News

LIGHTNING EDITORIAL: New chapter, new questions at Seven Falls

By Bill Moss, Published: July 19, 2015

Is a bankrupt developer who played a key role in assembling the property for Seven Falls the best hope for the subdivision’s salvation? Sadly, the answer may be yes.

At least for now, Scott McElrath, a Buncombe County native who developed the Homestead at Mills River, is as much in the driver’s seat as any private landowner in the failed development on the French Broad River. Of course “landowner” is a bit of a stretch. In his own phrase, what McElrath bought last month is “a box of paper” representing unforeclosed loans secured by land deeds.
McElrath and his unnamed partners/investors/backers bought the paper from Synovus, the successor to the National Bank of South Carolina, the financial institution that initially financed Seven Falls in 2006. We don’t know the identity of the investors or how much they paid for the notes because McElrath is not saying.
We know from the only transaction that came with a pricetag that McElrath got 42 lots cheap. The recorded deed shows that he paid $230,000 for those lots. That is $750,000 less than the land’s tax value and millions less than buyers originally paid.
McElrath, who filed a voluntary Chapter 7 bankruptcy last October and had most of his $3 million debt cleared away in February, portrays his role at Seven Falls as the conductor of a process that clears up the titles and creates clean deeds, enabling a transaction that will bring on a new developer with deep enough pockets to buy the property from McElrath and resurrect Keith Vinson’s dream. It’s the ultimate flip.
“What’s out there right now is not good,” said McElrath, who helped assemble the land for Seven Falls and then got out. “I’m quite certain I can improve on what’s out there now. The first step is cleaning up the mess and that’s what I’m doing.”
McElrath’s arrival on the scene makes Henderson County’s approach look smarter all the time. County Attorney Russ Burrell deserves credit for devising what seems to be the only safe route through what he has accurately characterized as uncharted waters. By bringing a lawsuit in Superior Court naming 98 private (clear title) property owners as “defendants,” Burrell has protected their interest and the county’s. As a party to the lawsuit, the landowners have the right to object to any plan the county brings forward for spending the money. McElrath can’t proceed without the court’s blessing because he or any future developer needs the $5.5 million bond payment the county is holding for site development.
A bankrupt development succeeding in a later phase under new ownership is not unprecedented. Although few were based on so grand a fraud as Vinson’s Seven Falls Golf & River Club, many have fallen victim to debt and a real estate market collapse. A fair number have risen from the ashes and become successful.
Yes, this new chapter at the largest subdivision ever platted in Henderson County raises new questions. That’s all the more reason the property owners who paid their money and did not walk away should be grateful for the county’s cautious and deliberate course of action. As they navigate the next step, the elected commissioners and Burrell need to be all the more vigilant.