Tuesday, December 27, 2011

K12, Inc. Pursues North Carolina Education Funds


K12, Inc.

K12, Inc., [NYSE:LRN] the promoter of virtual education programs, has submitted an application to establish a statewide academic network in North Carolina. If the North Carolina Virtual Academy School is approved, K12, Inc., will have an entree to state and local education agency [school district] funds. A North Carolina student is worth approximately $6,753 according to K12, Inc. business plan application. K12, Inc. expects to enroll 2,750 students in the coming year.

Educations funds cannot be paid directly to for-profit companies, so interested parties create closely-related entities to circumvent the rules.  K12, Inc. intends to register North Carolina Learns, Inc. as its non-profit partner. The financial plan, as outlined in the application, is as follows: North Carolina Learns, Inc., the recipient of state education money then pays K12, Inc. for its services by way of a Educational Products and Services contract.

North Carolina Learns Inc. and the K12 Virtual Schools LLC Financial Arrangement

The cosignatories, North Carolina Learns, Inc, a non-profit benefit company and Virtual Schools LLC, a Delaware limited liability company, agree that if the North Carolina Virtual Academy venture is profitable the amount due K12 will be determined as follows:

i. Of the first $100,000 or less of the Positive Net Asset Position, the amount due K12 will be 25% of such amount, not to exceed $25,000.

ii. Of the second $100,000 or less of the Positive Net Asset Position, if any, the amount due K12 will be 50% of such $100,000 or $50,000. The amount due K12 will not exceed $75,000, for the first $200,000 of Positive Net Assets.

iii. If the Positive Net Asset Position exceeds $200,000 the amount due K12 will be 75% of the amount over $200,000 plus the $75,000 noted in the point immediately above.

Monday, December 26, 2011

K12, Inc. Investor Alert


K12, Inc.

Wall Street interests founded the K12-virtual school concept in 2000. This business venture, financed by investors and public education funds, was operating without much controversy until The New York Times raised the question of academic benefit.

The December 12, 2011 Times report— “Profits and Questions at Online Charter Schools,"— had immediate repercussions: K12, Inc. stock [NYSE:LRN] dropped more than 20%.

Four days later Faruqi & Faruqi LLP, a securities law firm, opened a K12, Inc. probe re potential federal securities law violations. The question: Have K12, Inc. and its executives violated federal securities laws by failing to disclose material information revealed in The New York Times article?

Research on the part of The Times indicates that the K12, Inc. education model is deficient because a significant number of its virtual charter school students are not able to meet academic standards.

K12, Inc. unresolved concerns:  Improper recruitment, abnormal withdrawal rates, false advertising and corporate pressure to pass students without regard to academic achievement.

Other pertinent information reported by The Times: K12, Inc. spent $26.5 million on advertising its virtual school product in 2010 and during promotional investment events, K12, Inc. estimates that it expects to generate $15 billion in potential revenue.

Friday, December 23, 2011

The K12, Inc. North Carolina Virtual Charter School Proposal


K12, Inc.

K12 Inc., the purveyor of multi-state on-line virtual charter school programs, plans to establish a presence in North Carolina by aligning its interests with those of the Cabarrus County School Board. The K12 Inc. business plan was offered to school board officials, the chartering entity, on November 1, 2011. For its efforts, the school board will receive a 3% administration fee.

General Assembly Support for Virtual Charter Schools

The K12, Inc. note of appreciation:
In 2011, the North Carolina legislature, with the passage of Senate Bill 8, gave unlimited numbers of students and families in the state the choice of a public charter school education. The cap on charter schools imposed by the North Carolina Charter Schools Act passed in 1996 created a pent up demand for charter schools for over fifteen years based on the availability of just 99 approved charter schools—only 4% of the public schools in the state--until the 2010-2011 school year. After the passage of Senate Bill 8, the North Carolina Department of Education created the opportunity to quickly alleviate the pent up demand for charter schools by offering an expedited charter school application process this year, using a “Fast Track Application” and compressing the “planning year” to about seven months. We are submitting our North Carolina Virtual Academy “Fast Track” charter application for approval to chartering entity Cabarrus County Schools.

A second piece of legislation enacted this year, the Appropriations Act of 2011, acknowledges the opportunity in North Carolina for a “virtual” charter school Currently this type of charter school does not exist in the state. Conforming to state charter school law (§ 115C-238(A)-(K)), it will be a free-standing, diploma-granting public school for students in grades kindergarten through twelfth grade.

The company's pending, Department of Education, charter application for the North Carolina Virtual Academy would allow K12 Inc. access to funds and permit avoidance of for-profit rules by the establishment of a non-profit conduit entity. [proposed corporate name: North Carolina Learns, Inc.]

 K12, Inc. intentions as recorded in its 299-page application:
... North Carolina Learns Inc. (proposed) shall be organized as an independent North Carolina corporation doing business as the “North Carolina Virtual Academy” (hereinafter referred to as the “School”). The purpose of the corporation is to maintain and operate the North Carolina Virtual Academy School as a not-for-profit enterprise. The corporation also has such powers as are now or may hereafter be granted by the §55A-2-02 of the General Statues of the State of North Carolina. It shall be the policy of the Board of Directors and the School not to discriminate in admissions and hiring practices in violation of the law. The purpose of the School is to provide a quality education to children in the Cabarrus County area and throughout the state of North Carolina.

Credentials for North Carolina Charter School Educators as stipulated by NCGS Chapter 115C-238.29:
1. Compliance Requirement - The charter school’s board of directors shall employ and contract with necessary teachers to perform the particular service for which they are employed in the school. At least seventy-five percent (75%) of these teachers in grades kindergarten through five, at least fifty percent (50%) of these teachers in grades six through eight, and at least fifty percent (50%) of these teachers in grades nine through twelve shall hold teacher certificates
.
North Carolina Learns, Inc/K12 Virtual Schools LLC Financial Arrangement aka the Educational Products and Services Agreement

The cosignatories, North Carolina Learns, Inc, a non-profit benefit company and Virtual Schools LLC, a Delaware limited liability company, agree that if the North Carolina Virtual Academy venture is profitable the amount due K12 will be determined as follows:
i. Of the first $100,000 or less of the Positive Net Asset Position, the amount due K12 will be 25% of such amount, not to exceed $25,000.

ii. Of the second $100,000 or less of the Positive Net Asset Position, if any, the amount due K12 will be 50% of such $100,000 or $50,000. The amount due K12 will not exceed $75,000, for the first $200,000 of Positive Net Assets.

iii. If the Positive Net Asset Position exceeds $200,000 the amount due K12 will be 75% of the amount over $200,000 plus the $75,000 noted in the point immediately above

A North Carolina student is worth approximately $6,753 according to the K12, Inc filing.

K12, Inc. Legal Issues

Wall Street interests founded the virtual school-K12 concept in 2000. This business venture, financed by public education funds, was operating without much issue until The New York Times raised the question of academic benefit.

The December 13, 2011 Times report— “Profits and Questions at Online Charter Schools,"— had immediate repercussions: K12, Inc. stock prices dropped more than 20%.

Three days later Faruqi & Faruqi LLP, a securities law firm, opened a K12, Inc. federal securities fraud investigation. The question: Has K12, Inc. and its executives violated federal securities laws by failing to disclose material information revealed in The New York Times article?

Research on the part of The Times indicates that the K12, Inc. education model is deficient because a significant number of its virtual charter school students are not able to meet academic standards.

K12, Inc. unresolved concerns:  Improper recruitment, abnormal withdrawal rates, false advertising and corporate pressure to pass students without regard to academic achievement.

Other pertinent information reported by The Times: K12, Inc. spent $26.5 million on advertising its virtual school product in 2010 and during promotional investment events, K12, Inc. estimates that it expects to generate $15 billion in tax-payer revenue.

Related Articles & the K12, Inc. Investor News Release

K12, Inc. Investor News Release: "The New York Times article featuring K12 Inc. (NYSE: LRN) is unfair and one-sided, and advances an anti-parent choice policy agenda."

"Virtual schools are multiplying, but some question their educational value" Washington Post— November 26, 2011

"Virtual Learning and Charter Schools: Issues and Potential Impact" —William R. Thomas

"How Online Learning Companies Bought America's Schools" The Nation —December 5, 2011

"Questionable company targets NC for virtual charter school" NC Policy Watch—December 16, 2011

"Can Computers Replace Classrooms?" The Fiscal Times—November 27, 2011

"Virtual School is $3 million short" The News & Observer— November 22, 2011

.

Saturday, December 10, 2011

Buncombe County, NC Mountain Real Estate Landslide Vulnerability Report


Western North Carolina landslide photo — SouthWings flyover 2010

Western North Carolina Mountain Real Estate Caveats

Twenty-three Western North Carolina counties, including Buncombe, are on the Federal Emergency Management Agency Landslide Watch List.

The 2005 Western North Carolina Landslide Hazard Mapping Program was terminated in June 2011.

Western North Carolina mountain real estate financial considerations: Homes have no insurance protection for earth movement damage and Planned Community property owners are responsible for maintaining their landslide-prone roads.

By statute private subdivision roads, including those built on mountain slopes, do not have to meet minimum state Department of Transportation engineering criteria.

As a condition of contract, experts recommend that all mountain home sites be independently evaluated for slope stability.

The North Carolina Association of Realtors position re hazardous-land disclosure is uncertain.



USGS map showing high landslide risk for Western North Carolina
mountain counties


Western North Carolina Mountain Real Estate

Findings of fact: Western North Carolina mountain real estate is exposed to debris flows, underground landslides and slope failures.

In order to meet Stafford Act risk-reduction requirements, states and municipalities must record and quantify property threats such as flooding, landslides and earthquakes in public documents. These reports, titled Multi-Hazard Mitigation Plans, evaluate the probability and cost of future natural hazard events.

Buncombe County, NC Hazard Mitigation Plan June 2011

In its final draft report, page 27, officials acknowledge that unstable slope conditions undermine home sites throughout the county:
This assessment revealed a potential total of 7,618 parcels (214,497.75 total acres or 53.84% of total Buncombe County acreage) with a total tax value of $5,475,920,829 classified as “Unstable Area”. Of these parcels 4,054 are occupied (total tax value $4,713,992,079) and 3,564 are vacant (total tax value $761,928,750). A table showing the breakdown of parcel type, building values, improvement values and land values is included in Appendix D.

To assess vulnerability for landslides the May 28, 2010 Buncombe County tax parcels were intersected with a land stability index layer created by the State Geologist’s Office of NC DENR.  All parcels that intersect any of the unstable areas were then identified. Unstable Areas have a 100% probability of instability.

Buncombe County, North Carolina Landslide Hazard Maps—North Carolina Geological Survey

"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." Governor Mike Easley Press Release October 2006








Buncombe County, NC Hazardous-Land Subdivisions

Buncombe County mountain soils are classified "poorly suited" or "unsuitable" for residential site development. Homes and roads built on or above a 15% grade are considered at risk of earth movement.

The following Buncombe County, NC mountain slope subdivisions are located in Unstable Areas:

The Cliffs at High Carolina
The Cliffs at Walnut Cove  [steep-slope home sites]
Southcliff
Reynolds Mountain
Crest Mountain
Waightstill Mountain
The Settings of Black Mountain [ the development company has been dissolved]
Chimney Laurel
Falcon Ridge at Haw Creek
Moore's Valley
Chestnut Mountain
Poplar Ridge
Mountain Meadows
White Rock Mountain Preserve
Allen Mountain Ridge
Bartlett Mountain Views
Bear Track Estates
Gaston Mountain

Saturday, November 26, 2011

Transylvania County, NC Mountain Real Estate Landslide Report


It has been observed that mountain-view real estate can inspire blindness. 

Jackson County, NC landslide photo — SouthWings flyover 2010

Findings of fact: Western North Carolina mountain real estate is exposed to debris flows, underground landslides and slope failures.

Unstable land conditions such as those found throughout the Western North Carolina mountain region, including Transylvania County, can lead to irresolvable financial burdens.  Homes have no earth movement insurance protection and HOA members must pay assessments to repair their landslide-damaged roads.

By statute private subdivision roads, including those built on mountain slopes, do not have to meet minimum state Department of Transportation engineering criteria. This laissez-faire development environment increases the probability of costly road repairs. County Register of Deeds subdivision Plat documents indicate whether planned community roads were built to state specification.


USGS map showing high landslide risk for Western North Carolina
mountain counties

Map of Western North Carolina Landslide-Hazardous Counties

Western North Carolina counties on the Federal Emergency Management Agency Landslide Watch List: Alleghany, Ashe, Avery, Buncombe, Burke, Caldwell, Cherokee, Clay, Graham, Haywood, Henderson, Jackson, Macon, Madison, McDowell, Mitchell, Polk, Rutherford, Swain, Transylvania, Watauga, Wilkes and Yancey.  Landslide hazard maps have been published for Macon, Watuaga, Buncombe and Henderson Counties

Federal legislation under Robert T. Stafford Disaster Relief and Emergency Assistance Act requires states and counties to comply with hazard mitigation protocol or risk losing access to disaster emergency funds.

Western North Carolina landslide hazards became a
federal issue after September 2004 rain events precipitated slope failures throughout the region. The cost: five lives, widespread property damage and $72 million in federal aid. The benefit: initiation of the Western North Carolina Landslide Hazard Mapping Program in 2005.

Western North Carolina Landslide Hazard Mapping Program
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.  Governor Mike Easley Press Release October 2006
In June 2011 the General Assembly passed the Appropriations Act. This measure terminated funding for the Western North Carolina Landslide Mapping Program.

Two years prior to this action, May 2009, the North Carolina Association of Realtors advised members and other interested parties, that its lobbying efforts to halt the Safe Artificial Slope Construction Act had been successful. The bill was intented to provide hazardous-land disclosure and control over Western North Carolina development practices.

The North Carolina Geological Survey has released
visual-aid hazard maps for Macon, '06, Watauga '08, Buncombe '09 and Henderson '11. Maps for the other landslide-risk counties will not be forthcoming.

Unstable-land condition data is not confined to landslide maps, it can be found in Western North Carolina mountain soil surveys and respective county hazard mitigation plans.

Stafford Act Mandate: Acknowledge, Mitigate and Disclose Natural Hazards

These findings, extracted from the Transylvania County Multi-Jurisdictional Hazard Mitigation Plan, confirm the region's elevated landslide risk:
The entire jurisdiction of Transylvania County is equally susceptible to landslides.

The mission of the Transylvania County Multi-Jurisdictional Hazard Mitigation Plan is to either substantially reduce or permanently reduce the planning area’s vulnerability to natural hazards. The plan intends to promote sound public policy designed to protect citizens, critical facilities, infrastructure, private property, and the natural environment.

Accomplishment of this task is by increasing public awareness, documenting resources for risk reduction and loss-prevention, and identifying activities to guide the planning area towards the development of a safer, more sustainable community.

Make the public aware of hazards that present risks to people and property and measures they can take to reduce their risk and possible losses.

United States Geological Survey (USGS): phone conversations and GIS assistance provided by the USGS were key in developing the hazard vulnerability assessment for landslides and earthquakes. In addition, they provided significant data in the development of the Countywide Topographical Map, Earthquake Probability Map, and Landslide Susceptibility Map.

Recent erosion concerns in Transylvania County have stemmed from clearing on steep slopes. Specifically, clearing land for building home sites and roads to home sites have become a concern due to most of the good, more level sites having been built on already causing a push to build on more marginal sites. When steep slopes are cleared of their natural groundcover, the soil which has been held in place by dense vegetation becomes unstable. The shallow root system of grasses alone is not adequate to restabilize steep slopes. The result is heavy erosion from storm water which can lead to large amounts of sedimentation being carried down the slope causing flooding, property damage, road blockage, and in extreme cases the occurrence of mud slides.

The County land use map shows that most landslide susceptibility is in areas that are defined as having residential use and are identified as having a high incidence and susceptibility. To date there has been 1 residential structure destroyed, and no commercial, or industrial structures damaged or destroyed by landslides in the County as most of the designated areas are undeveloped at this time.

First, a slide covered portions of Sky Drive causing the road to giveaway causing $400K in damage. The second major event was on Cardinal Drive West where a slide caused $300K in damages to the infrastructure.

The USDA Soil Survey of April 1980 displays the general soil associations located within Transylvania County.

ASHE-EDNEYVILLE association: Moderately to very steep soils. They are well drained and comprise approximately 37 percent of the County’s land mass. They can be found on narrow ridge tops and rough steep slopes.

CHESTER-EDNEYVILLE-HAYESVILLE association: Rolling to sloping soils. They are well-drained soils and comprise approximately 20 percent of the County’s land mass. They can be found on broad ridge tops and steep slopes.

CHANDLER-FANNIN-WATAUGA association: Rolling to very steep soils. They are excessively drained soils and comprise approximately 21 percent of the County’s land mass. They can be found on narrow ridge tops and rough steep slopes.

BRANDYWINE-PORTERS-BURTON association: Moderately steep to very steep soils. They are well drained to moderately drained soils and comprise approximately 8 percent of the County’s land mass. They can be found on narrow ridge tops and rough steep slopes, mostly at elevations above 3,500 feet.

TALLADEGA-FLETCHER-FANNIN association: Rolling to very steep soils. They are well drained and comprise approximately 6 percent of the County’s land mass. They can be found on narrow sloping ridge tops and on very steep slopes.

Transylvania County Government not in Compliance with Stafford Rules

As documented Transylvania County mountain slopes are unstable. On the FEMA hazard index scale, landslides are ranked likely.

Even though county commissioners promised to make "the public aware of hazards that present risks to people and property and measures they can take to reduce their risk and possible losses," the county website provides no access to the Transylvania County landslide susceptibilty map or soil survey data. The soils referenced in the mitigation report are classified "poorly suited" or "unsuitable" for residential site development.

Realtors are following the county's example by not apprising clients of the need for caution when purchasing Transylvania County mountain real estate. These sales practices are approved by the North Carolina Real Estate Commission.

Western North Carolina Mountain Real Estate Hazardous-Land Disclosure

Because debris flows and slope failures are expected events, lawyers from the North Carolina Real Estate Commission advised Macon County Realtors in a May 2010 meeting that landslide/soil hazard maps are material facts.

The North Carolina Real Estate Commission is now vacillating on that earlier opinion in spite of the fact that the Residential Disclosure Property Statement raises the question of whether structures are located in federally-designated flood-risk areas.

Because the disclosure issue is complicated, the North Carolina Association of Realtors suggests that....
although it may not be required by law or regulation, disclosing the existence of landslide hazard maps, together with information about how a consumer can access them, may be a good "risk management" strategy for a firm to consider adopting. A buyer who discovers the existence of a landslide hazard map after closing may threaten or possibly even take action against a broker involved in the transaction based on an alleged negligent or fraudulent failure to disclose the existence of the map.

Monday, November 21, 2011

Western North Carolina Mountain Real Estate: Are Landslide Maps Material?


Western North Carolina landslide photo — SouthWings flyover 2010

Twenty-three Western North Carolina counties are on the Federal Emergency Management Agency Landslide Watch List because real property is exposed to debris flows, underground landslides and slope failures. Financial concerns: Homes have no insurance protection and HOA members are responsible for maintaining landslide-prone roads.

USGS map showing high landslide risk for Western North Carolina
mountain counties

Western North Carolina landslide hazards became a federal matter after September 2004 rain events precipitated slope failures throughout the region. The cost: five lives, widespread property damage and $72 million in aid. The benefit: initiation of the Western North Carolina Landslide Hazard Mapping Program in 2005.

Western North Carolina Landslide Hazard Mapping Program
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.  Governor Mike Easley Press Release October 2006
With the passage of the Appropriations Act in June 2011, the North Carolina General Assembly defunded the Western North Carolina Landslide Hazard Mapping Program.

Two years prior to this action, May 2009, the North Carolina Association of Realtors advised members and other interested parties that its lobbying efforts to stay the Safe Artificial Slope Construction Act had been successful. The bill's intent was hazardous-land disclosure and control over Western North Carolina steep-slope development practices.

North Carolina Association of Realtors Viewpoint re Hazardous-Land Disclosure

Lawyers from the North Carolina Real Estate Commission advised Macon County Realtors in a May 2010 meeting that hazardous-land data, i. e. landslide hazard maps and Western North Carolina county soil survey findings were material facts.

In July 2011 the Franklin, NC-based law firm of Coward, Hicks and Siler received a NCREC letter indicating that landslide hazard maps are not necessarily material facts. The North Carolina Association of Realtors had this response:
Monday, August 15, 2011

REC Statement on Disclosure of Landslide Hazards and Landslide Hazard Maps

It has been brought to the attention of the North Carolina Association of REALTORS® (NCAR) that conflicting information about the North Carolina Real Estate Commission’s (NCREC) position with regard to the disclosure of landslide hazards and landslide hazard maps has been repeatedly expressed in the public domain. The letter found here from Mr. Tom Miller, Legal Counsel for the NCREC, is intended to clarify any conflicting information and provide western North Carolina REALTORS® and their clients with certainty regarding past, pending or future transactions. This is a complicated topic that is hard to distill in one paragraph, but here are Mr. Miller’s points in summary:

1). The mere existence of the landslide hazard maps is not in itself a material fact that must be disclosed.

2). The NCREC does not currently require brokers, as a minimum standard of practice, to investigate slide hazards and warn clients of the potential for such hazards in absence of actual knowledge or the existence of circumstances that would lead a reasonably prudent broker to conclude that there is a potential hazard.

3). The NC Courts have also ruled that a real estate agent is under no duty to disclose unless they actually knew or should have known about a hazard on a specific piece of property.

We sincerely hope these materials will be helpful in clarifying much of the confusion regarding landslide hazard issues in western NC. We also strongly urge anyone with additional questions or concerns to follow up directly with the NCREC or with NCAR government affairs staff to discuss the issue further.

Additionally, although it may not be required by law or regulation, disclosing the existence of landslide hazard maps, together with information about how a consumer can access them, may be a good "risk management" strategy for a firm to consider adopting. A buyer who discovers the existence of a landslide hazard map after closing may threaten or possibly even take action against a broker involved in the transaction based on an alleged negligent or fraudulent failure to disclose the existence of the map. Although the Real Estate Commission or a court may well conclude that there is no basis for the claim, disclosing the existence of the map up front would make it more difficult for the buyer to assert such a claim in the first place. Whether a firm should adopt such a disclosure policy would be up to each individual firm, and any questions about whether the adoption of such a policy is advisable should be directed to the firm's own legal counsel.

Julie Woodson
Director of Political Communications
jwoodson@ncrealtors.org

Friday, November 18, 2011

Blue Ridge Mountain Club: A Watauga County, NC Hazardous-Land Subdivision



Western North Carolina landslide photo — SouthWings flyover 2010
Twenty-three Western North Carolina counties, including Watauga, are on the Federal Emergency Management Agency Landslide Watch List.

It has been observed that mountain-view real estate can cause blindness.

Blue Ridge Mountain Club aka Reynolds Blue Ridge aka Laurelmor

The Blue Ridge Mountain Club real estate development project was originally called Laurelmor. During the priced-per-view marketing period 2006-2007, Laurelmor lots were appraised for $500,000 to $1,000,000. In 2008, the Laurelmor name was replaced with Reynolds Blue Ridge. Today the former Laurelmor site is known as the Blue Ridge Mountain Club. Names can be changed but Watauga County unstable land conditions are constant.

Findings of fact: The Blue Ridge Mountain Club tract, along with all other Watauga County steep slope development subdivision sites are exposed to debris flows, underground landslides and slope failures.

Watauga County, NC Landslide Hazard Maps

These federally-required (FEMA) hazard maps show that significant portions of Watauga County are unstable. The North Carolina Geological Survey has determined that 70% of the region is moderately stable to unstable, with landslides occurring in designated low risk areas.




Rock Instability, Debris Flow Pathways, Stability
Index, Slope Movement/Deposits Hazard Maps


Watauga County Real Estate: Hazardous-Land Disclosure

Since landslides and slope failures are expected events, the North Carolina Real Estate Commission determined in 2010 that landslide/soil hazard maps are material facts.

Watauga County Planning and Inspections provides a link to the hazard maps but Realtors and developers are presently not sharing this data with their clients. This is the case for Lubert-Adler Partners, the financier for the Laurelmor/Reynolds Blue Ridge/Blue
Ridge Mountain Club endeavor.

Blue Ridge Mountain Club Remains a Lubert-Adler Investment

At 5,400-acres, the Blue Ridge Mountain Club residential development tract is one of the largest planned communities in Watauga County. Approximately 800-acres of the 6,200-acre subdivision are located in Wilkes County.

When Lubert-Adler and partner Bobby Ginn initiated land sales (November 2006) the Ginn-LA joint venture was officially recorded as Laurelmor.



Plaintiffs in a number of lawsuits allege that the business partners sold questionably-appraised lots and did not disclose that Laurelmor and four other jointly-owned properties were encumbered by $675 million cross-collateralized Credit Suisse liens. Please see Lubert-Adler, The Ginn Development Company et al Charged with Fraud.

In June 2008 Lubert-Adler and the Ginn Development Company defaulted on its obligations. A restructure agreement with the Credit-Suisse lien holders allowed Lubert-Adler Partners to retain control over the Laurelmor project.

Reynolds Capitol Group settled the approximately $30 million Ginn-LA Laurel Creek LTD., LLLP liens in December 2008. New owners were recorded as BR Development Group LLC and Blowing Rock Resort Venture LLC: management is currently provided by Reynolds Signature Communities. The Laurelmor name was retired in September 2009.

Legal Questions re Blue Ridge Mountain Club Real Estate Sales

A review of the Blue Ridge Mountain Club real estate website finds that the developer is not apprising prospective clients of adverse building site conditions.

As a condition of contract, experts recommend that all mountain home sites be independently evaluated for slope stability.



Rendering of a Blue Ridge Mountain Club Cottage


Other than taking legal action against a developer for failing to disclose material risk information, those who suffer property damage have no recompense. Homeowners'  insurance policies will not cover landslide losses.

Blue Ridge Mountain Club property owners face another unaddressed financial risk. It is joint ownership of the planned community’s private roads.

This legal obligation emanates from the Subdivision Street Disclosure Statement which all initial North Carolina HOA property owners are obliged to sign. In essence this legal document states that neither the state nor the county shall be responsible for maintenance and repair of any streets within the subdivision. Developers' use of this standardized conveyance document for hazardous-land subdivision roads is disputable.

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 ____________ Subdivision are private. It is the obligation of _____________ Homeowners' Association, Inc. (hereinafter "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 in ___________ Subdivision in accordance with the recorded Declaration for Planned Community. The Declarant specifically states that streets have not been constructed in such a manner to allow inclusion on the State highway system for maintenance.

Western North Carolina Landslide Hazard Maps

Federal legislation under Robert T. Stafford Disaster Relief and Emergency Assistance Act requires states and counties to comply with hazard identification/mitigation/disclosure protocol or risk losing access to disaster emergency funds.

Western North Carolina landslide hazards became a federal concern after September 2004 rain events precipitated slope failures throughout the region. The cost: five lives, widespread property damage and $72 million in federal aid. The benefit: initiation of the Western North Carolina Landslide Hazard Mapping Program in 2005.

Western North Carolina Landslide Hazard Mapping Program
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.  Governor Mike Easley Press Release October 2006
For suspect reasons, the General Assembly defunded the once-considered critical Western North Carolina Landslide Mapping Program in June 2011 with the passage of the Appropriations Act.  Two years prior to this action, May 2009, the North Carolina Association of Realtors advised members and other interested parties, that its lobbying efforts to stay the Safe Artificial Slope Construction Act had been successful. The bill's intent: hazardous-land disclosure and control over Western North
Carolina development practices.

The North Carolina Geological Survey has released visual-aid hazard maps for Macon, '06, Watauga '08, Buncombe '09 and Henderson '11. Maps for other landslide-risk counties will not be forthcoming.

Monday, November 14, 2011

Western North Carolina Mountain Real Estate: Landslide Risk Counties


It has been observed that mountain-view real estate can inspire blindness. 

Jackson County, NC landslide photo — SouthWings flyover 2010

Western North Carolina mountain real estate is exposed to debris flows, underground landslides and slope failures.

Unstable land conditions, such as those found throughout the Western North Carolina mountain region, can lead to irresolvable financial burdens.  Homes have no earth movement insurance protection and HOA members must pay assessments to repair their landslide-damaged roads.

By statute, private subdivision roads do not have to meet minimum state Department of Transportation engineering criteria. This laissez-faire development environment increases the probability of costly road repairs. County Register of Deeds subdivision Plat documents indicate whether planned community roads were built to state specification.


USGS map showing high landslide risk for Western North Carolina
mountain counties

Map of Western North Carolina Landslide-Hazardous Counties

Western North Carolina counties on the Federal Emergency Management Agency Landslide Watch List: Alleghany, Ashe, Avery, Buncombe, Burke, Caldwell, Cherokee, Clay, Graham, Haywood, Henderson, Jackson, Macon, Madison, McDowell, Mitchell, Polk, Rutherford, Swain, Transylvania, Watauga, Wilkes and Yancey.  Landslide hazard maps have been published for Macon, Watuaga, Buncombe and Henderson Counties

Friday, October 14, 2011

The Ridges of Franklin NC Developer Dismisses Wildflower Hazardous-Land Data



Wildflower, an Ultima Carolina LLC Subdivision Development 2004

Federal officials [FEMA] designated all Western North Carolina counties landslide-hazardous in 1998 so Robert Ullmann and Hardy Smith, Ultima Carolina co-partners, should have known that the Macon County, NC Wildflower subdivision tract was not suitable or safe for residential development. This risk assessment was based primarily on soil survey data.

 Ultima Carolina Communities :  Wildflower, Avalon, Black Bear Falls and Fontana Trace were all sited on unstable ground.



SouthWings photos of Wildflower Subdivision landslides
 Franklin, NC

Mountain slope subdivision development has left Macon County property owners with "unstable roads and house sites, unlivable homes, and hundreds of foreclosed lots...." Lewis Penland, Macon County Planning Board Chairman, December, 2010

The Ridges of Franklin NC, a Leed Enterprises LLC Subdivision Development 2011

Leed Enterprises LLC purchased a 500-plus acre parcel of the under-foreclosure Ultima Carolina 2,200-acre Wildflower Subdivision tract in June 2011. Land sales for the company's new subdivision,The Ridges, were initiated on October 1.

Wildflower home sites originally sold for $100,000-$300,000, whereas The Ridges of Franklin lots are priced from $14,000 to $30,000.  Leed Enterprises, a newly-formed entity, is managed by L. C. Jones a local paving contractor.

The Smoky Mountain News reported that Leed Enterprises paid the Ultima Carolina lien holder, BB&T, $1 million for The Ridges acreage. This acquisition came with well-publicized landslide issues.

 Several months later as part of its sales promotion, the company issued this disclaimer: "Wildflower Development Franklin, NC No Longer Threatened by Landslides; Developer Builds New Roads in Subdivision of Resort Community." 

Wildflower Landslide Report

Following the November 2009 Wildflower Subdivision /Thompson Road landslide, state geologists identified twenty other endangerment areas along the 30-mile private road system. This news had an negative impact on the project's viability: sales ceased, property values declined and mortgages went into foreclosure.

Causative Landslide Factors: Soils and North Carolina General Statute 136-102.6

Macon County, NC Soil Survey findings reveal that soil compositions, such as those found throughout the Wildflower development area are unstable and "poorly-suited or unsuited" for residential development. The Federal Housing Authority classifies these types of steep-slope erodible soils as adverse building site conditions.

In addition to the imprimatur of the Macon County Planning Board for the Wildflower subdivision, state law allowed, Ultima Carolina, the original developer to construct a 30-mile road network that did not meet minimum state Department of Transportation criteria. Even when a developer opts to build to standards there is no guarantee that the state will ever assume responsibility for the roads. [General Statute 136-102.6.]

The Ridges of Franklin, NC: Property Owners' Financial Considerations

The Wildflower road system was constructed on unstable soils and without state and county supervision. These faults pose outsize risks for property owners since they, not the developer, are ultimately responsible for maintaining the subdivision's infrastructure. Case in point: Alarka Creek Properties Homeowners Association lawsuit .

Homeowners suffering earth movement property loss are forced to self-insure as this hazard is not covered by the insurance industry.

Leed Enterprises LLC: False Advertising Practices

Regardless of the developer's claim, the truth is The Ridges of Franklin, NC lots and roads are sited on likely-to-fail slopes. As the following research shows, the landslide risk is not confined to the Wildflower Subdivision. This unstable-land hazard affects all Macon County, NC mountain real estate.

Macon County, NC Mountain Real Estate Landslide Hazard Research
Fig. 4. Shaded relief map of Macon County, NC and known locations of debris flows (white circles)
from the complete NCGS database (as of August 2006). The shaded relief map was constructed from a
6 m pixel resolution light-detecting and ranging (LiDAR) digital elevation model (Wooten et al., 2007/2008). Source
CLIMATOLOGICAL PERSPECTIVES ON THE RAINFALL CHARACTERISTICS ASSOCIATED WITH LANDSLIDES IN WESTERN NORTH CAROLINA






Macon County, North Carolina Landslide Hazard Maps—NCGS

Macon County, NC Landslide Fatalities



NCGS—Peeks Creek, NC Landslide Photos
The Peeks Creek debris flow, September 2004, killed
five Macon County, NC residents and destroyed fifteen
homes.

Macon County, NC Underground "Big Slow-Moving" Landslide


Photos of Craftsman's Village construction site and view of Boggan
landslide property damage—Macon County News

The property just beyond the bulldozer, as indicated by the box, was allegedly affected by land excavation performed by developer Joseph Moretti in the “toe” of the mountain directly below the property. Blasting throughout the last year may have triggered more land displacement. The property owner claims that the condemnation of his property was caused by a “manmade disaster,” instead of factors that result in natural erosion.Macon County News

Underground earth-movement events, also known as weathered-rock slides, have been reported in Yancey, Jackson and Haywood Counties.

Macon County, NC Wildflower Hazardous-Land Subdivision Permit

Macon, like many other Western North Carolina landslide-prone counties, has declined to establish meaningful regulatory safeguards for those purchasing mountain subdivision real estate. The Macon County Commissioners anti-regulation position is not expected to change even though some planners disagree.

Mr. Penland is not the only person on the Macon County Planning Board to express criticism over the resumed development in the Wildflower tract. Susan Ervin, another member of the board, said:
We worked hard to get sensible slope development regulation — but it didn’t happen. Now, the lots are back on the sale block....

What assurance do we have that the development will be done well this time? What control do we have? Do the people looking at lots up there have any idea about the North Carolina Geological Survey Slope Movement Hazard Maps? Do they know there are unstable soils up there? Down here in the valley, we know it.”

Wednesday, September 14, 2011

Hamlet Estates at St. James: Chinese Drywall Lawsuit Revelations

Photo of under-construction home in the Hamlet Estates at
St. James Subdivision November 2007— "Incentives, to Fight the Doldrums" New York Times

Hamlet Estates at St. James Defective Drywall Lawsuit

In 2006 the St. James Development Corp [ Holiday Organization]contracted with Long Island Wallpaper Inc. to provide drywall for a model home located at 5 Hamlet Woods Drive. Three years later, September 2009, this sales model was the subject of a defective Chinese drywall lawsuit. The plaintiff, St. James Development Corporation, alleged that the drywall was defective in that the product was emitting corrosive sulfide gases. Since the 5 Hamlet Woods model [lot 8] was and remains company-owned,  it is not known whether other commissioned structures built in the same time frame had similar problematic drywall. A property search indicates that 5 Hamlet Woods Drive is now an empty lot.

The drywall at issue was imported by Venture Supply, Inc. a Norfolk,Va firm. In June 2009, the company ceased operations.

Venture Supply Inc.
 
From March 2006 to December 2008, Venture Supply sold 100,000 sheets of suspect Chinese drywall to various residential development companies. Some of the product was used in homes in the Hampshires at Greenbriar and Cromwell Park at Salem subdivisions.

The U. S. District Court Eastern District of Virginia Norfolk Division, found the following on July 2011 re the harmful effects of the drywall:
In total, seventy-four (74) of the homes, sixty-eight (68) at The Hampshires and six (6) at Cromwell Park, had Chinese drywall installed in them. The Chinese drywall was defective and contained levels of elemental sulfur approximately three hundred seventy-five (375) times greater than representative samples of domestic drywall. As a result, it caused property damage to the homes where it was installed by corroding HVAC coils, damaging wiring, tarnishing or corroding metal objects, and causing a bad odor. The source of the corrosion, pitting, tarnishing, and blackening of the electronics and metal components was reduced sulfur gases.3
It has been determined that some units in The Harbor Walk condominium project also contained drywall supplied by Venture Supply.  Sam Porter, president of Venture Supply and Blaine-Porter, told the media that he had destroyed 50,000 sheets of his remaining Chinese drywall inventory.

Contaminated Drywall Real Estate Database

An undetermined number of homes throughout the U. S. [built or remodeled from 2001-2009/ Consumer Product Safety Commission established time-line] contain drywall contaminated with sulfur. The CPSC has received defective drywall complaints from homeowners in 42 states, the District of Columbia, American Samoa and Puerto Rico.

The ProPublica/Sarasota Herald-Tribune interactive Chinese drywall database [December 2010] shows approximately 7,000 residences containing this defective product, whereas the CPSC reports fewer than 3,500. Some experts believe that more than 100,000 homes were built with off-gassing drywall.

Defective Chinese Drywall Homeowner Complaint



Watch the full episode. See more Need To Know.


 Defective Georgia Pacific Drywall Homeowner Complaint


Sulfur-emitting drywall was originally considered a Chinese product defect but there is evidence that U. S.-manufactured drywall also contains likewise destructive properties. In spite of  homeowner complaints re domestic-made drywall, the CPSC closed its investigation in April 2011

Independent research sponsored by CBS News in 2009 found the following domestic vs foreign-made drywall aberrations:
As expected, the contaminated Chinese samples gave off high levels of sulfur gases. But all but one of the U.S. samples emitted sulfur gases, as well - not at levels as high as the defective Chinese product, but unexpected. Perhaps more surprising, "There were some American products that we tested that had higher emission than some of the new Chinese products that we tested."
Defective Drywall Financial Risks

Most homeowners policies will not cover damage caused by product defects, i.e. off-gassing drywall. The costs to remediate said structures start at $100,000.

Florida does not levy property tax on sulfur-contaminated homes as these structures are considered worthless.

Defective Drywall Health Risks

Breathing sulfur-contaminated air causes pulmonary dysfunction. Property owners living in this environment, sometimes for years, were not aware of the cause of their medical complaints until the media opened its Chinese drywall investigation.

The noxious gas released by drywall adulterated with sulfur elevates health risks for the most vulnerable: children, seniors and those with impaired immune systems. Even though the Consumer Product Safety Commission found no drywall link in the Fort Bragg infant fatalities, questions remain.

North Carolina Defective Chinese Drywall

There is evidence that 18 million pounds of Chinese drywall has entered North Carolina ports since 2006.

North Carolina home builders linked to imported drywall are: Lennar Homes with developments in greater Raleigh and Charlotte; Ryland Homes with developments in greater Charlotte; Standard Pacific Homes with developments in greater Raleigh and Charlotte; and  Stafford Custom Homes with homes in greater Raleigh, Carthage, Southern Pines, Aberdeen and Lillington.

Lennar, Ryland, Standard Pacific and Stafford are named as defendants in the Omnibus Defective Drywall Class Action lawsuit.

Lennar, LLC  v. KNAUF GIPS KG et al 

Lennar became an interested party in the defective Chinese drywall issue because a number of company-built homes contained costly to remediate off-gassing drywall. As noted by the plaintiff's lawyers, "Lennar stands alongside its homeowners as victims of Manufacturers, Suppliers and Installers, who unfortunately allowed this defective drywall to be manufactured, supplied  and installed in the Affected Homes."

When the lawsuit was filed in January 2009, Lennar officials knew from environmental tests that sulfur was the cause of the corrosion.

Lennar, LLC listed many foreign and domestic parties as defendants in its defective Chinese drywall lawsuit. One was Independent Builders Supply Association Inc., a North Carolina firm.

Stafford Custom Homes

In April 2009, the Flanigans, owners of a Stafford Custom Home in the Valleyfield subdivision,  filed a lawsuit alleging that their residence,  purchased in 2004, contains sulfur-emitting drywall. The Flanigan home is located at 112 Stone Barn Circle, Holly Springs, NC 27540 and according to property records was built in 2001.

Federal Drywall Contamination Cases Terminated

The question of why this hazardous product was allowed to enter the residential marketplace will likely have no satisfactory answer since the Consumer Product Safety Commission has closed its investigations.

Courts adjudicating the defective drywall cases are finding for the injured parties but it is unlikely that the levied financial penalties, if paid, will cover the costs of restoring the thousands of damaged properties to habitable conditions. Part of the expense to be borne by defendants is certification by an independent party that the remediated structure is free of sulfur contaminants. The costs, established by court ruling, are $10,000.

Wednesday, August 10, 2011

Macon County, NC Real Estate: Material Matters


FHA  Subdivision Site Suitability Requirement

Developers who expect to offer FHA-insured mortgage loans for homes in their proposed or newly-completed subdivisions must complete a Builder's Certification of Plans, Specifications, & Site disclosure statement in order to qualify.

FHA concerns:
(1) Does the site have any rock formations, high ground water levels, inadequate surface drainage, springs, sinkholes, etc.?
(2) Does the site have unstable soils (expansive, collapsible, or erodible)?
(3) Does the site have any excessive slopes?
(4) Does the site have any earth fill?
If "Yes," will foundations, slabs, or flatwork rest on the fill?
Builders who answer yes to any of the above questions are expected to respond with confirmation from state licensed engineers that home sites are sound. This procedure is intended to safeguard FHA underwriting risks and provide homeowner security.

As the following research shows, Macon County building sites are exposed to mass land movement, underground landslides and unstable soils.

Macon County, NC Geologic Hazards

As this landslide incident map details, Macon County, NC home sites and HOA-deeded roads are likely to be impacted by earth movement. In extreme cases, these forces can be deadly. The Fishhawk Mt., September 2004, debris flow is an example of a catastrophic landslide. This swift-moving mass killed five residents and destroyed fifteen homes in the Peeks Creek area of Macon County.


Fig. 4. Shaded relief map of Macon County, NC and known locations of debris flows (white circles)
from the complete NCGS database (as of August 2006). The shaded relief map was constructed from a
6 m pixel resolution light-detecting and ranging (LiDAR) digital elevation model (Wooten et al., 2007/2008). Source
CLIMATOLOGICAL PERSPECTIVES ON THE RAINFALL CHARACTERISTICS ASSOCIATED WITH LANDSLIDES IN WESTERN NORTH CAROLINA

Western North Carolina Landslide Hazard Maps

All Western North Carolina mountain counties, including Macon, are classified landslide-hazardous. Federal Emergency Management Agency officials, state geologists, soil scientists and independent researchers define the risk as significant. Western North Carolina landslide/soil hazard maps were intended to:
...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.— Governor Mike Easley October 2006
The North Carolina General Assembly defunded the Western North Carolina Landslide Hazard Mapping Program in June of 2011. Of the nineteen counties covered by the Program only three county landslide hazard maps have been released. They are Macon '06, Watauga '08 and Buncombe '09; remaining: Alleghany, Ashe, Avery, Burke, Caldwell, Haywood, Henderson, Jackson, Madison, McDowell, Mitchell, Polk, Rutherford, Swain, Transylvania, and Yancey.

Western North Carolina Soil Surveys

With the closure of the Western North Carolina Landslide Hazard Mapping Program, affected parties will have to depend on another resource when making a decision on whether to buy a Western North Carolina home site.

The standard reference for land-use planning, be it for agricultural production or residential development, is the county soil survey. These decades-old studies provide data as to whether soils are practical for a specified use. In the case of Western North Carolina mountain slope soils, the surveys, including Macon's are clear, the region's soils are "poorly-suited or unsuited" for dwellings, roads, and septic tank absorption fields. As noted, FHA classifies unstable soils as adverse site conditions.

Consequence of Macon County, NC Steep Slope Development

Mountain slope subdivision development has left Macon County property owners with "unstable roads and house sites, unlivable homes, and hundreds of foreclosed lots...." Lewis Penland, Macon County Planning Board Chairman December, 2010

Although Mr. Penland comments were circumspect, he was likely referring to news reports re the multiple Wildflower subdivision slope failures and the Boggan home site underground landslide.

Wildflower's collapsing road system is similar to those in a Swain County development. According to testimony in the Alarka Creek Properties Homeowner Association lawsuit, roads in the Timber Creek Estates and Eagles' Roost, subdivisions are "perpetually in peril."

Destructive underground land movement has been reported in HaywoodJackson and Macon Counties.

Ultima Carolina Wildflower Subdivision Landslides Macon County, NC


SouthWings photos of Wildflower landslides

Craftsman's Village/Boggan Landslide


Photos of Craftsman's Village construction site and view of Boggan
landslide property damage—Macon County News

Western North Carolina Real Estate Disclosure Issues

Since 2007 there have been several legislative attempts to regulate Western North Carolina county land development practices and require hazardous-land disclosure. The Safe Artificial Slope Construction Acts [2007-2011] were not successful.

Western North Carolina real estate is an especially high risk investment because homes have no insurance protection for expected earth movement property damage.  The risks increase for those who live in planned communities. Residents in HOAs have a
non-negotiable obligation to maintain and repair roads on unstable slopes. Developer-designed roads often do not meet minimum state engineering standards.

The Missing Macon County Landslide/Soil Hazard Maps

Landslide/soil hazard maps have been removed from the county web site and Realtors pretend these documents do not exist. The state will not intercede in this matter.

North Carolina Association of Realtors

Trust in the North Carolina Association of Realtors is unwarranted. Purchasers should follow FHA mortgage underwriting standards and hire a professional engineer for advice.