Judge allows fraud claims against Bellaton developers to continue

There was a standing-room-only crowd in a Fairhope courtroom last week as an attorney representing one of Baldwin County’s largest homebuilders, DR Horton, and another representing a group of developers and investors, argued a lawsuit filed by the Bellaton Property Owners Association (BPOA) in 2020 should be dismissed. Their defense was simple: The complaint’s 12 causes of action, including declaratory judgment, willful and reckless misrepresentation, fraudulent concealment or suppression of facts, breach of fiduciary duty, unjust enrichment and conspiracy, were barred by statutes of limitations. Meanwhile, they offered little to refute the allegations.

“Silence is not fraud,” attorney Lynn Perry told Judge Jody Bishop, citing a decision from a similar case in Auburn. 

Representing BPOA, attorneys Patrick Collins and Will Chason argued the defendants were not just silent about their participation in a scheme to force the property owners of Bellaton to pay a $625,000 mortgage on a common lot where the developers built a community pool, but they conspired to hide it. 

According to testimony, the 221-lot subdivision in Daphne was only partially constructed in 2008 when the housing market collapsed, causing the original developer, Country Club Development (CCD), to default on several mortgages encumbering each phase of the subdivision. In 2012, after the mortgages had been foreclosed, DR Horton purchased the available lots at a courthouse auction and over the next several years built the remaining houses.

During the same period, DR Horton controlled the property owners association (POA). But in 2018, when the POA was handed over to the community, member and property owner Rick Norman, a retired investigator for the U.S. Coast Guard, said he began to investigate the debt. Then he helped convince the POA to file suit.

As Lagniappe previously reported, CCD and two other local companies, AC3 and Pennstar, originally financed the subdivision with the help of Alabama Capital LLC. CCD and Alabama Capital’s respective managers, Clarence Burke and David DeLaney, are also joint owners of the private utility Baldwin County Sewer Service (BCSS), and together they had financed and developed several subdivisions within the sewer company’s service territory.

READ OUR ‘STRAWMAN’ SERIES OF REPORTS ABOUT THE OWNERS OF BALDWIN COUNTY SEWER SERVICE

“We found out in discovery that Pennstar, one of the cosigners on the note, is owned 50 percent by Wolf Creek, which is owned 100 percent by Clarence Burke and Alliance Ltd. is owned by DeLaney family,” Collins told the court. “So these people are both the borrowers and the lenders on this debt, and we didn’t know all that before the lawsuit was filed.”

Further, after the lawsuit was filed, the plaintiffs also discovered a participation agreement that showed Alabama Capital only put up half the money for the mortgage, while Burke’s Wolf Creek LLC put up the other half. In 2011, special assessments were added to phase 2 and phase 3 lots to pay off the debt. Then, in 2012, Burke and DeLaney signed an Extension Capitalization Agreement (ECA), rolling accrued interest and attorneys’ fees into the original 2008 mortgage, inflating its balance more than $86,000.

When DR Horton purchased the property out of foreclosure in 2012, it wiped away the special assessments and liens, but the community pool mortgage remained the obligation of the cosigners. Nevertheless, when DR Horton took control of the POA that year, it began to pay the debt from the POA account.

“Where did the money go? We don’t really know,” Collins said. “We know $200,000 of the $625,000 went immediately to pay one of Clarence’s other loans, so $425,000 at best went into constructing the pool.”

Attorney Christoper Williams said DR Horton paid the note to keep the pool from falling into foreclosure and the lot from potentially being redeveloped into an undesirable commercial use such as a storage unit or a dollar store. Williams said DR Horton “wasn’t a party to the ECA, but helped negotiate between Country Club Development and the DeLaney defendants, who was the mortgage holder on the pool, to try to keep the status quo and allow for the pool to remain open for the residents of the community.”

But Collins said DR Horton never held a meeting in six years of being in control of BPOA, and did not disclose the existence of the ECA when it turned over the POA to the community. Chason said their whole defense is “you should have caught us sooner.” 

“DR Horton knew about that [debt] but didn’t want to pay it, so they stuck it deep in the file and I mean deep down there,” Chason said. “Then they got with Clarence Burke and David DeLaney and they came up with the ECA, which has people paying $51,000 a year for over 20 years, which is over $1 million.” 

In a deposition, DeLaney Company Vice President Brooks DeLaney admitted those who signed the promissory note in May 2008 are responsible for the debt, and added Burke and CCD were sent “standard collection letters” when the loan finally went into default in May 2021. He said their options now are to try to get the obligors on the note to pay, or to foreclose on the mortgage. The DeLaney defendants have settled with the plaintiffs, according to testimony.

“All the key documents have been concealed by the defendants and even the mortgage itself is not in the chain of title of any of these people,” Chason said. “All their arguments rely on the statute of limitations, but the law is, if [a party] doesn’t know the material facts, the statute of limitations is tolled. All they did was bet on us not finding out about it.”

Bishop apparently agreed, and the next day, denied the defendants’ motions for summary judgment. The case is scheduled for trial early next year.