Would-be North Myrtle Beach developers forced into bankruptcy, accused of fraud
11/24/2012 12:00 AM
11/25/2012 8:09 PM
A property development group owned by Ronald LeGrand, whose national seminars tout easy riches in real estate investing, has been forced into bankruptcy liquidation by creditors who say they are owed more than $2 million on bad loans associated with the Tuscan Sands Barefoot Resort and Golf project here.
Horry County State Bank is the lead creditor in the forced bankruptcy, claiming more than $1 million is owed for a real estate loan given to Legacy Development SC Group LLC, which is owned by LeGrand and former sales agent Ken Gwynn. Four other creditors, all of them investors from out of state, also signed the petition to liquidate Legacy’s assets.
Jimmy Clarkson, president and chief executive at Horry County State Bank, said the bank agreed to participate in the involuntary bankruptcy petition because that will force Legacy to disclose its assets under oath to a bankruptcy trustee. Horry County State Bank previously foreclosed on nine lots owned by Legacy but has not been able to collect on a deficiency judgment it received against the developer last year.
Legacy has not yet filed its financial information with the bankruptcy court in Charleston, but lawyer Richard Gleissner – who represents the developer – said Legacy “accepts the determination of it as bankrupt” and does not plan to fight the liquidation.
A meeting of Legacy creditors is scheduled for Jan. 5 in Charleston, but Gleissner said in court documents filed this month that Legacy does not have any assets it can sell to raise money and all of its real estate holdings are subject to loans “with amounts owed far in excess of the value of the collateral.”
Real estate seminars as sales tools
The bankruptcy petition is the latest in a series of legal troubles for LeGrand, Gwynn and their development company. All three are accused of mortgage-related fraud and deceptive trade practices in a pending lawsuit filed earlier this year by Flagstar Bank, which provided mortgage loans for at least 14 properties sold by Legacy.
The bank claims LeGrand, Gwynn and others devised a scheme in which straw buyers would be recruited to purchase lots at the 34.2-acre Barefoot Resort development by obtaining loans based on inflated appraisals and misleading financial statements. When the loans went into foreclosure, the bank claims LeGrand repurchased the lots in short sales for a fraction of the mortgage amount. Flagstar says it lost $4.1 million on the loans.
LeGrand, Gwynn and others accused of taking part in the scheme have filed court papers denying any wrongdoing. The lawsuit is pending.
LeGrand, who has started a new real estate investing program called “Ron LeGrand’s Gold Club,” did not return a telephone call seeking comment. Gwynn, whose telephone numbers have been disconnected and his Grande Dunes home lost to foreclosure, could not be reached for comment.
Flagstar says many of the buyers at Tuscan Sands – also known as Legacy Estates at Barefoot Resort and Villa D’Este – were recruited during “Fast Track to Wealth” investment seminars LeGrand held nationwide during the real estate boom.
LeGrand said during his seminars that everyday investors could make millions from buying and then quickly flipping foreclosed properties. His $4,900 investment boot camps – with $1,497 course materials – drew thousands of participants. LeGrand also offered a “master’s degree” in real estate investing for $32,000 – more than twice the cost of master’s degrees from many accredited universities.
Kristen Stewart and Ben Clabaugh say they were talked into investing in the Barefoot Resort project when they attended LeGrand’s seminars – produced by his Platinum Commercial Group – in Texas and Florida in 2006. Stewart and Clabaugh said in a lawsuit filed in 2009 that LeGrand promised seminar attendees that the project was “a one of a kind opportunity” and that his ties with the developer could get them great deals and 90 percent financing. Gwynn also was introduced at these seminars as the vice president of Heritage Financial Group, another LeGrand-owned business.
LeGrand and Gwynn promised seminar attendees that if they bought home lots at the Barefoot Resort project, LeGrand and Gwynn would help market those lots for resale at substantial profits to those who had gotten in on the ground floor, according to the lawsuit filed by Stewart and Clabaugh.Stewart and Clabaugh agreed to buy three lots for $1.1 million in December 2006, according to the lawsuit, and Gwynn steered them toward the project’s mortgage broker, First Capital Mortgage Inc. – which arranged the Flagstar Bank loans – and its closing attorney, Robert “Shep” Guyton of Myrtle Beach.
Over the next year, Stewart and Clabaugh approached Gwynn several times about his promise to re-sell the lots for a profit. Although promises were made – including Gwynn’s vow to buy back the lots from Stewart and Clabaugh – nothing was ever done to help the couple recoup their investment, eventually driving them into bankruptcy protection.
Finally, in July 2009, LeGrand sent a letter to lot purchasers advising them that the project was being rebranded and its plat had been reworked to show fewer residential lots and more walking trails and parks. When Stewart and Claybaugh examined the new plans, they learned that all of one lot and two-thirds of another had been replaced by a park. Their third lot had been moved next to a clubhouse and community pool.
Stewart and Claybaugh sued LeGrand, Gwynn and others for civil conspiracy, unfair trade practices and other claims. That lawsuit was settled last year, although terms of the settlement were not disclosed.
Lawsuit: misrepresentations and defaults
Flagstar, in its civil lawsuit against LeGrand and others, said most of the loans it made – including those to Stewart and Claybaugh – were to people LeGrand and Gwynn had recruited during the get-rich-quick seminars. Once those buyers agreed to purchase lots, the bank was supplied with a plethora of false and misleading paperwork – including inflated appraisals, misrepresentations about the condition of the property, misrepresentation about the income of the buyers and excessive and undisclosed seller contributions, according to the lawsuit.
When the mortgage loans went into default, the lawsuit states, LeGrand’s Platinum Commercial Group would swoop in to buy the lots at short sales for below-market values.
Flagstar claims it did not become fully aware of the scheme until late 2010, when it realized LeGrand’s companies were making money on both the front end and back end of the real estate fraud, the lawsuit states. Flagstar is asking for unspecified actual damages – which can be tripled, according to state law – and punitive damages.
In addition to the Flagstar lawsuit, Legacy has been named in five foreclosure cases by Plantation Federal Bank, which has recorded nearly $3 million in losses on the project. The bank has filed judgments against Legacy and LeGrand personally.
No criminal charges have been brought against LeGrand, Gwynn or others involved in the alleged mortgage fraud scheme, but the U.S. Securities and Exchange Commission last year levied a $150,000 penalty against LeGrand for his role in an investment scheme that raised more than $9.5 million from 54 investors in a company called Mountain Country Partners LLC, which operated oil and gas wells in West Virginia and Kentucky.
The SEC said in a news release that LeGrand failed to register the company’s securities, vastly overstated the value of its oil and timber assets, promised investors unreasonable returns of 150 percent and made misleading statements to investors.
Gwynn, who filed for bankruptcy protection in 2009, stated in his bankruptcy documents that he was a partner in Mountain Country Partners. The SEC did not take any action against Gwynn, who said in his bankruptcy filing that he had an income of $656,995 in 2008 as the Legacy development was selling lots. By the time he filed for bankruptcy protection, Gwynn and his wife listed no income against $25,651 in monthly bills and nearly $6 million in creditors’ claims. Gwynn’s bankruptcy liquidation was completed last year.
Most of the home sites at Legacy Estates, later known as Tuscan Sands, were never developed – only two spec homes were built – and dozens of lots have fallen into foreclosure over the years. Documents included with the Flagstar lawsuit show lots at the development along the Intracoastal Waterway have had drastic declines in value since their original sales in 2006. For example, one lot originally appraised at $750,000 now has a fair-market value of about $22,000, the lawsuit states. Another lot that appraised for $700,000 when the project was started now is worth about $30,000, according to Flagstar.
There have been recent moves to develop the mostly vacant property by a group not associated with LeGrand or Gwynn. Home builder D.R. Horton wants to build nine homes on lots it owns at the Legacy site and hopes to construct a dozen more in the future. The new development, which would adopt the Tuscan Sands name, is going through the approval process with the city of North Myrtle Beach.
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