02/22/04 — City could lose land from failed deal

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City could lose land from failed deal

By Barbara Arntsen
Published in News on February 22, 2004 2:02 AM

Goldsboro may lose the undeveloped land in Harris Street Estates now that the developer, Project Homestead, is in bankruptcy.

Moreover, the city might have to repay a sizable amount of money that it got from the state because the project has not met the requirements of a state grant.

The city gave the land to Project Homestead, a nonprofit Greensboro organization, to build homes for first-time home buyers and flood victims. Financing is arranged to enable low-income families to buy them.

Project Homestead agreed to return to the city the ownership of any land not developed. But that agreement was not recorded with the deeds, so the city's legal standing as a secured creditor is in question.

City Attorney Harrell Everett acknowledged that the Bank of America, which made a loan to Project Homestead, holds a deed of trust on the property, making the bank first in line as a secured creditor. The loan was for more than $60,000.

Everett said the city could be an unsecured creditor, but that he believes the agreement with the company will have legal standing in the courts.

Thirty-eight lots have not been developed; they are the ones the city is trying to reclaim.

Project Homestead was supposed to build 57 affordable homes, mostly for flood victims, on the donated land. The land would revert back to the city if Project Homestead was unable to fulfill its end of the bargain.

Only 37 homes were built, and 15 homeowners filed complaints with Project Homestead relating to shoddy construction.

The city tried, with limited success, to get the construction problems of the development addressed by Project Homestead. Last fall the Rev. Michael King resigned from the leadership of Project Homestead amid rumors of financial misconduct. He later committed suicide.

The company began trying to sell property in an attempt to avoid bankruptcy. Some of that property included the undeveloped land in Harris Street Estates.

As the city began its fight to get the land back, the company filed bankruptcy.

Now, it's uncertain what the city's legal standing will be in the bankruptcy courts and whether it will have to return hundreds of thousands of dollars to the state.

Project Homestead's promise to give back the undeveloped land is mentioned on at least two documents that are not on record with the register of deeds. One is an option to purchase that is dated March 24, 2000, and another is an agreement between the city and Project Homestead signed the following November.

Goldsboro got a grant from the N.C. Department of Commerce for $630,000 to make street and utility improvements to the property. One condition was that the grant would have to be repaid if fewer than half of the houses in Harris Street Estates didn't benefit hurricane victims. Of the 37 homes built, flood victims bought seven.

The estimated repayment would be close to $10,000 for each of the undeveloped lots.

Project Homestead assured the city, in the November 2000 agreement, that it would repay any portion of the grant, if necessary.

But two years after Hurricane Floyd, which struck in 1999, the housing market for displaced flood victims had dried up, and construction of new homes had stalled.

The city began pressing Project Homestead for updates on the selling of homes in the development, and King told the city in September 2001 that he was planning to meet with Gov. Mike Easley to get a waiver of the conditions of the grant. There has been no waiver, however, and Everett said that he and City Manager Richard Slozak were still discussing it with state officials.

To complicate matters further, the city learned last month of the $60,000-plus loan that Project Homestead had taken from Bank of America.

Because bankruptcy proceedings are unpredictable, it is possible that the Harris Street lots could ultimately be considered assets of Project Homestead and could be sold to pay off secured creditors. Everett said the city will hire a lawyer from Greensboro to represent it in the bankruptcy court. He said the first meeting of creditors would be on March 1 in Greensboro, and Goldsboro would be represented.

"We won't know anything until then, and we might not know a whole lot after that," he said. "Those first meetings are usually perfunctory."

Everett fears the bankruptcy proceedings will be long because of the fraud allegations against Project Homestead.

"I think it's a web that hasn't even begun to unravel," he said.

The land under Harris Street Estates was donated to the city about 30 years ago for possible use as a park. For the last six years, its history has been controversial.

In 1998 the City Council voted to use it for houses to be sold to low- and moderate-income buyers under the federal HOME program. Neighbors -- most living in attractive, well maintained homes with manicured yards -- protested, saying the project would reduce the value of their homes. They said their area had more than its share of housing that was subsidized in one way or another. They appeared before the council to ask that the HOME money be spent elsewhere.

The council then voted 4-3 to rescind its decision and not to have the houses built on Harris Street. Among those voting against the project was the late Tim Bartlett, who represented District 2 in which the project is located.

A few months later, Bartlett died, and it was the council's responsibility to appoint someone to represent District 2. Before doing so, however, it voted to go ahead with the Harris Street development, after all.

The property was cleared of trees.

In 2000, the council voted to collaborate with Rev. King and Project Homestead on the project. King had been recommended by former Gov. Jim Hunt because of his reputation for building houses quickly and cheaply. Former City Councilman J.B. Rhodes said that he believed King was "sent from God" to help Goldsboro with its housing needs.

Only former Councilman Tom Barwick -- then representing District 2 -- voted against donating land to King's organization. He said the council needed more information. Barwick, a lawyer, was concerned about rushing into something that he thought was "rather vague."