Cooper’s ‘Win’ Against Coastal Developers Won’t Go Far | Eastern North Carolina Now

    Publisher's note: The author of this post is Don Carrington, who is executive editor for the Carolina Journal, John Hood Publisher.

    Investors in Cannonsgate and Summerhouse may recover only pennies on the dollar

    RALEIGH  -  A settlement touted by North Carolina Attorney General Roy Cooper on Sept. 3 as a "win" for investors victimized by two questionable developments on the North Carolina coast promises to provide only pennies-on-the-dollar restitution to those who lost money in the transactions.

    Cooper, in a press release announcing the $2.28 million settlement with the developers and marketers of two coastal developments, said:

    "Consumers who bought overvalued lots at two coastal real estate developments in Carteret and Onslow counties will get to recoup some of their money," Cooper's office stated in a press release.

    But if the 1,100 consumers who may be eligible for refunds shared the entire settlement, each payment would average only $2,073. Public records indicate many buyers have lost more than $100,000 each.

    Cannonsgate, in Carteret County, and Summerhouse, in Onslow County, were the creations of developers Randy and Gary Allen, who were implicated in the scandals that dogged former Gov. Mike Easley. Easley, along with his wife Mary, purchased a waterfront lot in December 2005 at Cannonsgate under suspicious circumstances that led to damaging investigative reports by Carolina Journal, the Charlotte Observer, and the News & Observer.

    Responding to fraud complaints made as early as 2007 from purchasers in Cannonsgate and Summerhouse, Cooper's office pursued legal action through its Consumer Protection Division. The defendants listed in the settlement agreement are Randy Allen of Charlotte and his brother Gary of Florida; their companies R. A. North Development, R. A. North Development I, and Southeastern Waterfront Marketing; and sales associates Douglas Therrell, Kenneth Bednar, and Michael Woolard.

    Under the terms of the settlement agreement, the defendants agreed to make a payment to Cooper's office to cover refunds, the costs of the investigation leading to the settlement, and consumer education at Cooper's discretion. The agreement also says the defendants' payment "is not a fine, penalty, or payment in lieu thereof."

    Coastal crash

    Land records show that Horace Beasley of Colerain and Edward Wood of Wilmington together bought a Cannonsgate lot in October 2005 for $480,000. They currently have it listed with a real estate agent for an asking price of $125,000 - a loss of $355,000 before any real estate commission or other costs. A deed of trust with BB&T indicates they borrowed $460,000 when they purchased the property. Beasley could not be reached for comment about the settlement.

    Berkley Skinner III of Rocky Mount, also a member of the N.C. Wildlife Resources Commission, bought a Cannonsgate lot in October 2005 for $380,000. He now has it listed with a real estate agent for an asking price of $139,000 - a loss of $241,000 before any real estate commission or other costs. A deed of trust with BB&T indicates Skinner borrowed $341,892 when he purchased he property. A separate deed of trust indicates he borrowed another $77,155 to purchase one the boat slips in the Cannonsgate Marina. Skinner did not return calls seeking comment.

    Bank of America gained possession of lot 208 in Summerhouse through a foreclosure process. In 2008, the lot had an assessed tax value of $350,000. Now it is listed with a real estate agent for $13,000.

    The Cannonsgate development has 525 individual lots and Summerhouse has 1,029 lots. To be eligible for a refund a consumer must have purchased a lot from one of the defendants or their agents and be the current owner of the lot or the owner at the time of a foreclosure.

    In addition, the consumer cannot have received a discount from the purchase price at the time of closing. That condition apparently would disqualify the Easleys from submitting a claim, as an N&O report from September 2009 published a closing statement showing that the Cannonsgate developers had discounted the purchase price by 25 percent less than the amount recorded in public documents, letting the Easleys pocket $137,000 in cash at closing.

    "We don't yet know how many consumers may end up receiving refunds," Cooper's spokeswoman Noelle Talley told CJ. "Our Consumer Protection Division plans to send letters to approximately 1,100 potentially eligible consumers who purchased properties in Summerhouse and Cannonsgate to encourage them to file a claim."

    Talley said the $2.28 million payment was calculated through "settlement negotiations."

    Pat McClain, a real estate agent with Century 21 Action in Surf City, told CJ that Summerhouse has about 10 homes, including a few under construction. "But things are picking up out there. I expect to see a lot more activity by this time next year," she said.

    Cannonsgate has at least three completed homes and a few more under construction.

    Losses not clear

    A federal investigation into mortgage fraud associated with Cannonsgate and Summerhouse led to multiple guilty pleas and prison terms for people associated with the Virginia company Total Reality Management. TRM agents purchased lots at Cannonsgate and Summerhouse directly from the developers. Then, using phony appraisals, they resold the lots immediately at a much higher price to gullible investors, many of whom were public school teachers in Northern Virginia. TRM went out of business in 2008.

    According to the terms of Cooper's settlement, no one who purchased a lot from TRM is eligible for a refund.

    Approximately 500 buyers were involved as plaintiffs in multiple lawsuits against Bank of America, BB&T, and other banks involved in financing the lots.

    One attorney associated with the lawsuits who did not wish to be indentified told CJ he believed most of the plaintiffs have settled with the lending institutions. He added that it is difficult to determine any owner's actual loss from public records, because an individual's loan or note modification may not be submitted for recording as a public document.

    Allegations

    The settlement agreement said Cooper's office alleged that the sales agents:

• Marketed the parcels of real property in the subdivisions as having good investment potential, leading some consumers to believe falsely that they could flip the property quickly for a substantial profit.


• Created an unfair sense of urgency by pressuring purchasers to buy residential lots immediately, or they no longer would be available.


• Advertised the sales prices of the lots as "developer pricing," giving the false impression that the value of the property was discounted in some way and would increase in value over time or upon completion of infrastructure or amenities.


• Occasionally engaged in "flip" transactions, during which third parties purchasing from defendants R. A. North and R. A. North I simultaneously purchased the residential lots and then sold them to consumers for a substantial profit.

    The defendants denied the allegations, but agreed to the settlement "to resolve this controversy without further proceedings," and agreed not to engage in similar behavior in future North Carolina real estate transactions.

    The governor's lot

    In December 2005, Mike and Mary Easley purchased a lot in Cannonsgate. Reports beginning in 2006 from CJ, the Charlotte Observer, and the N&O concluded that the Easleys got a sweetheart deal on the lot. In September 2009, the N&O reported that the Easleys collected $137,000 in cash at the 2005 closing on the lot.

    Four Easley political donors, all of them named to state boards or commissions, were involved in the project. Both Allen brothers served on the Wildlife Resources Commission. Department of Transportation board member Lanny Wilson provided financing for the project. N. C. State University Board of Trustees Chairman McQueen Campbell served as Easley's real estate broker while also working for the Allen brothers on Cannonsgate and other coastal projects.

    An April 2006 CJ report on the purchase showed that, based on comparable sales in the development, the Easleys got a deal when they paid $549,880 for a 0.36-acre lot at the Intracoastal Waterway and the entrance to the Cannonsgate marina. Less desirable lots had sold for as much as $699,000, according to public records. A subsequent story in the Charlotte Observer also reached the conclusion that the Easleys got a sweetheart deal.

    Public records indicate the Easleys paid 10 percent down and borrowed the remaining $494,000 from BB&T. But the September 2009 N&O story revealed that the public records were not accurate; the closing statement showed the Cannonsgate developers giving the Easleys $137,000 in cash at closing.

    In October 2009, the State Board of Elections convened a hearing on alleged violations of campaign finance law by Easley during his 2005 re-election campaign and his second term as governor. Wilson and Gary Allen testified under oath at the hearing, held at the Clarion Hotel in downtown Raleigh. Wilson testified that he and his wife wrote checks to the state Democratic Party after they had given the maximum to Easley's re-election campaign with the understanding that the money would go to a "special account" designated for Easley. Allen acknowledged writing two $50,000 checks to the state Democratic Party with the understanding that the money would be designated for the Easley campaign. Contributions of the sort admitted to by the Wilsons, Allen, and others, are illegal.

    Easley's top aide and general counsel Ruffin Poole, a Raleigh attorney, was subpoenaed to testify, but had his subpoena quashed by a Wake County judge. Poole did not appear at the hearing.

    The board fined the Easley campaign $100,000 and referred the matter to the Wake County District Attorney for prosecution. In November 2010, Easley entered an Alford plea for felony obstruction of justice and agreed to pay a $1,000 fine and surrender his law license. Under an Alford plea, a defendant does not admit guilt but concedes that he might lose in a jury trial and accepts punishment from the court.

    Other trouble

    Poole also had ties to Cannonsgate and Summerhouse. Poole pleaded guilty to one count of income tax evasion in April 2010 in exchange for prosecutors conditionally dropping all other federal charges against him.

    The income tax charge stems from an investment Poole made in Cannonsgate. Poole admitted that he didn't disclose a $30,000 return from the investment on his federal income taxes for 2005. Federal prosecutors claimed that Poole's $30,000 income resulted "from criminal activity" - suggesting that aspects of the transactions surrounding Cannonsgate violated the law.

    The initial indictment alleged that Poole, who was nicknamed "the little governor" in Easley's office, derived significant personal benefits by using his official position to expedite environmental permits for coastal developers.

    The indictment alleged that Lanny Wilson gave Poole several free vacations to Costa Rica, a bachelor party in New Orleans, and an engagement party in Wilmington. Wilson also allowed Poole to invest Cannonsgate and Summerhouse, netting Poole $55,000 in a short period of time.

    Poole was fined $30,000 and served one year in prison.

    Read CJ's full coverage of the Easley scandals here.