Developers in Myrtle Beach deal profit from bank’s address mix-up

dwren@thesunnews.comDecember 22, 2013 

  • Timeline

    May 9, 2007 | Square Circle LLC, owned by Harry V. Nelson III, buys five lots west of Ocean Boulevard in Myrtle Beach from Ray Watts’ Apex Homes for $1.5 million.

    May 9, 2007 | Square Circle obtains a $5 million line of credit from Wachovia bank, using the property it purchased from Apex Homes as collateral. The line of credit is used to buy the property and to build a project called The Cloisters at The Ocean.

    December 2008 | Wachovia’s merger with Wells Fargo bank is finalized.

    Jan. 15, 2008 | Deadline passes for payment of 2008 property taxes on The Cloisters lots.

    Dec. 7, 2009 | Ron Teague is the highest bidder for The Cloisters lots at a delinquent property tax sale. Square Circle and Wells Fargo have one year to redeem the property. The bid is later transferred to Realty Management Group, which is owned by Watts.

    Nov. 15, 2010 | Horry County’s tax office sends final redemption notice to Wachovia’s former address. The notice is returned as undeliverable.

    Feb. 28, 2011 | Horry County’s tax office conveys The Cloisters lots to Realty Management Group

    July 13, 2011 | Wells Fargo files foreclosure lawsuit against Square Circle and Horry County in attempt to reverse the tax sale

    Sept. 11, 2012 | Wells Fargo affiliate Redus SC Housing LLC pays Watts $175,000 for a quit-claim deed releasing Realty Management’s claims to The Cloisters lots

    May 9, 2013 | Wells Fargo affiliate Redus SC Housing LLC pays Nelson $410,000 for a quit-claim deed releasing Square Circle’s claims to The Cloisters lots

    December 2013 | The five lots at The Cloisters at the Ocean remain undeveloped.

    Source: Horry County court and property records

A bank’s failure to file a change of address notice with Horry County officials helped a pair of real estate development partners make a combined $585,000 from a delinquent tax sale – even after one of the developers defaulted on a $1.6 million loan from the same bank and for the same property.

Redus SC Housing LLC, an affiliate of Wells Fargo bank, last year paid $410,000 to Harry V. Nelson III of Matthews, N.C., and $175,000 to Ray Watts of Cornelius, N.C., in exchange for a pair of quit-claim deeds giving the Wells Fargo affiliate clear title to five lots at 73rd Avenue North and Ocean Boulevard in Myrtle Beach. Those lots are for half of a planned 10-home project called The Cloisters at The Ocean.

Wells Fargo inherited The Cloisters deal after its merger with Wachovia bank, which had given Nelson’s Square Circle LLC a line of credit to build the project. Square Circle defaulted on its loan with Wachovia and never completed any work at the site. Weeds have overgrown the five lots Square Circle once owned, but an unrelated developer recently acquired some adjacent property and is building homes there.

The Sun News learned about the property transactions as part of an ongoing investigation into failed deals that sprang from this area’s real estate boom.

Nelson did not return telephone calls seeking comments for this story. Watts told The Sun News he cannot remember The Cloisters transactions.

“We buy a lot of stuff at the tax sale,” Watts said. “For years I’ve bought properties, a hundred of them at a clip. I don’t recall this particular one.”

Nelson and Watts are partners in another unfinished Myrtle Beach area development with a similar name – The Cloisters at Myrtlewood.

Josh Dunn, a spokesman for Wells Fargo, said he cannot comment on the real estate transactions because of a confidentiality agreement.

Tax bills lost in the mail

Court documents and property records show Nelson and Watts conducted a series of transactions over a five-year period that transferred The Cloisters property from Watts to Nelson and – after the delinquent tax sale – back to Watts, who then sold the property back to Wachovia’s successor, Wells Fargo, for a profit.

The transactions started in May 2007, when Apex Homes – which is owned by Watts – sold the five lots to Square Circle for $1.5 million. At the same time, Square Circle negotiated a $5 million line of credit from Wachovia to build The Cloisters. The five lots were put up as collateral for the loan.

Court documents show Square Circle was having a hard time making its loan payments almost from the start. Even after Wachovia modified the loan terms in August 2008, Square Circle failed to make its payments on time, according to a lawsuit filed against the corporation by Wells Fargo.

Square Circle also failed to pay the property taxes on The Cloisters or inform its lender that the taxes weren’t being paid, court records show.

At some point during Wachovia’s 2008 merger with Wells Fargo, the bank office handling property tax payments for The Cloisters moved from Charlotte to Columbia. That move was never reported to Horry County’s tax office, however, so the 2008 property tax bill was mailed to the old address and apparently never forwarded to the proper office.

Notices of an impending tax sale also never made it to the bank, although Nelson received his copies of the notices, according to certified mail receipts included with court documents.

After a year had passed with no tax payment, Horry County on Dec. 7, 2009, sold The Cloisters lots at auction to Ron Teague – a Conway real estate investor who has made a living buying and flipping tax sale properties – for his high bid of $10,225 per lot. The sale meant that if Wachovia or Square Circle failed to make the past-due tax payments within a year’s time, Teague would own the property.

A tangle of transactions

Court records show Wachovia learned after the fact that its property had been sold at a tax sale, and the bank tried to redeem the property.

Two days after Teague’s winning bid, the bank mailed five checks to Horry County to pay what it thought was the past-due tax bill. Wachovia failed to pay the penalties and interest that were due, however, so Horry County sent the checks back to the bank with a note explaining how much was needed to redeem the property.

Horry County mailed the checks to Wachovia’s old address in Charlotte. Wachovia apparently never followed up to make sure the tax payments had been made.

Wells Fargo later sued Horry County, saying the tax office should have realized the bank had a new address because the Columbia office location was printed on a cover letter included with the checks. However, county officials pointed out the checks and the cover letter were mailed in an envelope that had the old Charlotte address. Wells Fargo eventually dropped its claims against the county.

Mistakenly thinking the taxes had been paid, Wachovia entered into a forbearance agreement with Nelson that would allow the developer to catch up on his past-due loan payments by June 30, 2010.

As Nelson was buying time with the bank, Alice Ziriada – a Myrtle Beach real estate agent and vice president of Watts’ Apex Homes – was working to get The Cloisters property, according to Teague.

“She [Ziriada] worked for Ray and they wanted the bid, so I assigned it to them,” Teague said.

Ziriada then transferred her bid on The Cloisters property to Realty Management Group, a company owned by Watts.

Ziriada referred questions about the transaction to Watts.

Court documents show Horry County on Nov. 15, 2010, sent Wachovia a final notice to redeem its property before the tax sale was final, but that also went to the bank’s old address. A duplicate notice was sent to Nelson’s address, where he signed for the certified letter, court records show.

On Feb. 28, 2011, title to The Cloisters property was given to Watts’ Realty Management Group.

Wells Fargo filed a foreclosure lawsuit against Square Circle in July 2011, but to reclaim The Cloisters property the bank would first have to reverse the tax sale and the deed to Watts’ company.

Months passed with little progress, and neither Nelson or his Square Circle corporation filed a response to the lawsuit.

Ultimately, Wells Fargo decided to pay Nelson and Watts to give up their claims to the property. The bank’s Redus SC Housing affiliate paid $175,000 to Watts on Sept. 11, 2012, in exchange for his quit-claim deed on the property. Redus SC Housing then paid $410,000 to Nelson in May in exchange for his quit-claim deed on the property.

All told, Watts made $1.5 million when he sold the lots to Nelson and another $175,000 when he re-sold the property to the bank. Nelson defaulted on a $1.6 million loan and the bank paid him $410,000 to walk away from the deal. The bank has not entered a judgment against Nelson or Square Circle for the unpaid loan.

Teague said he’s seen several instances in recent years where tax payments have fallen through the cracks. Teague bought two such parcels at this month’s sale – a Pelican Bay lot on which Wachovia had given a $162,311 mortgage and a lot at the Waterbridge subdivision, on which Wachovia had given a $161,892 mortgage. Wells Fargo filed foreclosure lawsuits in both cases but dismissed them before the properties were sold due to delinquent tax payments.

Contact DAVID WREN at 626-0281.

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