News

Developer hopes to ‘clear up the mess’ at Seven Falls

By Bill Moss, Published: July 9, 2015

ETOWAH — The sentencing last month of Keith Vinson as the “wheel of the hub” in the fraud surrounding the Seven Falls Golf & River Club moved the property owners, bankers and Henderson County to the next phase — sorting out what’s next and how to make a go of the development.

The news that a Mills River developer has bought 42 residential lots plus a substantial portion of the Seven Falls land mortgaged to a South Carolina bank creates a potential new path to development but also raises questions about its future.
Scott McElrath, who developed the Homestead of Mills River from 2003 through 2010, bought 42 lots plus the notes that secure other lots and land in the 1,400-acre development. That could make McElrath and his Florida-chartered McElrath Investments Inc. a key player in the ongoing effort by Henderson County to make improvements and salvage as much value as possible at Seven Falls.
On June 9, McElrath executed five different transactions that made him a new owner. He bought the assignment of deeds of trust from Synovus Bank, the successor to the National Bank of South Carolina. NBSC was the original lender to Keith Vinson used when he borrowed $25 million loan to launch the ambitious development. McElrath was in the picture, too. He assembled 1,000 acres and sold the land to Vinson as the project was getting off the ground.
Of the five separate transactions, four represent the sale of the deeds of trust to McElrath for an amount that the documents do not disclose. McElrath would not disclose the amount either.
“It’s too early,” he said. “There’s a lot of title issues.”
The one document that describes a value is a nonwarranty deed for the sale of 42 lots. McElrath paid $230,000 for those, according to documentary stamps. That comes out to $5,476 per lot, a bargain price if the lots were to sell at their tax-assessed value. The Henderson County tax assessor valued the lots at a total of $979,700 — or an average of $23,326 per lot and $750,000 more than McElrath paid. The lots ranged in value from $9,700 to $38,600, according to a check of the records by the Hendersonville Lightning.

‘Complex and big’

“It’s complex and it’s big and you’ve got to get it right,” McElrath said in an interview Monday at his real estate office, H. Scott & Associates, in Brevard on Monday. “The necessary first step is clearing up the mess. Besides the mess that’s out there, there’s also the legal mess that’s got to be cleaned up. I’ve got lawyers — some of the best in the state — working on it.”
He said he could not say how much be paid for the deeds of trusts — which he called “a box of paper.”
“I signed a confidentiality agreement with Synovus not to say not only what I paid but all of the other terms of the transaction,” he said.
That leaves plenty of questions for Henderson County and the landowners with clear title — there are 98 such owners named in a lawsuit the county filed seeking judicial guidance for spending bond money on site development.
McElrath bought the property and notes on June 9 — just 3½ months after a U.S. bankruptcy judge discharged his debts in a voluntary bankruptcy the developer filed last October. In the filing, he listed assets of $111,400 against debts of $2.9 million. In the filing he listed:
• Personal property worth $61,439.
• A $100,000 secured debt from Boyd L. Hyder, the Edneyville land developer.
• Unsecured priority claims of $852,000, including a $300,000 loan from Hyder for “living expenses and business use” and a $503,000 business loan from First Citizens Bank, successor to Mountain First Bank.
• Unsecured non-priority claims of $2.8 million, including $1.9 million in loans from TD Bank.
McElrath and his wife, Karen, a schoolteacher, listed a combined monthly income of $3,580. The accounting of his financial affairs reported 10 pending lawsuits to collect debt in civil court, including six by TD Bank and two by First Citizens. A judge ordered the debts discharged on Feb. 13. The final order closing the case was filed July 1.
Asked in a follow-up interview on Tuesday how he could have come up with the money for the Seven Falls deal, he said, “I didn’t say it was my money. It’s what they call a loan.” Asked if the financial backing was from sound sources, he said, “Yes sir. It would be kind of foolish to pursue it if it wasn’t.”
“It’s early in the game,” he added, “and you’ve got to start somewhere. Somebody’s got to do the dirty work” to sort out the ownership and foreclose on the land secured by bad debt. “You’ve got to get clear title. That’s the first step.”

Lawsuit protects county, landowners

County Attorney Russ Burrell said the lawsuit Henderson County filed in March 2013 is the best protection for the county’s interest and that of the clear-title landowners.
“What we want is the court’s permission and the court’s blessing and the court’s release from future liability,” he said.
Burrell agreed that McElrath’s best play is to sort out the deeds of trust and move to foreclose on them. Only then could be sell them to a developer with the money to move forward.
“There’s going to be lots in the development that were never foreclosed because they were never sold by the developer to somebody else,” Burrell said. “Plus, there’s the golf course, the golf practice area, there was the par 3 course. There was going to be the Town Center. Those are (Vinson properties) held under the name Seven Falls, or Zeus … and they’re subject to the notes that used to be in favor of Synovus but now are in favor of McElrath development. It’s way more than half. It’s probably more than three-quarters” of the total acreage.
What McElrath owns — or potentially owns — might make up about half the platted subdivision.
The county, meanwhile, is waiting on a permit from the U.S. Army Corps of Engineers. Once that’s in hand, the county will go back to Superior Court to seek approval to build roads and other infrastructure. The county has $5.5 million left from a $6 million bond payment it received when Seven Falls failed.
“We have our duties to move forward,” Burrell said. “We’re going to be moving forward as quickly as we can get the permits. That doesn’t mean that somebody might not take it back to court sooner than that, saying that we have a side deal with the Corps and we’re going to add our own money to the county’s money and do it differently from the county’s plan.”
If property owners want to object to the county’s proposal, they’re entitled to do so, he said. It’s not the county’s role to say whether McElrath is capable of acting as a developer or as a middleman to bring on a new developer.
“Remember, we’re not going to make that determination. The court is,” he said. “If someone comes in with another plan, I would be shocked for the court to agree to another plan if that person didn’t put some skin in the game — put their own money in there” on top of the county’s money.
“If you want to present a plan to the court as a property owner you have that right,” he said. “We’re going to present the best plan that can be done with this amount of money. If you come up with a better plan with this amount of money I’ll be shocked. But if you come up with a better plan by adding your own money to it, I won’t be surprised at all.”

Developer could flip lots

County Commissioner Bill Lapsley, who did the Seven Falls engineering, said he remembers McElrath’s role in assembling the large piece of property Vinson needed and selling it to the developer.
“My guess is he’s just buying the lots figuring he’s going to be able to flip the lots and make a killing off it,” he said. “I don’t know that for a fact. I don’t think he has the wherewithal to be the developer.”
Lapsley said he doesn’t see a downside for McElrath nor for the county.
“If he wanted to walk in tomorrow and start building roads I think we’d ask a lot of questions but I don’t know that we could stop him,” Lapsley said. “If he became the developer then the state and feds with all the fines and issues out there, they’ll go after him. If he’s just a lot owner then they can’t go after him. He’s got a homerun as long as somebody comes along and buys it from him.”
Lapsley agreed that the lawsuit was the best approach Henderson County could have taken because it allows the county to proceed — deliberately, cautiously and with the court’s blessing every step of the way.
“The reason for doing that is to avoid hopefully any problems in the future from landowners who may want to sue the county for not finishing the whole place,” Lapsley said.
McElrath, 54, described his role as directing the complex job of sorting out the deeds and getting clear title before negotiating with a developer who would then be willing to buy the land and complete Seven Falls.
“What’s out there right now is not good,” he said. “I’m quite certain I can improve on what’s out there now. The first step is cleaning up the mess and that’s what I’m doing. It takes time. It takes title attorneys’ expertise.
“It’s about getting it done right, not getting it done quickly. In all likelihood I’m going to be a conduit between the lender and the ultimate developer. A lot of times big development organizations don’t want this kind of work. They want to come in with a blank canvas and do what they do best.”