News

Seven Falls lot owners reach agreement on sharing $5.5M

By Bill Moss, Published: September 22, 2017

Owners of residential lots in the Seven Falls development have agreed to a distribution of $5.5 million in bond money Henderson County received after the development failed.

The settlement should result in checks going out to 161 lot owners once the settlement becomes final. Superior Court Judge Mark Powell, who presided over a long and complex process for distributing the bond money, signed the consent judgment on Aug. 31. The order would become final when a 30-day appeal timeframe ends, said County Attorney Russ Burrell. No appeal is expected, because a mediation over a five-month period ended with 100 percent of the property owners agreeing to the final number.
“I think it would be a bad evil miracle” if anyone derailed the agreement at this stage, Burrell said. “My argument in court about why Judge Powell should accept this is I didn’t go through life seeing very many miracles but this is as close to one I’ve seen in a long time. I did not expect them to agree to anything.”

Early versus later investors

Burrell often described the long road to the settlement as uncharted legal waters. The county’s first option was to recruit a developer who would add funding to the $5.5 million and revive the subdivision by building roads and putting in utilities. None would agree. The county then asked Judge Powell to oversee a mediation in which the property owners and lawyers would hammer out an agreement to share the remaining bond proceeds. (The county spent the first $500,000 of the $6 million bond money on site stabilization, permitting and engineering.)
Developer Keith Vinson, who announced the 900-home Seven Falls Golf & River Club on an Arnold Palmer-designed golf course in 2007, was convicted of federal fraud charges in 2013 and sentenced in 2015 to 18 years in prison.
“There were two main groups,” Burrell said of the parties negotiating the agreement. “Well, three if you count the people who are in prison, but we won’t count them. One is the developer types, the people who bought lots in bulk.” Those included Scott McElrath, a Mills River developer who is now a real estate agent in Brevard. McElrath bought 74 lots from the former National Bank of South Carolina. French Broad River Partners, another group of investors, owns 19 lots.
French Broad “bought 10 of them from the FDIC for $100,000,” Burrell said. The other group “paid Keith Vincent full freight for their lot and who haven’t been foreclosed.” Those early buyers paid anywhere from $250,000 to $500,000 for lots.
Those lot owners, represented by Sharon Alexander, insisted that since they had paid far more for their property than later bottom-feeding buyers they should get larger settlements.
McElrath argued in a motion, filed by attorneys Esther Manheimer and Kirsten Smith, for an equal distribution for each lot owner. That would have come to roughly $34,000 per lot, producing a windfall for opportunistic investors who paid distressed-sale prices for lots after the project collapsed.
“What they did through mediation was come to a formula that they were all happy with,” Burrell said. “I was happy with the formula because anybody who got any money out of this agreement had paid all of their taxes.” Alexander’s clients “get a larger amount per lot than the folks in the other group.”
The parties were able to do that by starting with the equal-amount-per-lot formula, then adjusting the payout by reallocating $1.3 million from four groups to Alexander’s clients. The money shift came from McElrath, $801,670; French Broad, $205,833; Integra Bank, $75,838; and non-participating parties, $216,660.
Specifically, the agreement pays:
• $2,632,452 to Alexander’s 39 clients.
• $1,889,902 to Manheimer’s clients, including McElrath Carolina Investments and Entegra Bank (formerly Oldtown Bank).
• $443,310 to French Broad River Partners.
• $11,666 to lot owner Robert A. Barry Jr.
• $22,499 to lot owner Lesley Rohe.
• $34,165 to lot owner Rebecca Dean, plus $13,835 directly from McElrath to Dean.
• $23,332 each for 17 other named lot owners.
Previously, Powell had approved payments of $2,025 to Walter Carpenter, the original guardian ad litem attorney for unrepresented lot owners, and $26,320 to Robert Deutsch, who succeeded Carpenter as guardian ad litem. Mediator Sharon Barrett received $13,118.
The court had to figure out a way to account for the interest of all property owners, even those who never responded to hearing notices or participated in mediation. Lots changed hands constantly.
“We did not have to track down all of those people all over the world to figure out who owned every lot minute by minute during the pendency of these lawsuits,” Burrell said. “We had somebody whose job it was to stand for them and say, ‘This is a fair deal for these people.’”
The negotiations were so painstaking that even a minuscule arithmetic error required the parties to file an amendment. The funds remaining in the clerk’s office were “insufficient in the amount of 42 cents to pay the distributions contemplated in the Consent Judgment,” the amended order said.
Anyone would have been happy to dig into his pocket for 42 cents to resolve it, Burrell noted.
“The Administrative Office of the Courts said the clerk couldn’t allow that,” he said. “So, redo this order, get it right, make everybody happy with the math.”

‘It’s beautiful up there’

Tom Cooper, one of the original lot owners, said he was about as satisfied with the settlement as he could have hoped for.
“We shared (the proceeds) based on how much investment you had made,” he said. “There was a percentage. If you paid $300,000 for your lot versus $500,000, the $500,000 guy got a little bit more.”
McElrath’s group includes developers from Florida who may next put together a plan to finish the subdivision and sell the 74 lots they own.
“Scott’s backers out of Jacksonville, Fla., will unveil what they intend to do with it,” he said. “I think for sure there will be a development there. I think the numbers are working out fine for the developers.
“From what I was told during the hearing, these guys are very very experienced and have done lots of real nice projects, so this is not their first rodeo. I think something’s going to happen. Will they ever have the value they would have had with a golf course there? No, you won’t have that. Someday, we’ll all either build or sell a lot and then we’ll see how much loss we’re going to write off. I don’t think anybody expects to be whole or anything.”
Burrell said he is relieved that the county finally has the Seven Falls debacle behind it. Like Cooper, he’s hopeful that the project unveiled with magnificent hype 10 years ago will one day come to pass, if in a more modest form.
“You hope that a developer will finish out that subdivision,” he said. “If you’ve ever been up on that mountain at the top, it’s beautiful up there. There’s some gorgeous views. You can look in one direction and see Mount Mitchell and look the other way and see Mount Pisgah.”