CLEVELAND — Homeowners in a Cleveland neighborhood seeking a fix to inadequate roads left by a bankrupt developer say no one informed them the roads were substandard. And some have also questioned the cozy relationships between developers, builders and agents – companies often owned by the same people.
The recipe of the bankruptcy of JDG Investments mirrors that of many pre-recession developers: banks providing easy loans for overextended developers, all based on the assumption that housing prices and values would not fall. Meanwhile, Johnston County at the time didn’t require a bond on the roads: a common practice shielding developments.
Now property owners in the Tymber Creek subdivision may have to split the tab before roads will be fixed and development can continue. According to a new report from the Department of Transportation, culverts and pipes must be cleared, potholes and sinkholes fixed, cracks sealed and the entire roadway resurfaced, among other upgrades. A survey provided by Capital Bank, which owns six lots, estimates at least $200,000 in repairs, well over $2,000 per property.
“You will never get homeowners to evenly split the cost of $200,000 of repairs,” resident Tyler Bray said.
According to bankruptcy filings JDG Investments had four equal partners: Donald Millard, Joey Millard-Edwards, Gary Allen Johnson (who died months before the bankruptcy finalized in 2010) and Selma town councilman Eric W. Sellers, who did not respond to request for comment for the story. By the time the four-person development team went under, JDG Investments owed $13.3 million and held property, mostly developments in Johnston County, worth $10.9 million.
In addition, a construction company and a real estate agency each owned by one of the subdivision’s developers participated in the construction and selling of dozens of the homes Tymber Creek. Those relationships allegedly were not always disclosed.
No road disclosures
One resident, Dana Fink, bought a Tymber Creek house on Brindley Circle in September 2008. Becky Phillips of Carolina Realty represented both the buyer and seller/builder, which she disclosed to Fink. But Fink said no one informed her that Millard, one of the neighborhood’s developers, also owned Carolina Realty. (His daughter, Millard-Edwards, is also an agent for Carolina Realty and sold at least 10 homes in Tymber Creek.) Fink also said Phillips did not provide a form disclosing the state of the roads, as required by law.
“She did not disclose any of this information, especially the issues found in the survey of the road,” Fink said.
Fink, who works for McClatchy Interactive, the Garner-Cleveland Record’s sister company, provided several forms that were signed, none of which mentioned the cross-ownership nor the roads.
Phillips said “at the time it wasn’t an issue” and did not remember much about the development, saying she only had a couple of houses out there. She said she did “whatever the loan required” but didn’t provide a copy of any disclosures made in the course of her sales within the subdivision to a reporter. Millard-Edwards also denied any omissions and did not provide copies of the disclosures.
In March 2008 NCDOT deemed roads of the Tymber Creek subdivision lacking, which meant that fixes needed to be made before DOT would take over maintenance responsibility. In most cases, DOT agrees to take over road maintenance after a certain percentage of homes are completed. The needed work was not completed in the two years before the bankruptcy filing.
Though such a checklist is common, the situation got worse, according to Ed Savoy, a longtime Homeowners Association board member who bought his home just before the survey. With experience in construction, the Oregon transplant couldn’t believe the county did not have a road bond requirement.
“I said, ‘You’re gambling with the roads’, and they said ‘We just don’t do it that way,’” Savoy said. Johnston County now requires a performance bond on road construction, according to planning director Berry Gray, but didn’t at the time Tymber Creek was developed. “As far as I’m concerned, all that development is included in the price of the property. To me they took a gamble and lost,” Savoy said.
Millard, who filed for personal bankruptcy around the time of the JDG bankruptcy, referred all questions to his lawyers; his personal bankruptcy lawyer did not return multiple calls and the JDG bankruptcy lawyer declined to elaborate on court documents.
Millard-Edwards dismissed claims that the development company and the real estate agency were connected. “There’s never been any cross-ownership between JDG and Carolina Realty,” Millard-Edwards said. That contradicts bankruptcy disclosure forms.
The Real Estate Commission’s legal counsel and director of regulatory affairs, Janet Thoren, said road disclosure forms were required by law. Since there was no industry-wide template, the real estate agent is responsible for maintaining that record. They are advised to keep all forms at least for three years; some Tymber Creek buyers who say they didn’t receive disclosure statements have bought within that window.
Thoren also said that while it is legal, the commission has a proposed rule to prevent the kind of situation where an agent would represent the buyer and seller as well as work for the developer.
“It’s always been our opinion that it creates an inherent conflict of interest,” Thoren said, adding that in any case an agent needs to disclose any roles and cross-ownership.
Completing the triumvirate
In addition to Carolina Realty’s link to JDG, Johnson’s building company, Homes by Greg Johnson, built at least two dozen homes in the neighborhood.
Problems with the roads depicted in the March 2008 report, which residents say they didn’t know about, included blocked drainage pipes and culverts, “erosion problems including bare areas, washing and rutting,” and low shoulders needing fill materials and permanent vegetation in the areas.
But it would eventually be determined that the road had been built over a natural spring in at least one place, while other areas also saw rapid deterioration. With fixes not made, pot holes formed, and drainage and backup problems have persisted.
Bray, who also lives on Brindley Circle, didn’t buy his home from Carolina Realty. But the seller was Homes by Greg Johnson, the builder owned by the developer responsible for the roads. He also said he received no road disclosure, and named seven other neighbors who bought after March 2008 and confirmed to him they didn’t either.
Savoy said there were hints early that corners were being cut, saying Johnson’s company wasn’t sodding lawns all the way to the street like they were supposed to. He also said he’d never heard of a resident being informed of the road problem.
“Just a good ol’ boy hand shake between the investment company and the county of Johnston, NC,” he said.
Last winter the county stopped issuing permits because the new homes wouldn’t have quality roads leading to them. Capital Bank, which still owns six of the lots it foreclosed on, is looking into the costs of fixing the roads but insists it’s just another property owner.
In its bankruptcy plan, JDG suggested that Capital Bank take responsibility for fixing the roads. Wayne Reece, who works for the Capital Bank Real Estate division which owns the six vacant lots, said the bank declined and foreclosed on the lots. JDG had initially proposed it would continue to market and sell the lots with proceeds going to creditors.
Casualties of Recession
Don Millard was not the only developer hit hard by the financial downturn. But bankruptcy records indicate he was overextended to an extreme, with almost no capital nor equity declared in his disclosure document.
According to his 2010 bankruptcy disclosure, he owned roughly $4 million in property with nearly that much owed to various banks in loans on the properties, with just $66,000 in personal property including cars, furniture, cash and stocks.
JDG listed Millard and his real estate company as a creditor to the tune of nearly $2.5 million. Edwards-Millard is not listed, while the other two owners are listed as creditors in the $1 million range each. JDG owned $10.9 million in property and owed $8.8 million to banks and another $4.5 million to unsecured creditors. Johnston County property records say he still owns dozens of properties, though his current debt on them is unclear.
The lack of liquid capital left Millard and JDG vulnerable when house prices propped up by speculation and easy loans slid, devaluing the bulk of their assets to well below their debt.
Reece said that the recession tightened restrictions, with banks more carefully protecting their investment. Like many others in finance, he acknowledged that the easy money and perpetual belief by many banks and developers that prices couldn’t fall fueled the bubble.
“It’s totally changed. People wanting to buy land and develop it, it totally changed what they have to do. There’s more hoops to jump through,” Reece said.
He said there are “no winners,” but hoped that people, businesses and banks have learned to protect themselves with equity in the event that housing prices fall.
Meanwhile, residents in Tymber Creek can either live with the roads as they are, hope Capital Bank ponies up the money, or open their own wallets to fix the mess.
Jahner: 919-829-4822; Twitter: @garnercleveland