North Myrtle Beach project’s creditors could be looking at pennies on the dollar
11/28/2012 3:51 PM
11/28/2012 6:18 PM
Creditors in the forced bankruptcy liquidation of Legacy Development SC Group LLC might get some of the more than $6.5 million they are owed from a failed residential project here, but this area’s depressed real estate market has experts guessing as to how much money can be recovered.
Legacy Development, owned by real estate investment guru Ronald LeGrand, said in documents filed this week in bankruptcy court that it cannot determine the value of 19 residential lots and five parcels of open space it owns at the Legacy Estates project at Barefoot Resort. That project, which is vacant except for two spec homes, also has been known as Villa D’Este and Tuscan Sands Barefoot Resort and Golf.
Richard Gleissner, a lawyer representing Legacy Development, said most of the group’s creditors are secured by lots that were put up as collateral for mortgage loans. There also is one residential lot without a mortgage and there is no debt tied to any of the open space.
“We don’t have any idea what the value of those lots is because the real estate market in Myrtle Beach has taken such a hit,” Gleissner said.
A separate civil lawsuit filed against the developer by Flagstar Bank says the residential lots now are worth only a fraction of their original mortgage amounts, with some lots initially appraised at $700,000 to $750,000 now worth between $20,000 and $30,000. If that assessment holds up, creditors could be looking at recovering just pennies on the dollar.
Among the development group’s largest creditors are Horry County State Bank, which loaned Legacy Development more than $1 million in 2008 and 2009, and Horry County, which is owed $253,590 in past-due property taxes since 2007.
Horry County State Bank was among five creditors that forced Legacy Development into involuntary bankruptcy liquidation last month. The bank previously foreclosed on nine lots at Legacy Estates but has not been able to collect a deficiency judgment against the developer. Jimmy Clarkson, the bank’s chief executive officer, said the bank forced Legacy Development into bankruptcy so it would have to disclose its assets under oath.
The long-overdue tax bill usually would have resulted in the county seizing the property and selling it at auction. However, some properties that are put up for auction don’t sell, according to Crystal Montgomery, the county’s delinquent tax manager. Legacy Development’s property has been put up for auction in the past and is on the list for this year’s sale, although Montgomery said any property in a bankruptcy will be removed from the auction.
The bankruptcy also will stall the Flagstar Bank lawsuit, which accuses LeGrand and others of fraud. Flagstar said most of the loans it made were to people LeGrand and Gwynn had recruited during the get-rich-quick real estate 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 is asking for unspecified actual damages – which can be tripled, according to state law – and punitive damages.
Most of the lots at Legacy Estates were never developed and have fallen into foreclosure. 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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