Read The Cliffs at High Carolina Property Report Before Signing Anything

In November 2008 The Cliffs Communities, Inc. will begin showing land in their latest planned community, The Cliffs at High Carolina. This mountain slope development is located near Asheville, North Carolina.

During the private sales presentation, participants will have the opportunity to view the layout for the 3,200 acre mountain property that define High Carolina. Guests will be shown a map for the centerpiece Tiger Woods golf course and selected homesites. They will almost certainly be told that the High Carolina lots which are priced from about $500,000 to more than $2 million are desirable real estate. While this information may be true there are two factors that may undermine the future value and salability of land in this development.

Geologic Hazards

Mountain land in the 21 county region known as Western North Carolina is inherently unstable. Professionals and lawmakers warn that the permitting of residential construction on unmapped and untested mountain slopes has caused and will continue to result in costly uninsurable property loss. In October 2006 Governor Mike Easley stressed the importance of the Western North Carolina landslide mapping program with this comment:

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.

The Cliffs Communities, Inc. knew when they purchased the Buncombe County tract that many of High Carolina’s building sites were likely hazardous. In August 2004 Buncombe County officials issued a report which stated that the county’s land was highly susceptible to slope failures. Preliminary Buncombe County geologic hazard maps support these findings. (In September 2004 landslides devastated fifteen counties in the region).

Considering the risks, this hazard information should be disclosed on The Cliffs at High Carolina website.

It is unknown whether the Cliffs’ staff will advise their prospective clients that High Carolina land sales are subject to federal law under the Interstate Land Sales Full Disclosure Act. This law demands that all interested buyers receive a comprehensive Property Report regarding the land for sale. The developer must provide a description of the land and disclose all known geologic hazards. Experts define a geologic hazard as a natural geologic event that can endanger lives and threaten property.

Encumbrances, Mortgages, and Liens

HUD requires the following warnings in all Property Reports:

A person with legal title to property generally has the right to own, use and enjoy the property. A contract to buy a lot may give you possession but doesn’t give you legal title to the lot. You won’t have a legal title to your lot until you receive a valid deed. A restriction or an encumbrance on your lot, or on the Subdivision, could adversely affect title to your lot.

The Cliffs at High Carolina Property Report must disclose all encumbrances and restrictive covenants.

The Cliffs Communities, Inc. is a privately held company but because their sales activities are regulated under provisions of the Interstate Land Sales Full Disclosure Act , the company must provide HUD with a copy of their Corporate Charter and financial statements. These documents are available to the public.

The United State Department of Housing and Urban Development advises all purchasers to carefully read their Property Reports before signing anything. The most important question that the government asks purchasers to consider is “If the developer defaults on the mortgage or goes bankrupt, could you lose your lot and investment to date to satisfy a claim against the development?"

What is a Cliffs at High Carolina Lot Worth?

In November 2008, The Cliffs Communities, Inc. will present land in their latest residential development, The Cliffs at High Carolina. Presently under construction, this 3,200 acre site is located on steep mountain slopes near Asheville, North Carolina. Lots in this subdivision will be priced from about $500,000 to more than $2 million.

The Cliffs Communities, Inc. promotes in-house financing on their website and advises prospective buyers that the company has "selected several outstanding banking and lending institutions as The Cliffs Communities Preferred Lenders based on professional reputation, lending programs, and their working knowledge of the needs of today’s luxury real estate client."

It is not unusual for land developers to facilitate sales by directing their clients to short term lenders but these loans can be financially devastating. Borrowers trust that the developer will remain solvent and that the future real estate market will support speculative valuations. Today Western North Carolina borrowers are in debt for developer-arranged lot loans that are worth less than the original sales price. Interested parties should note that there are a growing number of failed or distressed Western North Carolina resort developments. For information about these projects please follow hotlinks.

Village of Penland
Laurelmor
Wild Ridges
Grey Rock at Lake Lure

The Cliffs Communities, Inc. has completed a number of subdivisions. Their website provides the following sales listings:

The Cliffs at Glassy-new homesites $165,000 to $1,100,000, other homesites $129,000 to $750,000.

The Cliffs at Mountain Park -no new homesites, other homesites $449,900-$625,000

The Cliffs Valley-new homesites $246,000 to $2,306,000, other homesites $319,000 to $1,200,000

The Cliffs at Keowee-new homesites $245,000 to $2,250,000, other homesites $610,000-$1,399,000

The Cliffs at Walnut Cove-new homesites $495,000-$2,800,000, other homesites $695,000-$1,350,000

What about Cliffs land resales on other realty sites? A realtor is selling Cliffs at Glassy homesites for $149,900 to $330,000. Another realtor is listing homesites from $67,500 to $165,000. A Cliffs at Keowee Vineyards resale lot is priced at $162,900.

How can land, in a yet to be developed Cliffs subdivision, be worth more than land in a completed Cliffs Community? This question should give prospective buyers pause about the present and future value of land in High Carolina.

Is There a Lien on the Cliffs at High Carolina?

The Cliffs Communities, Inc., a privately held company, will open land sales for The Cliffs at High Carolina in November 2008. Lots in this 3,200 acre mountain slope subdivision will range from $500,000 to more than $2 million.

Ginn Clubs and Resorts, a privately held company, released lots in their 6,000 mountain acre Laurelmor project in November 2006. Homesites were priced from $500,000 to $1.2 million. Today there are no homes completed and the developer is in default on a $675 million Credit Suisse loan.

Land Resource, L.L.C., a privately held company, began selling lots in their 3,917 mountain acre Grey Rock at Lake Lure project in 2005. Prices ranged from $200 to $700 thousand. Today there are no homes completed and Land Resource closed their sales office in July 2008.

Privately held companies are generally not obliged to reveal financial information but developers selling land under the Interstate Land Sales Full Disclosure Act are required to submit copies of their Corporate Charters and financial statements. This information is available for public inspection.

Under federal law, developers must give each purchaser a detailed Subdivision Property Report. All Property Reports must state the following:

A restriction or an encumbrance on your lot, or on the Subdivision, could adversely affect title to your lot.

A developer must list all encumbrances, mortgages, and liens. For instance the April 25, 2008 Laurelmor Property Report disclosed that “a first and second mortgage in favor of Credit Suisse, Cayman Islands Branch, encumbers the property subject to this Property Report.”

The United State Department of Housing and Urban Development advises all purchasers to carefully read their Property Reports before signing anything. The most important question that the government asks purchasers to consider is “If the developer defaults on the mortgage or goes bankrupt, could you lose your lot and investment to date to satisfy a claim against the development?"

Insurers Assess Western North Carolina Wildfire Risks

In a recent Wall Street Journal article, “Where Wildfires Burn, Insurers Get Cold Feet,” M. P. McQueen reported on the industry’s reluctance to write homeowners policies in many wildfire prone Western states.

Last year Allstate Corp. stopped selling new homeowners policies in California because of wildfire losses and other insurers are following Allstate's risk reduction policies. In the article McQueen advised that the industry is looking to lessen their liability in Arizona, Idaho, Oregon, Washington and Alaska. Insurers are using satellites and home inspections to determine wildfire hazards. McQueen reported that an increasing number of insurance companies are tightening standards and are refusing to write homeowner policies for homes on steep slopes. The reason: mountain wildfires travel faster and are more difficult to contain on steep slopes. Property owners serviced by rural volunteer fire departments are encountering difficulties in securing insurance.

Wildfires are natural occurrences. In the past these events were not significant threats to an insurance company’s profitability but they are today. Extensive and expensive residential development in wildfire areas has exposed underwriters to unacceptable risks and they are declining responsibility. Over the past several decades insurers have weighed and measured a number of natural perils and have adjusted or deleted coverage when deemed necessary. For instance the industry has removed landslide coverage from all homeowners policies.

McQueen does not address homeowner policy issues in Eastern states but the industry is concerned with all high risk wildfire regions. Western North Carolina’s dense mountain slope development is motivating insurers to re-evaluate their risk exposure. The region’s topography and environment meet the industry’s definition of a disaster waiting to happen: thousands of expensive homes built in not easily accessible wildfire prone areas.

Western North Carolina mountain subdivisions and homes are being investigated and ranked for wildfire hazards. Last year the Leatherwood Mountains Development was evaluated for wildfires by the North Carolina Forest Department. All of the homes in this western Wilkes County subdivision received a high risk rating. For additional information please see the Leatherwood Hazard Assessment Mitigation Plan.

Homeowners living in designated hazard areas will experience declining property values and rising insurance premiums. Before buying Western North Carolina mountain real estate talk with your insurance agent about the availability and costs of insurance. The subdivision and property should meet FIREWISE standards.

The Penalties for Violating the Interstate Land Sales Full Disclosure Act

Developers often fail to abide by the rules and regulations mandated by federal law under the Interstate Land Sales Full Disclosure Act. The Secretary of the Department of Housing and Urban Development administers the Act. HUD advises interested parties that:

It has always been the law that if the developer has an obligation to register with the Interstate Land Sales Division, the developer or sales agent must give the buyer a copy of the current property report before the buyer signs a contract. Otherwise, the buyer has up to 2 years to cancel the contract and get his or her money back. That fact must also be clearly set forth in all contracts. You may have the right to void the contract if the subdivision has not been registered with HUD or you were not given a property report

The following summary of the Settlement Agreement between the United States Department of Housing and Urban Development and Waters Edge One, L.L.C. outlines the financial penalties for violating the Interstate Land Sales Full Disclosure Act. The complete document is posted on the HUD website.

Waters Edge One, L. L. C. began selling units in its Clearwater, Florida high-rise mixed use condominium building in January 2006. In 2007 the developer had entered into sales contracts to sell 109 units in its Waters Edge building.

During its investigation HUD found that the Waters Edge One, L. L. C., sales did not qualify for an exemption under the Act. The Department also determined that the developer had failed to file a Statement of Record and had neglected to provide purchasers with a Property Report.

As a result of these violations, the developer agreed to offer all purchasers the option of canceling their contracts and either signing a new contract at a lower price, or receiving a refund of any earnest monies paid for deposits and units’ upgrades.

The developer paid $10,000 to the United States Treasury.

The Cliffs at High Carolina Property Report:Will Landslide Risks be Disclosed?

The planning for The Cliffs at High Carolina has been in the news since the summer of 2006 when Jim Anthony, President of The Cliffs Communities, Inc. acknowledged that the company had received permission to build homes and a golf course on an expansive 3,200 acre mountain tract in Swannanoa, North Carolina.

The New York Times recently featured The Cliffs at High Carolina in their Great Homes and Destinations Real Estate Section. According to Nick Kaye’s article The Cliffs Communities will open land sales in November 2008 for their eighth master planned subdivision. Prices for The Cliffs at High Carolina homesites will range from $500,000 to more than $2 million.

The Cliffs at High Carolina land sales are covered under the Interstate Land Sales Full Disclosure Act. The developer, The Cliffs Communities, Inc. is required to register their High Carolina subdivision plans with the United States Department of Housing and Urban Development and is obligated to provide each purchaser with a detailed Property Report.

The Property Report

A subdivision Property Report is the most significant document that a prospective buyer can receive when considering a land purchase. The Report is standard in design and table of contents. Developers are required to provide specific information about land risks such as soil erosion, flooding, landslides and other known hazards.

Buncombe County Hazard Assessments

Preliminary Buncombe County North Carolina Geological Survey hazard maps show that the High Carolina subdivision site is at risk of landslides. The Buncombe County Hazard Mitigation Plan (August 23, 2004) determined that the steep slopes and fragile soils of Western North Carolina put the county at high risk for landslides. This report was issued just weeks before the catastrophic 15 county slope failures of 2004. (Western North Carolina received 2 federal disaster declarations in September 2004)

The Cliffs at High Carolina Property Report

The Cliffs Communities, Inc. should disclose the following material information under the Land Characteristics and Climate/Hazard Section of their High Carolina Property Reports:

1. The land in this subdivision is naturally hazardous. Geologists and soil experts have determined that the lots in this subdivision are at risk of slope failure. Homeowner policies will not cover earth movement property damage.

2. This project was approved without landslide hazard mapping and under regulations that did not require site specific stability studies. Please contact the North Carolina Geological Survey for additional information.

Another section of the report defines financial responsibilities for the Property Owner's Association. If applicable, the following should be disclosed:

Roads in this subdivision are private and will be maintained by the Property Owner's Association after the developer's obligations are satisfied. Subdivision roads are presently stable but are subject to erosion and slope failure. All future road costs will be shared by members of the association.

The HUD Interstate Land Sales Full Disclosure Act website advises all purchasers to read their Property Reports before signing anything.

The North Carolina Real Estate Commission does not require land risk disclosure but federal law does. If developers fail to comply with the regulations mandated by ILSA, purchasers have two years to seek rescission of their purchase contracts and three years to seek damages.

Are the Developers of Scenic Wolf and Breakaway Village in Violation of the Interstate Land Sales Full Disclosure Act?

The Scenic Wolf and Breakaway resorts are located in Mars Hill, North Carolina. The sale of land in these adjoining subdivisions should be subject to the rules and regulations set forth in the Interstate Land Sales Full Disclosure Act. The survey for Phase 1 of Scenic Wolf Mountain Resort was recorded on June 9, 2004 and the survey for Breakaway on September 19, 2005. A search of North Carolina Subdivisions on the U.S. Department of Housing and Urban Development website indicate that the developers, Scenic Wolf Development L.L.C. and Breakaway Land Company, L.L.C. have not registered their developments.

Interstate Land Sales Full Disclosure Act

In 1968 Congress passed the Interstate Land Sales Full Disclosure Act to protect consumers from fraudulent and abusive land sale practices. This bill requires land developers to register their subdivision plans for a 100 or more non-exempt lots with the U.S. Department of Housing and Urban Development (HUD) and to provide purchasers with a detailed Property Report.

The Penalty for Failure to Comply

The following was taken from the HUD Interstate Land Sales Full Disclosure Act website:

Contact Rights Concerning Property Reports

It has always been the law that if the developer has an obligation to register with the Interstate Land Sales Division, the developer or sales agent must give the buyer a copy of the current property report before the buyer signs a contract. Otherwise, the buyer has up to 2 years to cancel the contract and get his or her money back. That fact must also be clearly set forth in all contracts. You may have the right to void the contract if the subdivision has not been registered with HUD or you were not given a property report.

Furthermore, if the developer has represented that it will provide or complete roads, water, sewer, gas, electricity, or recreational facilities in its property report, in its advertising, or in its sales promotions, the developer must obligate itself to do so in the contract, clearly and conditionally (except for acts of God or impossibility of performance).

List of Nine Dishonest Sales Practices:

1. Concealing or misrepresenting facts about current and resale value.
2. Failure to honor refund promises or agreements.
3. Misrepresentation of facts about the subdivision.
4. Failure to develop the subdivision as planned.
5. Failure to deliver deeds, title insurance policies.
6. Abusive treatment and high-pressure sales tactics.
7. Failure to make good on sales inducements.
8. "Bait and switch" tactics.
9. Failure to grant rights under the Interstate Land Sales Full Disclosure Act.

Where to Complain:

If you believe you have been cheated in a transaction covered by the Interstate Land Sales Full Disclosure Act, write to HUD, Interstate Land Sales Division, 451 Seventh St. S.W., Washington, D.C. 20410. Set forth specific details of your complaint and include the name of the developer, name and location of the subdivision, and copies of the contract or any other documents you signed. It is important to act quickly because there are specific time limits for exercising your legal rights.

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.

Western North Carolina Landslide Confidential

According to legislative findings and geologic investigations, landslides in Western North Carolina are serious and determinable threats to lives and property. In February 2005 the state passed the Hurricane Recovery Act. The General Assembly found that:

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 mapping for the region so that homes may be built in safe areas.

Extensive studies by the North Carolina Geologic Survey show that much of the salable land in Western North Carolina is susceptible to landslides. These areas include:

steep slopes, usually greater than 30 degrees, embankments or fills, cut or excavated slopes, hillside depressions or hollows near streams and springs, eroded or undercut streams or river banks, areas below steep mountain slopes, areas on hills or mountainsides where runoff accumulates, disturbed or modified slopes on mountainsides, areas where roads cross drainage or streams on mountainsides.

Western North Carolina Realtors are currently marketing and selling this "unmapped" and potentially hazardous property. Purchasers receive no fair warning either in advertising or sales contracts that slope failures are an ever-present threat to real estate values. Unless Realtors are legally compelled to disclose these significant risks, landslides will remain a well protected industry secret.

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. What isn't clear is why the Western North Carolina real estate industry is allowed to conceal material facts from their clients. How can Realtors offer and sell hazardous land as a "no risk" investment? This legal question can only be answered by Roy Cooper, Attorney General of North Carolina.

Are Western North Carolina Mountain Developers Violating the Interstate Land Sales Full Disclosure Act?

Hundreds of land developers are conducting business in the 21 county mountain region known as Western North Carolina. Most of these companies are subject to the rules and regulations set forth in the Interstate Land Sales Full Disclosure Act.

Interstate Land Sales Full Disclosure Act

In 1968 Congress passed the Interstate Land Sales Full Disclosure Act to protect consumers from fraudulent and abusive land sale practices. This bill requires land developers to register their subdivision plans for a 100 or more non-exempt lots with the U.S. Department of Housing and Urban Development (HUD) and to provide purchasers with a detailed Property Report.

The Penalty for Failure to Comply

The following was taken from the HUD Interstate Land Sales Full Disclosure Act website:

Contact Rights Concerning Property Reports

It has always been the law that if the developer has an obligation to
register with the Interstate Land Sales Division, the developer or sales agent must give the buyer a copy of the current property report before the buyer signs a contract. Otherwise, the buyer has up to 2 years to cancel the contract and get his or her money back. That fact must also be clearly set forth in all contracts. You may have the right to void the contract if the subdivision has not been registered with HUD or you were not given a property report.

Furthermore, if the developer has represented that it will provide or complete roads, water, sewer, gas, electricity, or recreational facilities in its property report, in its advertising, or in its sales promotions, the developer must obligate itself to do so in the contract, clearly and conditionally (except for acts of God or impossibility of performance).

Western North Carolina Mountain Developers’ Property Reports

All Western North Carolina mountain developers are obliged to include land risks in their Property Reports. Landslides and erodible soils are common in the region and these hazards must be revealed. Failure to disclose material facts is a violation of the Act.

HUD’S List of Nine Dishonest Sales Practices:

1. Concealing or misrepresenting facts about current and resale value.
2. Failure to honor refund promises or agreements.
3. Misrepresentation of facts about the subdivision
4. Failure to develop the subdivision as planned.
5. Failure to deliver deeds, title insurance policies.
6. Abusive treatment and high-pressure sales tactics.
7. Failure to make good on sales inducements.
8. "Bait and switch" tactics.
9. Failure to grant rights under the Interstate Land Sales Full
Disclosure Act.

Where to Complain

If you believe you have been cheated in a transaction covered by the Interstate Land Sales Full Disclosure Act, write to HUD, Interstate Land Sales Division, 451 Seventh St. S.W., Washington, D.C. 20410. Set forth specific details of your complaint and include the name of the developer, name and location of the subdivision, and copies of the contract or any other documents you signed. It is important to act quickly because there are specific time limits for exercising your legal rights.

West Virginia Mountain Developers and the Interstate Land Sales Full Disclosure Act

In 1968 Congress passed the Interstate Land Sales Full Disclosure Act to protect consumers from fraudulent and abusive land sales practices. This bill requires land developers to register their subdivision plans for a 100 or more non-exempt lots with the U.S. Department of Housing and Urban Development (HUD). Developers offering 25-99 lots as part of a common promotional plan are not required to register but are subject to the anti-fraud provisions. Violations of the Act may result in criminal and civil penalties and the buyer's right of rescission.

The law also stipulates that each purchaser receive a pre-sale Property Report detailing all material facts about the land offered for sale. The sale of condominiums is covered under this Act. The Property Report is intended to be a revealing document. It is uniform in design and requires full disclosure of known potential land risks.

Fact: West Virginia Mountain Land is Hazardous.

On June 3, 2008, as a result of severe storms, tornadoes, mudslides, landslides and flooding, the federal government declared Barbour, Clay, Doddridge, Gilmer, Harrison, Jackson, Jefferson, Marion, Taylor, Tucker, Tyler and Wetzel counties presidential disaster areas.

The following West Virginia hazard information was taken from Community Alert online:

Because of the mountainous nature of West Virginia, landslides are a common hazard. A Geological and Economic Survey study estimated that there are nearly 500,000 landslides each year in the state, and damage estimates are about $30 million annually (Lessing, 1996). West Virginia accounts for 13 percent of U.S. landslide damage and is ranked one of the top two states in highest landslide damage per capita values at $100-$300/person/year (Kite, 2003).

According to the United States Geologic Survey, practically all of West Virginia resides in a zone of high incidence of landslides. As such, landslides pose a significant threat to the lives and property of West Virginia's residents.

West Virginia mountain developers who are subject to the Act should disclose the following material information under the Land Characteristics and Climate/Hazard Section of their property reports:

1. The land in this subdivision is naturally hazardous. Geologists and soil experts have determined that the lots in this subdivision are at risk of slope failure. Homeowner policies will not cover this damage.

2. This project was approved without landslide hazard mapping and under regulations that did not require site specific stability studies. Please contact the West Virginia Geological Survey for information.

Another section of the report defines financial responsibilities for the Property Owner's Association. If applicable, the following should be discussed:

Roads in this subdivision are private and will be maintained by the Property Owner's Association after the developer's obligations are satisfied. Subdivision roads are presently stable but are subject to erosion and slope failure. All future road costs will be shared by members of the association.

It is unknown whether West Virginia mountain developers are in compliance with the Interstate Land Sales Full Disclosure Act. Occasionally developers neglect to file a statement of record with HUD and also fail to supply purchasers with a Property Report. For an example of a recent HUD Settlement Agreement please see U.S. Department of Housing and Urban Development and Waters Edge One, L. L. C.

The U.S. Department of Housing and Urban Development Web-site provides a list of West Virginia land developers who have registered with the agency.

Western North Carolina Landslides Remain a Well-Kept Secret

In September 2004 the western counties of North Carolina were in a state of emergency. The President issued 2 federal disaster declarations and FEMA provided $72 million in aid.

Since next month marks the fourth anniversary of the Western North Carolina landslide disasters it is time to look at what actions the state has taken.

In February 2005 the North Carolina General Assembly recognized that landslides posed a serious but yet to be identified threat. The legislature authorized funds ($1.3 million) for a multi-county "Is it Safe to Build Here" landslide mapping program. To date these studies have produced only two county landslide hazard maps.

When the Macon County landslide maps were completed in October 2006 Governor Mike Easley said:

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.

The public has made substantial investments in Western North Carolina mountain property and at no time have their interests been protected. There is no real estate disclosure of the landslide mapping program or mention of the fact that all land should be professionally investigated. The Macon and Watauga County hazard maps show that hundreds of homes have been built directly in the path of previous landslides.

Unfair and Deceptive Business Practices

In 2007 the state acted to protect consumers from unfair and deceptive business practices. Governor Easley signed a bill in late August restricting the ability of the mortgage industry to prey on unwary borrowers. The Governor said during the legislative signing:

I should have watched this closer; all of us should have on the state level. We should have looked at our laws closer and made some changes.

The Office of the Attorney General intervened in July 2007 to stop the unfair real estate practices of a Spruce Pine developer. Attorney General Roy Cooper stated in his Village of Penland complaint that:

These developers squandered more than a $100 million in financing leaving consumers stuck with property that isn't worth what they owe on it.

Dangerous Public Policy

Today developers dupe the public into buying risky mountain slope property and planning boards promote hazardous residential development. These two self-interested groups are not qualified to make decisions regarding public health and safety.

It is well past time for legislators and the Attorney General to reconsider state laws and their responsibilities.

Land Resource, LLC Closes West Virginia Roaring River Development

Mike Flaskey, C.E.O. of Orlando-based Land Resource, L.L.C. told The Charleston Gazette on July 16, 2008 that the company was shutting down their Roaring River sales office. Mr. Flaskey cited economic constraints and stated that the company would not refund any money to the people who had bought lots. Please see Susan Williams’s article “Gorge Housing Project on Hold”

The Roaring River mountain slope development is located along the New River Gorge and the company had envisioned building 2,000 homes on the 4,300 acre site. According to Mr. Flaskey the company has sold 100 to 150 lots.

The Roaring River project is located in an area known for landslides and unstable soils. In July 2001 a major landslide occurred along a 600-foot section of Cunard River Access Road on the New River Gorge National River. This area was also impacted by landslide events in 2003.

West Virginia Mountain Land is Hazardous

The following information was taken from Community Alert online:

Because of the mountainous nature of West Virginia, landslides are a common hazard. A Geological and Economic Survey study estimated that there are nearly 500,000 landslides each year in the state, and damage estimates are about $30 million annually (Lessing, 1996). West Virginia accounts for 13 percent of U.S. landslide damage and is ranked one of the top two states in highest landslide damage per capita values at $100-$300/person/year (Kite, 2003).

According to the United States Geologic Survey, practically all of West Virginia resides in a zone of high incidence of landslides. As such, landslides pose a significant threat to the lives and property of West Virginia's residents.

Roaring River and the Interstate Land Sales Full Disclosure Act

Roaring River, HUD Subdivision Id: 31655, lot sales are covered under the Interstate Land Sales Full Disclosure Act and all purchasers must receive a detailed Property Report prior to signing a contract. The Property Report must include known land risks such has flooding, landslides and unstable soils. If Land Resource, L.L.C. neglected to provide Property Reports as required by ILSA, purchasers have two years to seek rescission of their purchase contracts and three years to seek damages. For additional information concerning consumer rights and protections please contact the United States Department of Housing and Urban Development.

Western North Carolina's Unstable Mountain Real Estate

Property damage caused by soil erosion is commonplace, expensive to repair and uninsurable.

North Carolina scientists have determined that the soil composition on mountain slopes in the western region of the state is “unsuitable” or “poorly suited “ for major subdivision development.

Soil surveys can be found on the United States Department of Agriculture Natural Resources Conservation Service website or in county Soil and Conservation offices. These voluminous reports were intended to prevent development on unstable ground but since there is no state governance, planning boards and developers largely ignore soil assessments. North Carolina also does not require land risk disclosure so prospective buyers will not find any geological hazard information on their real estate contracts or plats.

Some states, notably California and Colorado, have passed legislation to prevent developers and sellers from taking advantage of uninformed buyers. For instance, Colorado enacted the Soils and Hazard Analyses of Residential Construction Act in 1984. This bill requires that all developers and sellers provide purchasers of new residences with a copy of the property’s soil survey and site recommendations. This report must be given to prospective buyers no later than 14 days prior to closing.

Even though North Carolina does not require geologic risk disclosure, prospective buyers of undeveloped land will find protection and relief under federal law.

Western North Carolina Mountain Developers and the Interstate Land Sales Full Disclosure Act.

There are hundreds of mountain developers conducting business in the 21 county area known as Western North Carolina. The majority of these developers are subject to federal law under the Interstate Land Sales Full Disclosure Act. For a list of registered developers and subdivisions please visit the United States Department of Housing and Urban Development website.

Occasionally developers neglect to file a statement of record with HUD and also fail to supply purchasers with a Property Report. For an example of a recent HUD Settlement Agreement
please see U.S. Department of Housing and Urban Development and Waters Edge One, L. L. C.

The Property Report

A subdivision Property Report is the most significant document that a prospective buyer can receive when considering a land purchase. The Report is standard in design and table of contents. Developers are required to provide specific information about land risks such as soil erosion, flooding, landslides and other known hazards. If developers fail to comply with the regulations mandated by ILSA, purchasers have two years to seek rescission of their purchase contracts and three years to seek damages.

Laurelmor Land Values...Fair Market or Speculative?

According to newspaper reports and real estate websites, lots in Laurelmor have been sold for $500,000 to $1.2 million. For a description of the Laurelmor premiere sales event please read Scott Nicholson’s November 2006 article “Laurelmor property: Ginn auction draws $150M.”

How can a lot in a rural undeveloped Western North Carolina subdivision be appraised for these extraordinary sums? The answer may lie in the Ginn Laurelmor Lot Loan Program. Ginn Financial Services, LLC offered:

Financing Available for Loans up to $1,250,000... Stated Income Loans Available… Flexible Point Structure to Suit Your Needs…Rate, Term and Product Availability Subject to Approval… In House Financing Eliminates Communication Issues and Expedites the Closing Process.

Ginn Laurelmor and the Interstate Land Sales Full Disclosure Act

The developer Ginn-La Laurel Creek Ltd, LLLP, Laurelmor land sales, HUD subdivision Id:31640, are subject to federal law under the Interstate Land Sales Full Disclosure Act. The following text was extracted from the Act:

Sec. 1750.20 Unlawful sales practices - -regulatory provisions

(h) Use, as a sales inducement, any representation that any lot has good investment potential or will increase in value unless it can be established, in writing, that:
(1) Comparable lots or parcels in the subdivision have, in fact, been resold by their owners on the open market at a profit, or;
(2) There is a factual basis for the represented future increase in value and the factual basis is certain, and;
(3) The sales price of the offered lot does not already reflect the anticipated increase in value due to any promised facilities or amenities. The burden of establishing the relevancy of any comparable sales and the certainty of the factual basis of the increase in value shall rest upon the developer.

Ginn Lawsuit

A group of Ginn purchasers filed a federal class action lawsuit in May 2007. The disputed sales transactions involve a variety of Florida Ginn resort properties. Joseph Shallal, an attorney representing some of the plaintiffs, provides an overview of the complaints:

The Ginn Resorts failed to make material disclosures and failed to deliver a Property Report to many, if not all, of the purchasers prior to signing a purchase agreement and therefore violated the Act permitting the purchaser to rescind or cancel the deal even after closing. The lawsuit also claims that there were violations of Securities and Exchange Commission Rules and Regulations, and that Ginn engaged in a Ponzi scheme. Ginn marketed these properties as investment properties. This claim is similar to selling stock which requires registering with the SEC. Ginn did not do this and violated the SEC Rules and Regulations.

Mr. Shallal’s comments were taken from Vanessa Denha-Garmo’s article “Paradise Lost” The Chaldean News, January 6, 2008.

Village of Penland

In the summer of 2007 a Mitchell County, North Carolina development called The Village of Penland made national news when Attorney General Roy Cooper filed a civil suit against the developer, Tony Porter, his business associates and affiliated companies. During the course of the inquiry investigators found that Mr. Porter was selling lots for as much as $125,000 when the lots were actually worth less than $20,000. For additional information please read Ann Carrns’s article "Investors Left Holding the Bag in a Land Project Gone Wrong" Wall Street Journal, July 19, 2007.