Investors, lenders and El Paso County are caught in a sticky web woven by Mile High Capital Group (MHCG), initial developer of Falcon Vista, a 29-acre subdivision on Swingline Road, near the intersection of Meridian Road and Highway 24.MHCG failed to fulfill their promises to investors and filed bankruptcy in January 2006. Falcon Vista has become an eyesore – neglected terrain cluttered with deteriorating manufactured homes.The historyAccording to the El Paso County Web site, MHCG purchased the land for the Falcon Vista development in June 2001. Most of the land was planned for residential housing with a few commercial lots. In 2004, the El Paso County Board of County Commissioners approved MHCG’s request to increase the number of dwelling units from 45 to 112.MHCG began selling individual lots to investors in early 2005 – the purchase price included half of a manufactured duplex on each lot. The duplexes were marketed as rental income properties, with a projected rent of $1,100 per month per unit. Most lots were sold to investors. The unsold lots are in the hands of the bankruptcy trustee, as are the subdivision’s commercial lots.An article published in the Denver Business Journal Oct. 10, 2005, revealed that Colorado Aspen Home Builders Inc., based in Central City, Neb., built the manufactured duplexes for Falcon Vista. According to the article, the Nebraska manufacturers had to lay off 100 of its 119 workers when MHCG stopped ordering the duplexes.MHCG delivered only 12 of the 56 manufactured duplexes that were planned for Falcon Vista.As part of the filing for Falcon Vista, MHCG posted collateral, in the form of a bond, with the county. Carl Schueler, manager of the county’s long range planning division, wrote in a March memo that the county “is not in a position to collect on the collateral … because [the] financial institution providing the collateral was in turn related directly to the sub-divider and is also insolvent.”Last May, the El Paso County Board of County Commissioners approved a resolution to create an LID (local improvement district) for Falcon Vista. The LID would be funded by $1.5 million provided by four financial institutions that originally provide construction loans to the investors. The lenders would be repaid by assessments on the property paid by the property owners, plus 8 percent interest.Investors left holding the bagDouglas Bruce, county commissioner, said he voted against the formation of the LID. He said investors paid “something like $318,000 for (land) with two mobile homes stuck together.” Instead of forming the LID, Bruce said the county “should apologize and admit publicly that it was a county screw up. Ultimately, they [the investors] are just going to have to get wiped out because they bought something that is unrealistic.”The county should have a policy that requires developers to have substantial cash up front, not just a promise, from a third party, and the development should have a time table for completion of the infrastructure that matches the sale of the lots.”In response to Bruce, El Paso County Administrator Jeffrey Greene said the commissioners passed a new land development code last spring that will resolve any future concerns.”Mr. Louis’s office is now in the process of developing procedures [for implementing] the land development code,” Greene said. “Mr. Louis and I are very much emphatic that we no longer have issues with the collateral presented to the county for such projects.”Meanwhile, Falcon Vista investors are stuck.The lenders, Pueblo Bank & Trust, M&T Bank, First Tier Bank and The Argent Company, had agreed to bankroll $1.5 million to complete the road infrastructure for Falcon Vista LID. The individual property owners would repay the lenders through an annual assessment, plus 8 percent interest. If a property owner sells, the balance of the unpaid assessment will be due at closing.Bruce said he estimates the LID assessment to be about $32,000 per lot. The lots alone aren’t worth $32,000, he added.Although the assessment remains, the lenders have requested a change in financing.William Louis, assistant county administrator for external affairs, wrote in an agenda item summary that the lenders requested the change “to satisfy federal regulations concerning holding unconventional assets in the lenders investment portfolios.”In light of the lenders request, the county commissioners passed another resolution Aug. 30.Falcon Vista property owners who live in Colorado – about 40 investors – will vote via a mail ballot election on whether to authorize up to $1.5 million in public debt to be repaid solely from the proposed assessments to the property owners. The LID will issue the bonds, which will be held by the lenders. The LID will cover the cost of the election.The resolution states that the lenders and the county expect the bonds to be at a rate of 6 percent and tax free (state and federal). The resolution also allows the county’s normal “due on sale” clause to be waived in the future, which will allow current property owners to pass the remainder of the assessment to the buyer.If the property owners do not pass the bond authorization, the district will revert to the financial structure originally specified when the LID was created.Bruce also voted against the debt election. “The whole house of cards is going to collapse, and the county should acknowledge that instead of calling for this contrivance where we have this phony TABOR election,” he said. “They [the property owners) are going to have to pay the money back even if they vote no. It’s a fraud to say you have voter approval of debt if the government says we are going to impose the debt anyway and you’re only voting on the interest rate.”At the Sept. 6 BOCC meeting, county commissioners approved a third Falcon Vista resolution, contingent upon the property owners passing the mail ballot election. The latest resolution outlines arrangements between the county and the LID to complete the infrastructure improvements. It specifies Legacy Title Group LLC as the holder of the LID’s escrow account and requires the director of the county’s development services department to authorize payments from the account. The resolution also specifies Kutak Rock LLP as bond counsel and includes an estimate of work by Springs Engineering LLC, general contractor for the improvements. Work is already in progress at the subdivision, and it “is being done on the come,” Schueler said, in the hope of being paid.Bruce and Commissioner Sallie Clark voted against the Sept. 6 Falcon Vista LID resolution.An investor speaks outIn 2004, James Fisher attended a MHCG seminar touting the Falcon Vista property. Fisher said he had made similar investments in rental properties on the East Coast. He eventually bought three Falcon Vista lots along with the duplexes.”I started to suspect that something was wrong in March 2005,” Fisher said. He said the duplexes were supposed to be delivered in the fall of 2004, but MHCG said they wanted to finish work in their Milliken development before sending the crew to Falcon Vista. According to a Jan. 23, 2006, Denver Business Journal article, MHCG has other developments in Colorado – Montrose, Brighton and Grand Junction – and developments in Pflugerville, Texas, and Brooksville, Fla.In May 2005, duplexes started to arrive in Falcon Vista. Fisher received two for his properties.All of the 12 duplexes were only partially installed. Fisher said some exterior walls have no siding and their vapor barriers are in tatters. Many have broken windows. He said the copper wire has been stripped from his duplexes. Fisher also said he doesn’t trust the soils report or the foundations and suspects the duplexes are not salvageable.”I think it (the development) just got ahead of itself, like a snowball,” he said. “I think they saw an opportunity to take advantage and manipulate the system. They were robbing Peter to pay Paul.”Some investors also are paying interest on their construction loans, although the interest was MHCG’s responsibility, Fisher said. And some investors, including Fisher, aren’t paying the interest, and the lenders are suing them. They’ve filed counter suits against the lenders for improper disclosure.Fisher said he doesn’t support the creation of the LID or either plan to finance the LID through public debt. “The county commissioners did a poor job of protecting the investors to begin with,” he said. They didn’t require a proper bond. The commissioners own rules say they will not form LIDs when there is a bankruptcy; yet, they formed the LID anyway, Fisher said.”They continue to ignore their own rules and guidelines, and they coddle the banks at the expense of the property owners,” he said. “They have never asked the banks to appear before the commission. They want to heap a lot of this responsibility on the residents of El Paso County.”The only way to end this is to force a sale or make the banks negotiate with us. As long as people are paying interest, the banks have no incentive to act.”Fisher said he has little hope of recovering any money from MHCG.”A forensic accounting firm could not find the money,” he said. “They were looking for $22 to $30 million, but I don’t think it exists.”MHCG’s troubled pastAccording to the Colorado Secretary of State’s Web site, MHCG was founded in 2000 for the purpose of selling manufactured duplexes and other housing units as investments. The company’s CEO was Frederick “Rick” Dryer.The May 19, 2005 issue of Business Wire described Rick Dryer as “a nationally acclaimed real estate expert and speaker.”According to the Colorado Division of Securities Web site, on Oct. 10, 2005, the securities commission obtained a court order placing MHCG into receivership and appointed Hall Wells DiNardo LLC as the receiver. On Jan. 13, 2006, MHCG filed for Chapter 11 bankruptcy.The securities commission also filed a complaint in Denver District Court against MHCG alleging the company violated the registration provisions of the Colorado Securities Act in connection with the group’s efforts to borrow money from the public in Colorado.The Division of Securities Web site also reports that on Feb. 28, 2006, the securities commission filed a complaint in Denver District Court and obtained a temporary restraining order against Frederick Dryer and Richard J. Darrow (an MHCG employee and later head of Replacement Property Solutions, a company related to MHCG) alleging they violated the anti-fraud provisions, securities registration and broker-dealer/sales representative licensing provisions of the Colorado Securities Act.In the complaint, the securities commission alleged that since at least April 2005, Darrow and Dryer have solicited investors to invest in real property owned by MHCG. Unknown to the investors, the real property either was not owned by MHCG or was so highly leveraged that the investments were worth substantially less than represented.The complaint also alleged the defendants failed to disclose to investors that Darrow had been convicted of forgery, theft and the manufacture of a schedule II controlled substance and that Dryer twice been convicted of securities fraud.According to a Dec. 22, 2006, Charlotte (North Carolina) Business Journal, Dryer is working in Charlotte as a real estate consultant and advisor to Convergent Acquisitions & Development, a Charlotte-based start-up real estate investment company. According to the article, Convergent expected to sell 250 single-family homes in the Charlotte market in 2006 and “three times that” in 2007.Two Charlotte consumers had lodged complaints against the company with the Charlotte Better Business Bureau as of the article date.
