News

Seven Falls landowners face off over divvying up $5.5 million

By Bill Moss, Published: February 28, 2017

Lawyers will face off in the Historic Courthouse on Wednesday for what could be the last chapter of the biggest local real estate fraud since the 1920s.

The case titled County of Henderson v. Seven Falls LLC grew out of a massive fraud that landed the developer in prison, resulted in convictions for six associates others and left dozens of lot buyers with property worth of fraction of what they paid.
Henderson County went all the way to the state Supreme Court to defend its right to a $6 million performance bond that developer Keith Vinson had taken out to guarantee subdivision improvements.
Nearly two years after a federal judge sentenced Vinson to 18 years in prison, the property owners he left behind and their attorneys will sit down in the county commission meeting room to try and apportion the $5.5 million that remains of the bond payment to Henderson County.
“As with all mediations I hope we’ll be very creative in exploring equitable fair ways to address everyone’s concerns and compensate people to the best of everyone’s ability,” said Sharon Alexander, who represents 55 lots owners. “If we were to get it all sorted out I doubt that it could be wrapped up in one day. That’ll be part of what we have to decide on Wednesday.”
While Alexander represents property owners who paid $100,000 and up for their lots on what was supposed to be an Arnold Palmer-designed golf course, Esther Manheimer, the attorney who is also mayor of Asheville, represents developer Scott McElrath, who scooped up 42 lots for the fire sale price of $5,476 each in June 2015. McElrath paid a total of $230,000 for the land, $750,000 than the county tax assessor’s value, according to a Hendersonville Lightning investigation in the summer of 2015.
In a three-paragraph motion on how McElrath Carolina Investments would like to see the $5.5 million doled out, Manheimer asked the court to distribute the money equally among all lot owners. That approach, Alexander countered, would result in a windfall for some property owners and a loss for others.
“It would, further, be inequitable to return any portion of the bond proceeds to the developer, its principals, agents or associates,” she said.
Asked if that meant McElrath and his investors had been associated with Vinson, Alexander said, “I’m not suggesting anything about any particular person.” One lot among those in the total poll of parcels is owned by Seven Falls LLC, she added.
Manheimer could not be reached for comment.

In sales pitches announced with fanfare and country music stars, Vinson promised that Seven Falls Golf & River Club would be an upscale a 900-home development with a top-flight golf course, tennis courts and a retail and services village on the French Broad River in Etowah. Eight years later, prosecutors said the fraud had cost investors, banks and land buyers $23 million and U.S. District Court Judge Martin Reidinger ordered Vinson, “the hub of the wheel,” to pay $18.3 million in restitution.
The ownership of land at the failed subdivision is so complicated that Henderson County could not guarantee that it had notified all property owners entitled to a share of the $5½ million pie. For that reason, Superior Court Judge Mark Powell appointed Robert Deutsch to represent “any owners or others with an interest in the subdivision not known or served.”
Powell ordered the mediation on Feb. 2 after granting Henderson County’s request to be relieved of responsibility for salvaging Seven Falls by funding repairs and improvements. County Attorney Russ Burrell said conversations with developers across the country had produced no willing investors who thought the project could be put in marketable condition for $5.5 million.
Sharon Barrett, a retired Superior Court judge from Asheville, will serve as mediator.
Attorneys in the case say there is no precedent in North Carolina law that courts can use to guide parties to a resolution. Alexander said she did not know how long the mediation would last.
“It’s an extraordinary and unique set of circumstances,” she said.