Subdivision near Lake Granby becomes subject of lawsuit

Eighteen property buyers filed a civil complaint in 14th Judicial District Court on Friday against developers and those associated with the sale of certain lots in a subdivision near Lake Granby.

The complaint may be amended in the near future to add more plaintiffs who have committed to joining, according to attorney Marion Keyes of the Summit County-based firm Keyes, Michel & Pummell.

The property owners purchased land/home deals in a limited set of 40 lots within Rocky Mountain Estates. The Grand County Sheriff’s Office and the FBI are investigating the builder and other organizations involved in the sales of those lots.

Close to two dozen other clients who purchased properties within Innsbrook-Val Moritz and Granby Ranch are gearing up to file similar complaints, Keyes said.

The common link among property buyers in the pending lawsuits is Upstreet Developments LLC of Fort Collins, the first name in a list of defendants in the lawsuit filed Friday.

Upstreet principals Mike Hawthorne and Jon Thompson, developers in Colorado and Wyoming, bought lots in various subdivisions promising buyers transaction ease by lumping lot sales and mortgages with the construction of homes.

Contacted Monday afternoon, Upstreet’s Thompson declined to comment on the suit’s allegations.

In the case of lots within Rocky Mountain Estates, the lawsuit says Upstreet with Rocky Mountain Estates developers Morris King and Ralph Chiarella sold lots to plaintiffs through Upstreet, reaching them through investment seminars, electronic mail, telephone calls and U.S. mail from about November 2005 to October 2006.

ADS Builders, the parent company of Legacy Construction Services and Mile High Construction owned by James Barnett and Chris Foster, is another business named in the suit. Investigators seized records from the company’s Broomfield office in late April.

ADS would construct homes for buyers who qualified for a specific type of loan that carried construction/permanent riders, meaning the land purchase and house construction were packaged.

The lawsuit goes on to connect Upstreet with a mortgage broker, title companies and an appraiser, all of whom are listed as co-defendants in alleged fraud and civil conspiracy. Respectively, they are: Paul Strange, Kim Austin of Austin Title and Grand Lake Title, and appraiser Don Stookey.

In the case of Upstreet — which sold 39 lots in the 288-lot development called Rocky Mountain Estates — ADS was the builder that would draw on the construction loans for 12 months and build investors’ houses.

All of the buyers live out of the county and many live out of the state.

The suit alleges that buyers purchased lots on the basis of inflated appraised values and that the lender, National City Mortgage of Ohio, inappropriately and negligently dispersed loan funds to the builder.

As it stands, buyers face payments on loans ranging from $334,000 to $410,000 for homes either not completed or without construction started.

While many home buyers feel they have been victimized, there are a few that think the conspiracy theory is a stretch. Some feel ADS and Upstreet may have been inexperienced with poor planning at a time when lenders were undergoing a crackdown on loans and the market became less than favorable. They even blame utility companies and the county for delaying construction on the project, thus putting ADS in a predicament.

But Keyes, who deals in building, real estate and construction litigation, says that theory doesn’t wash, that the builder and developer should have done due diligence before putting lot buyers into financial risk.

Many home buyers may have involved themselves with Upstreet as purely part of speculative investing, thus choosing to eat losses and walk away from a deal gone bad.

“It’s something I deal with in this practice a lot,” Keyes said.

“For every time a contractor or developer harms someone, one, two or even three (property buyers) out of 10 will step forward and say, ‘That’s not right. I’m not going to put up with it.’ The other percentage doesn’t do anything about it. It’s true in every case, not just this one.”

For many property buyers, the relationship with a builder is one of trust, and when the trust is violated, making the difficult decision to go forward with a lawsuit and committing more time and money is a scary one, he said.

More disgruntled home buyers
“I’d love to see them thrown behind bars or some severe justice taken so they’re made an example of in this white-color, blue-collar crime,” said Karl Hill of Denver, a property buyer in Ranch View of Granby Ranch who refuses to walk away from a deal gone sour.

Hill says he and about 10 other property owners of Ranch View lots are huddling up to file suit similar to home buyers in Rocky Mountain Estates.

Investors bought 33 lots in the Granby Ranch neighborhood, lots sold by Upstreet.
“About 80 to 85 percent of them you won’t hear from,” Hill guessed.

They may be categorized as “hard-core speculators,” he said, who make a career of real-estate transactions and take wins in stride with losses.

But he is not one of them.

Having already owned condominiums in Granby Ranch, Hill purchased a lot from Upstreet to build a vacation home for himself, his wife and four daughters.

“Our dream vacation home has now become a nightmare,” he said.

Hill and other home buyers allege they were sold lots with the promise of homes as part of an interwoven, pre-meditated web of real-estate savvy players who made out with victims’ money, leaving property buyers behind with nothing but vacant dirt and construction loan payments.

Upstreet sold the lots for an average of about twice what they had paid for them three to four months prior, according to county records. And the builder, Jewels Development and Construction Services LLC of Fort Collins, was picked to build homes.

Hill says he’s now stuck with a construction loan payoff of $272,500 “with nothing to show for it but a $90,000 lot” that was sold to him by Upstreet for $185,500.

Jewels construction company drew $52,500 on Hill’s loan in February.

But Jewels Development owner Curt Karlen said he feels duped just like the home buyers.

“I feel like one of the buyers who was sold goods that weren’t real,” he said. “We’ve spent the last year trying to find a way to make it work for everybody.”

The initial construction draw on Hill’s loan, as well as draws on 32 other loans in Ranch View, were used to cover start-up expenses, Karlen said, such as architectural designs, engineering designs done twice, soils engineering that had to be done twice, architectural control approval, site plans, surveys ... “everything needed to build a house,” he said.

Karlen and Jewels Development project manager John Ramos said they contracted with Upstreet to do the work in Granby Ranch based on “incorrect information provided by the developer, and furthered by promises by Upstreet of performance that was never agreed to by Jewels.”

Unexpected soil conditions, utilities not installed in time, and approvals needed by Granby Ranch’s architectural control board, they say, caused Jewels to fall way behind the eight ball on the project. Up until April, they tried to help home buyers refinance with three different lenders, but lenders refused.

According to Ramos, some home buyers who qualified for their loans two years ago no longer could qualify in light of a changing lending climate.

“We’re not trying to hide anything. As the buyers do, I feel like I was snookered. Honestly, I don’t know who to blame. I’d love to have my 18 months back, especially in today’s economy. I threw two years away for something that’s not going to happen,” Karlen said.

But Hill feels “any builder worth their salt would have known how to bid the project,” he said, and has little forgiveness for professional incompetence.

Jewels had roughly eight months, according to Hill, to research the project prior to building “to make an educated decision on the project.”

Now Hill says he faces a triple-whammy: His house didn’t get built, he’s losing money and his credit rating is in jeopardy.

— Tonya Bina can be reached at 887-3334 ext. 19603 or e-mail tbina@grandcountynews.com.