Durham Will Spend Nearly $2 Million to Help Homeowners Left in a Lurch by a Bankrupt Developer | News

Durham Will Spend Nearly $2 Million to Help Homeowners Left in a Lurch by a Bankrupt Developer

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After a heated debate Monday night, Durham City Council members narrowly approved spending more than $2.16 million—of which $1.8 million will come from taxpayers—on improvements in the Ravenstone and Stone Hill Estates subdivisions, after the subdivisions’ developer, MacGregor Development, left that infrastructure unfinished.

The city will now pay 85 percent of the cost of repairing roads and adding stormwater drainage; in a 6–1 vote in 2015, with Mayor Bill Bell dissenting, the city council had agreed to pay only 50 percent, with the homeowners paying the rest.

Council members Steve Schewel, Jillian Johnson, and Charlie Reece opposed the decision.

“I do think that the people in the neighborhood had a risk, like we all do, when they moved in that they took a risk just like we all do when we buy a property,” Schewel said. “So, I do think there’s a good rationale for the fifty-fifty.”

On Facebook Tuesday morning, Johnson called the council’s decision “completely bizarre and confusing.” The city agreed to “give a crap ton of taxpayer money to people who bought houses on spec with unfinished infrastructure and don’t think they should have to contribute anything to finish it.”

After the Great Recession, lots of real estate projects halted when developers went bankrupt, leaving many subdivisions without good roads and drainage. Durham was able to find new developers for most of these projects without any involvement from the city beyond helping find new developers and locate sufficient bond money to complete the infrastructure.

In a few cases, however, the city was unable to find new developers or bond money; for those developments, the city decided to help pay 10 percent of the cost homeowners would incur. But Ravenstone and Stone Hill Estates were different. The city had underwritten bonds that the insurance companies were supposed to take out to pay for the remaining 90 percent. But those insurance companies—Surety and Indemnity Company and Selective Insurance Company of America, respectively—sued the city to get out of paying their share.

In 2014, they won. The Middle District Court of North Carolina ruled that the bonds the city underwrote only required the insurance companies to pay for sidewalks, one inch of asphalt, and maintenance of the stormwater drainage system, not the developments’ construction or any of the larger costs. (The insurance companies have paid for the asphalt and sidewalks and will maintain the stormwater system once it’s installed. The top layer of asphalt was put in place this summer, but before that those roads went without it since they were built.)

But by the time MacGregor had gone bankrupt, it had already built on all but two of the more than four hundred lots in the two subdivisions. That fact led council member Don Moffitt to conclude that the city was at least partially at fault.

“The city allowed the developer to sell the site when many of the lots were already filled,” he says. “What the developer should’ve been doing was taking the money they got in phase one and investing that into the infrastructure.”

After the court ruling, the city was perplexed; after all, it had used those same kinds of bonds for years. The court’s decision turned on what the city considers a technicality, but even so, the insurance company had gotten out of paying for most of the costs.

In 2015, the city council decided to go beyond the standard 10 percent it paid to similarly situated developments, since it had written the bond language that had been rejected by a court. Instead, after about a hundred residents of the subdivisions pleaded for help, council members voted to pay 50 percent of the costs. Bell cast the lone no vote, arguing that the city should pick up the entire tab.

Over a dozen homeowners from the subdivisions were in attendance Monday.

Gina Cain, a homeowner in Stone Hill Estates, wasn’t able to make it, but she says she’s happy the roads were finally repaved and the city is paying a higher percentage of the construction. She plans on selling her house within the next year.

“As long as they took the costs down, I can still make some money when I sell,” she says. But she still felt that the developer should’ve taken responsibility and finished the development.

Matt Lawson, who works for a prosthetic company and lives in Ravenstone, says the roads used to be terrible.

“There were manholes that stuck up a good inch and a half, two inches,” he says. He was frustrated when the city wanted the homeowners to pay for half of the road repairs, since he doesn’t recall his real estate agent warning him that the roads could be an extra cost.

Bell, who did not respond to the INDY’s requests for comment, has long argued that the city should shoulder more of the burden. He was behind the push to revisit the issue this week. At the council meeting on Monday, however, he said he thought the city should “foot the whole bill.”

“It’s not about treating people equal,” he said. “It’s about fairness.”

The 221 homes in the Ravenstone subdivision have been appraised from anywhere from $172,000 to $259,000, according to county tax records, while the 187 townhomes in the nearby Stone Hill Estates range from $84,000 to $92,000. Several homeowners told council members Monday that paying 50 percent would be financially disruptive.

If they had to pay half, each homeowner in Ravenstone would have forked over $287.81, which would have been paid in zero-interest installments over eight years, costing just $35.98 per year. Homeowners in Stone Hill Estates would have paid $1,503.28 per lot over eight years, or $187.91 per year, according to city records.

Schewel, Johnson, and Reece thought that was sufficient, as they agreed that the city was partially responsible, but only partially. In light of the fact that many residents moved into the neighborhood after it was clear the developer wasn’t going to finish the roads, Schewel said Monday, the homeowners should shoulder some of that burden, too.

“It’s hard to look at a group of people in a bad situation and not give them more,” Johnson added. “But I feel like there are a lot of people in the city who are in bad situations through no fault of their own.”

Under the 85 percent rate, homeowners will pay significantly less. Over an eight-year period, each lot in Ravenstone will pay $86.34, or $10.79 a year. Over that same period, each lot in Stonehill Estates will pay $450.98 over eight years, or $56.37 per year.

That totals $326,400. The city will cover the remaining $1.8 million.

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