Buying a lot, the couple may have unknowingly helped inflate prices at a coastal project
More than 200 plaintiffs in on of the largest alleged mortgage fraud cases in state history have said for months that they were duped into paying inflated prices for coastal lots. Now the revelation that former Gov. Mike Easley and his wife, Mary, got a 25 percent discount from a developer named in the lawsuits shows that even the state's highest official may have unwittingly helped hype the prices they paid. No one involved in the fraud cases has claimed that the Easleys were knowingly involved. But the $137,000 discount they received on their lot was not shown in the $550,000 sale price reported to the Carteret County Register of Deeds. "When you have all these politically connected players and they are setting up pricing that is not reflected in the records at the courthouse, how are my clients ever going to get a fair market price?" said S. Jill Pisner, a McLean, Va., lawyer whose firm filed the first and largest of several lawsuits alleging mortgage fraud in two coastal developments here and one in South Carolina.
Easley deal may have aided scam
Buying a lot, the couple may have unknowingly helped inflate prices at a coastal project.
BY JAY PRICE
More than 200 plaintiffs in on of the largest alleged mortgage fraud cases in state history have said for months that they were duped into paying inflated prices for coastal lots.
Now the revelation that former Gov. Mike Easley and his wife, Mary, got a 25 percent discount from a developer named in the lawsuits shows that even the state's highest official may have unwittingly helped hype the prices they paid.
No one involved in the fraud cases has claimed that the Easleys were knowingly involved. But the $137,000 discount they received on their lot was not shown in the $550,000 sale price reported to the Carteret County Register of Deeds.
"When you have all these politically connected players and they are setting up pricing that is not reflected in the records at the courthouse, how are my clients ever going to get a fair market price?" said S. Jill Pisner, a McLean, Va., lawyer whose firm filed the first and largest of several lawsuits alleging mortgage fraud in two coastal developments here and one in South Carolina.
The Carteret tax supervisor said in a recent interview that when the price actually paid for land is overstated in public documents, appraisals for other lots can become distorted as a result.
Among the appraisals that may have been artificially inflated, Pisner said, were those for lots that her clients bought.
The Easleys bought a choice waterfront lot in Cannonsgate, a gated Carteret County subdivision, in 2005. The following year, when Easley was still in office, he said through a spokeswoman that he had paid the listed price.
The News & Observer obtained documents recently, though, showing that the developer, Charlotte-based R.A. North Development, had given the Easleys a $137,000 break on the lot. The deal enabled them to walk away from the closing with $135,000 in cash.
Pisner said the Easleys' purchase of the lot was advertised to some of her 129 clients. She said they thought the former governor's investment in Cannonsgate was a good reason for them to buy land there or at another R.A. North project, Summerhouse, in Onslow County.
A spokesman for Easley did not return a phone call Friday. Neither did the president of R.A. North, Randy Allen, nor his brother Gary, president of Southeastern Waterfront Marketing, the marketing company for the developments involved in the lawsuits. Southeastern's attorney in the fraud case, William Dolan of Virginia, also did not return a call.
Several related lawsuits were filed in the case, including one in North Carolina by Charlotte attorney John O'Connor, who represents more than 90 people who bought lots.
The suits allege that a small Virginia company called Total Realty Management (TRM) colluded with a group of other real estate professionals, including loan officers at several banks, appraisers, R.A. North and Southeastern Waterfront Management.
Carteret County records show that Total Realty bought and sold some Cannonsgate lots several times, with the sales price rising rapidly with each "flip." The lawsuits say Total Realty was selling the lots to buyers it had recruited to pump up the price, then buying the land back and selling it for higher prices, sometimes more than double the price of adjacent lots.
Deeds in Onslow and Carteret counties show that Total Realty was involved in transactions on about 230 lots at the two North Carolina subdivisions.
Several people involved with the subdivisions had political connections. Easley appointed Randy Allen to the N.C. Wildlife Resources Commission. Gary Allen served on the same commission after House Speaker Jim Black appointed him. Lanny Wilson, who helped finance the project, was appointed by Easley to the state transportation board. McQueen Campbell, a Raleigh real estate broker whom Easley twice appointed to the N.C. State University Board of Trustees, was Easley's agent in the deal and later went to work for Gary Allen's company.
Campbell once bragged to a potential real estate client that his political connections had allowed him and a partner to get a key state permit for Cannonsgate in half the usual time.
Bob Wilson, an Easley appointee to the state Coastal Resources Commission, is president of The Rowboat Co., which built docks and walkways at Cannonsgate, according to his company's Web site. The Coastal Resources Commission regulates coastal development.
Wilson did not return a call Friday.
The Easleys' land deal has come under scrutiny in a wide-ranging investigation into Mike Easley. A federal grand jury sought testimony Thursday from two state officials who handled environmental permits for Cannonsgate.
Also, a grand jury subpoena issued last month sought all documents relating to Cannonsgate permits and licenses and any communications between the environmental agency and "relevant parties." Those listed included the Allen brothers; Mace Watts, who worked for Gary Allen's firm and was involved in the sale of the Easley lot; Lanny Wilson; and Steve Stroud, a Raleigh real estate broker who sold the land to R.A. North.
The Allen brothers wrote letters this spring to reassure lot owners at Summerhouse that they weren't involved in Total Realty's improper behavior.
"Neither the developer nor the marketing company knew that TRM and its buyers all participated in artificially inflating the sales price of the lots that TRM sold," Gary Allen wrote.
His company and the developer had also been victims of Total Realty's behavior, he wrote, because R.A. North still had about 200 lots left to sell in Summerhouse.
The lawsuits contend that the Allens knew what Total Realty was doing, and cite the participation of Gary Allen's marketing company in Total Realty sales events.
From the beginning, questions about the Easleys' land deal and about the lots in the fraud case have focused on the same question: What was the true market value?
Informal analyses by The Charlotte Observer and the Raleigh-based John Locke Foundation concluded that the $550,000 listed price for Easley's lot appeared to be lower than its actual value.
The confusion over values was so great, Pisner said, that her firm, Pesner Kawamoto Conway, hired an expert to re-appraise all its clients' lots, coming up with what she regards as an accurate value at the time of the sale as well as a second value accurate this past January, when the new appraisals were made.
Lot 151 in Cannonsgate, for example, was sold by R.A. North to Total Realty for $159,880 on May 18, 2007. On the same day, Total Realty sold it to one of Pisner's clients for $369,000.
The appraiser Pisner hired said that lot was actually worth $150,000 on the day of the transaction and just $55,000 by Jan. 15 this year because of the downturn in the market for coastal property.
The lawsuits say the deals on the lots cited in fraud allegations were only able to work with the help of wildly inflated appraisals. In recent months the N.C. Appraisal Board has begun several investigations of appraisers who worked in Cannonsgate and Summerhouse.
The judge hearing Pisner's suit in U.S. District Court in Virginia ruled that her clients could not sue the seven banks listed as defendants. Pisner filed a motion last week asking him to reconsider.
One insurance company has already issued its own verdict: Genworth Financial of Raleigh, which had insured Bank of America's loans for some of the lots in case the buyers defaulted, has rescinded the polices. In letters to the bank obtained by The N&O, Genworth cited problems including a lot sold twice on the same day, the second time at more than double the first price.
The company doesn't send letters rescinding coverage casually, said Terry Souers, a spokesman for Genworth in Raleigh. "These don't go out unless there has been a serious investigation of the circumstances," Souers said.