cliffs at High Carolina Property Report Fails to Disclose Hazardous-Land Conditions

The Cliffs at High Carolina, LLC sales practices are governed by federal law under the Interstate Land Sales Full Disclosure Act (“ILSFDA”). All purchasers of land in ILSFDA-defined subdivisions must receive a highly formatted full disclosure document titled The Property Report. The Cliffs at High Carolina Property Report was registered with the U. S. Department of Housing and Urban Development on October 21, 2008. Disclosures provided in the October 2008 Report pertain to only 99 out of 1,200 planned High Carolina lots.

On July 3, 2008 the U.S. Army Corps of Engineers issued a Public Notice (ID#: 200701619) regarding The Cliffs at High Carolina’s request for a permit. In the report the Corps identified 22 different soil types on the High Carolina steep slope, 3,200-acre, development site. Dominant soil types are Porters-Unaka complex (841), Toecane-Tusquitee complex (181) and the Edneyville-Chestnut complex (803).

As referenced in Western North Carolina Soil Surveys, these three soil types are not recommended as a construction base because of inherent instability. Even with expert engineering techniques, roads built on these soils are subject to slope failure and expensive repairs.

Roads built on landslide-prone soils are not a future financial concern for Jim Anthony, the developer of Cliffs at High Carolina, because legal title for The Cliffs at High Carolina's private roads are transferred to individual property owners at time of each lot sale via a conveyance document titled the Subdivision Street Disclosure Statement.

The Cliffs at High Carolina Property Report provides more than a dozen black box warnings concerning the developer, subdivision and individual lots but there is no reference to the costs of maintaining roads built on unstable soils. The following caveat should have been included in The Cliffs at High Carolina Property Report:

Steep Slope Subdivision Street Disclosure Statement

Portions of this subdivision’s roads were built on unstable soils. Landslides and erosion are recognized chronic hazards above a 15% slope. Soil assessments for this subdivision can be found at the county Soil & Conservation Office. The developer was not required to conduct geotechnical, hydrologic or soil suitability studies for this subdivision. Should this subdivision’s roads be damaged by predictable natural occurrences, the members of the homeowners’ association will be liable for all repairs.

Although not publicized, Buncombe County landslide predictability maps have been available since August 2009. Until such time the Buncombe County Digital Soil Survey Map is released, interested parties will have to rely on data from Western North Carolina Soil Surveys. As noted in the following soil assessment reports, The Cliffs at High Carolina soils are ill-suited for road construction.

Soil Survey Findings for Porters-Unaka Complex

Porters-Unaka complex— 8-15% Slopes
Local roads and streets: Poorly suited

Porters-Unaka complex—15-30% Slopes
Local roads and streets: Poorly suited

Porters-Unaka complex— 30-50% Slopes
Local roads and streets: Poorly suited

Porters-Unaka complex—50-95% Slopes
Local roads and streets: Unsuited

Soil Survey Findings for Toecane-Tusquitee Complex

Toecane-Tusquitee complex— 8-15% Slopes
Local roads and streets: Poorly suited

Toecane-Tusquitee complex&mdash 15-30% Slopes
Local roads and streets: Poorly suited

Toecane-Tusquitee complex— 30-50% Slopes
Local roads and streets: Poorly suited

Soil Survey Findings for Edneyville-Chestnut Complex

Edneyville-Chestnut complex— 15-30% Slopes
Local roads and streets: Poorly suited

Edneyville-Chestnut complex— 30-50% Slopes
Local roads and streets: Poorly suited

Edneyville-Chestnut complex— 50-95% Slopes
Local roads and streets: Unsuited

Landslide Hazards for Tiger and The Cliffs

—The Buncombe County Soil Hazards Map has not been released—



Location of The Cliffs at High Carolina
Subdivision and Tiger Woods Golf Course
on Buncombe County Hazardous-Land Map— NCGS.



Slope Movements and Slope
Movement Deposits Map—NCGS


Stability Index Map—NCGS


Map of Known and Potential Debris
Flow Pathways—NCGS

No one has asked Jim Anthony, developer of The Cliffs at High Carolina, or Tiger Woods his partner whether they have considered the consequences of building a golf course on landslide-hazardous ground.

Mr. Anthony cannot avoid the fact that his subdivision and the Tiger Woods Golf Course have geologic conditions which predispose the development site to landslide events. In addition to the North Carolina Geological Survey Buncombe County landslide hazard maps, the U.S. Army Corps of Engineers issued a Public Notice on July 3, 2008 identifying the predominant soils found throughout The Cliffs at High Carolina subdivision. Western North Carolina Soil Surveys state that these soil compositions are highly erodible and are not suitable for residential development.

So the question is, does Mr. Anthony know what impact the golf course and its irrigation system might have on the mountain’s defined unstable base?

Mr. Anthony may not know the answer but geologists do.

Golf course construction alters the landscape. These expansively remodeled sites are cleared of native vegetation and are replaced with turf grass which requires irrigation. When golf courses are built in stable environments their location and maintenance requirements are not an issue, but when they are placed in geologically hazardous locations they are a matter of concern as demonstrated in the following histories.

Landslides Linked to Golf Course Construction and Irrigation





View of Ocean Trails
Golf Course Landslide—
Ninyo & Moore


Ocean Trails Golf Course Landslide—Rancho Palos Verdes, CA— 1999 (Trump National Golf Club)

Ninyo & Moore, a geotechnical and environment sciences firm, was hired to provide a forensic evaluation for the Ocean Trails Golf Course Landslide. A summary of its findings:

On June 2, 1999, an approximately 16-acre ancient landslide on the coastal bluff was reactivated, sliding approximately 50 feet toward the ocean. The ancient landslide destroyed much of the 18th fairway and green along with adjacent improvements, including an active County sewer line. The geologic setting included gently to moderately tilted beds of the Monterey Formation. The Monterey Formation at this locality included interbedded sequences of fine silty sandstone, siltstones, shales, dolomitic shales, siliceous zones, and bentonitic ash beds. The basal rupture surface was formed along a relatively continuous bentonite layer at a depth of approximately 90 feet. The geologic evaluation included detailed geologic mapping, 26 large-diameter borings, two rotary wash continuous core borings, 12 inclinometers, and the excavation and evaluation of buried sewer lines and artificial lakes. The analysis included preparation of multiple geologic cross sections, slope stability analysis, and evaluation of potential reactivation causes including seismic activity, precipitation, wave erosion, irrigation, construction activities, lake leakage, and sewer line leakage.

Donald Trump purchased the bankrupt Ocean Trails Golf Course in 2002 and he has spent $55 million to restore and stabilize the property.

In addition to the presently contained landslide located underneath the Trump National Golf Club Course, three others are located on the peninsula according to the Rancho Palos Verdes Chamber of Commerce. The largest, the Portuguese Bend landslide, was reactivated in 1956 and moves about a foot a year, depending on rainfall. This underground landslide tract covers 260 acres and has an average depth of 135 feet. Geologists attribute the onset of movement to irrigation, installation of pools and septic tanks that increased ground water levels.

South Golf Course Landslide—Colorado Springs, C0— 1993

Engineers investigating the site determined that irrigation was the cause of the reactivation of the ancient landslide underneath the South Golf Course. Their findings:

The construction of the golf course modified the site hydrology by adding irrigation water inflows and by changing the vegetation from native grass and scrub oak to turf grass over 55 percent of the total area. An analysis of the irrigation and precipitation rates and the turf grass water consumption rates showed a relatively high infiltration rate in the turf grass areas compared to the unirrigated native areas.

Proposals for Slowing the Landslide:

(1) ground water dewatering systems, (2) surface water control systems, (3) collection of flow from horizontal drains, and (4) control of irrigation.

Reference: “CASE HISTORY OF A REACTIVATION OF A LANDSLIDE DUE T0 IRRIGATION ON UNSATURATED SOIL” — Kuo-Chieh Chao 1, Daniel D. Overton 1 & John D. Nelson 1,2
1) Tetra Tech, Inc., USA
2) Colorado State University, USA

Arcadia Bluffs Golf Club Landslide—Manistee, Michigan— 1998

Massive landslides damaged this golf course during a September storm event. Improperly designed drainage inlets were the cause.

Reference: “Arcadia Bluffs sage continues”— Andrew Overbeck Golf Course News—November 2001.

Perfect Timing for The Cliffs at High Carolina Sales Premiere

Smog covered downtown Asheville on July 21, 2008. A Code Orange air quality alert was issued for most of Western North Carolina, especially mountain elevations. Photo —Asheville Citizen-Times.


Tiger Woods Golf Course—The Cliffs at High Carolina

As planned the autumn day provided flawless weather conditions for the launch of the Tiger Woods Golf Course residential community called The Cliffs at High Carolina. The Sunday Asheville Citizen-Times edition provided coverage of the sales event with two front page articles: “Woods cachet could be key to Cliffs’ sales” and “Woods unveils ambitious Cliffs course design."

Jim Anthony, President and CEO of The Cliffs Communities, Inc. and Tiger Woods co-hosted the November 8, 2008 High Carolina press party.

During the news conference Mr. Anthony told the audience that he had sold about 50 High Carolina golf course lots for more than $40 million.

Mr. Woods promoted the scenery by saying “This property is phenomenal, breathtaking, with 50-mile views. I grew up in (Southern California) with nothing but smog; we couldn’t see anything,” Mr. Anthony told reporters that Mr. Woods visits the property often.

Western North Carolina Smog Alerts

It is obvious from Messrs. Anthony and Woods’s comments that they have not visited Asheville during warm-weather months when smog seriously impairs visibility and lung function. The situation is so critical that on January 30, 2006 Attorney General Roy Cooper filed a lawsuit on behalf of the citizens of North Carolina against the Tennessee Valley Authority. In his press release Mr. Cooper stated that “TVA’s pollution is making North Carolinians sick, damaging our economy and harming our environment.”

On August 4, 2008 the Asheville Citizen-Times reported that the North Carolina Department of Environment and Natural Resources had issued an "Air quality unhealthy at high elevation alert" for mountain areas near Asheville.

Pollution warnings are common during summer months when elevated temperatures trap the ozone-laden air over the mountain region. Air quality in Western North Carolina is not expected to improve in the near future.

If The Cliffs at High Carolina sales premiere had been held on July 21, 2008 the expensive sought-after mountain views would have been invisible.