NORTH MYRTLE BEACH — This city’s Charleston on Edge townhouse development – where out-of-state buyers purchased units at prices far higher than market value and then defaulted on their mortgages within months – is an example of the financial risk-taking that continues to plague banks and clog court dockets nearly half a decade after the real estate crash.

Court records show financial institutions have lost more than $2 million on bad loans at the seven-unit project, which was built by real estate developer Grover “Bubba” Rabon III and Gerald Whitley Jr., the chief magistrate judge for Horry County.

Whitley did not respond to requests for comments last week. Myrtle Beach lawyer Greg McCollum, who represents Whitley, said Whitley and his wife, Rachel – whose name is listed on some of the property records associated with Charleston on Edge – did not know any of the townhome purchasers and were not involved in any of the mortgage transactions. Their only role, McCollum said, was as seller of the properties.

Rabon told The Sun News that Darin Epps – whose Dunes Mortgage business is at the center of a widespread mortgage fraud investigation along the Grand Strand – found the buyers and arranged the loans for most Charleston on Edge units. Epps worked with Jeff Shoup – a real estate broker tied to the Bahama Island condominium scandal here – to market the property, Rabon said.

Epps, a former mortgage broker, and Shoup are serving federal prison sentences for unrelated mortgage fraud crimes. There have been no indictments issued related to Charleston on Edge and it is not clear whether the project is the focus of any criminal investigation.

Epps has been working with investigators since he signed a plea agreement in April 2010, giving them information about co-conspirators and other projects where fraud took place. However, Epps has never mentioned the Charleston on Edge project, according to assistant U.S. Attorney John Potterfield, who is prosecuting mortgage fraud cases in South Carolina.

Billy Monckton, a Myrtle Beach lawyer who represents Epps, said he has not been contacted by law enforcement about the Charleston on Edge project.

The Sun News learned about the mortgage problems at Charleston on Edge after reviewing local real estate and court records.

Potterfield this month asked a judge to reduce Epps’ 33-month prison sentence based on his cooperation with authorities. Monckton said any reduction in the prison sentence is at the discretion of the judge who hears the request. No court date has been set for that matter.

Project finished as economy tanks

Gerald Whitley and Rabon purchased the initial lot along Edge Drive where the townhomes would be built during a foreclosure auction in November 2005, real estate records show. The Whitleys and Rabon bought an adjacent lot five months later, according to property records.

The plan to build Charleston on Edge – a two-building project located five blocks west of Ocean Boulevard – was hatched during the area’s real estate boom, when the prices for condos and townhomes soared due to property flipping and easy credit fueled by investors’ hunger for mortgage-backed securities.

Gerald Whitley and Rabon formed R&W Coastal Properties LLC in May 2006 to build the townhomes, according to state records. R&W Coastal Properties then obtained a $1.8 million construction loan from First Palmetto Savings Bank in Myrtle Beach in November 2006 and the city issued a building permit for the project in January 2007.

The townhomes received their certificates of occupancy in April 2008, the same month the developers filed a master deed for the Charleston on Edge units.

By the time the townhomes were ready to occupy, the nation’s housing market was nearing crisis levels and most banks were refusing to lend money on second-home or investment properties, such as Charleston on Edge.

The developers were only able to sell one townhome – in April 2008 to Hoyt and Patsy Stephens of West End, N.C., who paid $348,500 for a unit. The Whitleys and Rabon divided the other units, transferring three townhomes apiece from R&W Coastal Properties to their own names in April 2008, property records show.

The remaining six townhomes sat unsold for nearly a year, which is when Jeff Shoup approached the developers about marketing Charleston on Edge, Rabon said.

“He [Shoup] told us that he had people who would buy the houses,” Rabon said, referring to Shoup, who is serving an 88-month prison sentence at the Butner Federal Correctional Complex in Butner, N.C. Shoup was one of the developers of Bahama Island, a failed condo project in which investors lost nearly $5 million.

“We told him [Shoup] what we wanted for the houses and he said, ‘We can get you that, but anything over that we want to keep’,” Rabon said, adding that Epps arranged the mortgages for purported investors from out of state.

“I couldn’t figure out where they were getting these buyers,” Rabon said.

Rabon said he and the Whitleys wound up losing money on the project, even though Epps and Shoup were selling the townhomes for more than half a million dollars apiece.

“The only people that made out, if you look at the bottom line, are Shoup and Epps,” Rabon said. “I lost my shirt on that deal. I went completely busted.”

Buyers default within months

Property records show four of the remaining six Charleston on Edge townhomes were sold during a 3½ month-period between Feb. 4, 2009, and May 14, 2009. Seven months after that last sale, R&W Coastal Properties paid off the construction loan it had obtained from First Palmetto Bank, property records show.

Each of the four townhomes sold for $532,900 – more than double the average sale price for condominiums and townhomes in the Crescent Beach section of the city during the period following the nation’s late-2008 banking crisis, according to statistics from the Coastal Carolinas Association of Realtors.

Gerald Whitley was named on deeds as the seller in two of the transactions. R&W Coastal Properties was the seller in a third transaction and Rabon Investments LLC was the seller in a fourth transaction, property records show.

Three of the buyers lived in other states – David Asraf of Sherman Oaks, Calif.; Prescott Landry of Lawrenceville, Ga.; and Thaddeus Murrell of Suwanee, Ga. A fourth buyer, Gelber Ruiz, listed a Myrtle Beach area address.

The Sun News could not contact any of the out-of-state buyers, either because they did not respond to messages or their telephone numbers have been disconnected. The home where Ruiz had been living in the Azalea Lakes subdivision has been vacated, according to a note left on the door by a mortgage company. That home is one of five area properties Ruiz owned that are in foreclosure.

The mortgages on the four Charleston on Edge townhomes went into default shortly after the properties were sold, court records show. Murrell made four payments on his loan while the other three buyers made three payments apiece.

Banks have foreclosed on three of the townhomes, eventually re-selling the properties for an average price of $112,666.

The fourth townhome – the one belonging to Murrell – is in the late stages of a foreclosure lawsuit. Murrell’s townhome has been listed as a “short sale” opportunity since April 2010, but there have been no buyers at the requested $275,000 sale price.

There is little information available about the buyers’ financial condition because loan applications and real estate closing documents are not part of the public record.

However, some insight can be gleaned from Landry’s Chapter 7 bankruptcy liquidation filing earlier this year. Landry listed his income in 2010 – the year after his townhome purchase – as $16,356 for the year. Landry’s payment on the townhome, according to the mortgage documents, was $2,635 per month – or about twice his gross monthly income.

Property records show Asraf and Ruiz obtained mortgages of $399,600 apiece while Landry and Murrell each obtained mortgages of $417,000. No second mortgages were recorded on the townhomes, making it appear as if the four buyers had made six-figure down payments on their $532,900 reported sales prices.

Rabon said he does not believe large down payments were made, but he does not know what happened to the money reflected in the difference between the sales prices and the mortgages. Rabon said it doesn’t make sense for buyers to put that much money down on a property and then let it go into default just a few months later.

Other questions

There were other puzzling aspects of the four townhome sales.

Despite their inland location, the townhomes sold for more than any other condo or townhome in Crescent Beach during that period, according to statistics from the Coastal Carolinas Association of Realtors. The next-highest price – $480,000 – was paid for an oceanfront, four-bedroom corner unit at the Crescent Shores condo tower on Ocean Boulevard.

And while Rabon said Epps and Shoup had no trouble locating buyers, the Stephens couple who bought the first townhome in Charleston on Edge couldn’t find a buyer for their 1-year-old unit even though it was listed for nearly $200,000 less than the other townhomes and the couple offered to convey all of the unit’s furnishings.

Hoyt and Patty Stephens eventually lost their townhome to foreclosure. The bank that had given them their mortgage ultimately re-sold the townhome in December for $144,000.

Rabon also was unable to sell one of his Charleston on Edge units, which was tied to a $379,960 loan he had received from Horry County State Bank, according to property records. Before the bank could foreclose on the property, court records show Rabon transferred the unit out of his name and into Rabon Investments LLC, a corporation he had formed six years earlier. Property records state that Rabon sold the unit to his corporation for $538,500.

Horry County State Bank, in court documents, said Rabon transferred the property “without the knowledge or consent” of the bank and in violation of a “due on sale” clause in the loan that required Rabon to pay off the debt as soon as he sold the townhome. Although Rabon recorded a sale of the townhome to his corporation, court records show he did not repay the bank. The bank foreclosed on the unit and sold it earlier this year for $145,000 – recording a nearly $300,000 loss after interest and attorney’s fees were added to Rabon’s original debt.

Only one of the seven Charleston on Edge townhomes has not been through a foreclosure – a unit the Whitleys sold in June 2010 for $555,000 to Daniel Wayne Harris of Monroe, La. – although that loan’s status is not clear. Harris is facing foreclosures at two other properties he purchased in the Myrtle Beach area in 2010 and 2011.

Contact DAVID WREN at 626-0281.