Southern Group, the developer of Wild Moon Ranch and Resort, the Rising Fawn project in Johnson’s Crook originally known as the Preserve, admitted Monday that an arrangement it had with lot owners there to make their mortgage payments and pay their property taxes had collapsed, but said that the project will continue nonetheless.

“We’re doing everything we can,” said Travis Shields, co-owner of the Southern Group with his father-in-law, Thomas Dobson, and brother-in-law, Josh Dobson, all of Marion County, Tenn. “We didn’t run away with any money.”

“For this thing to fall is the worst thing that could happen to this county,” said Eugene Johnson, who holds a mortgage on Wild Moon/the Preserve. Johnson, who stepped in recently to fund Southern Group’s efforts to press forward, says he will continue to underwrite the developer. “There’s no time limit on that,” he said.

Johnson is the former owner of the Crook property which, incidentally, he acquired some years ago by purchase, and which bears his name only through coincidence.   

 He and Shields appeared at a joint interview on Monday at the Sentinel office in Trenton, with Sentinel publisher Eddy Gifford sitting in, to dispel rumors and to discuss the investment program whose demise had engendered them. 

A call to the Sentinel last week, and its subsequent investigation, revealed that most lots at the Preserve/Wild Moon had been purchased not by prospective home builders but by investors participating in a no-out-of-pocket-expense arrangement offered by Southern Group beginning in 2007.

“The majority of those folks were speculators,” said Shields. “You know, they were folks that had no intention of ever living here or ever building here. They were simply investing or speculating that the property values would go up and that Southern Real Estate would be able to sell that lot to someone else for more money, and they would make some money.”

Investors – or “speculators,” as Shields prefers to call them – were recruited through real estate agents and websites, and their part of the bargain was to take out a loan – in some cases multiple loans – to buy development lots. Then, in what he terms “post-closing agreements,” Southern Group returned to them an amount of money which the investors describe as their down payment but which Shields describes as the developer’s payment for purchasing a partnership interest in the lot or an option to buy it back. 

“In almost all cases, that did equal the down payments, but contractually, that is not us giving them their down payment back or giving them the down payment for the closing,” said Shields.  “That’s not legal.”

After closing, Southern Group undertook to make the monthly payments to the lending institution that had financed the property and to pay real estate taxes on the lots, though both of these according to the terms of the loan were the buyer’s responsibility. “At that point, they don’t really have much money in it,” said Shields.  “What they’re doing on their side is we’re using their credit.”

Southern’s end of the deal, as investors explained it to the Sentinel, was to “create value,” building the infrastructure – roads, amenities, utilities – that would make the development attractive to end users, who would then, ideally, buy the lots at a higher price, benefiting both original investor and developer as dictated by the terms of the agreement between them. In an option agreement, Southern could buy the lot back; in a partnership agreement, the developer and lot owner would go halves on any profit.

That’s best case. Worst case? “If the deal goes bad, we lose the money that we bought the partnership with and any monthly payments or property that we’ve paid,” said Shields. “And that’s what’s happening.  We can’t make that. We’re in default of our agreement.”

Suffering from the current economic downturn – “We live and die by real estate sales,” said Shields – Southern Group stopped making the mortgage payments in August, leaving the obligation to do so to the lot owners who had signed the loans. One lot owner contacted by the Sentinel said his payment was $1,000, another $3,400. “I can’t sustain making these payments and provide for my family,” said the latter, who wished not to be named.

But Shields said lot owners were informed from the get-go that they shared risk as well as the potential for gain. “The market crashed and then everybody started getting amnesia,” he said.

“These people went in with their eyes open,” said Johnson. “If they’d have made $100,000 there wouldn’t be no problem at all, but when you lose, you start to cry.”

One of the investors interviewed by the Sentinel said he had been questioned about a month ago by the Federal Bureau of Investigation regarding the investment program, but Shields dismissed that as patently untrue.  “An investor called, you know, mad because we weren’t able to fill our part of our partnership with them, and they said that they were going to call the FBI,” he said. 

But a threat is all it amounted to, he said, and there was currently no such probe underway. “We have no knowledge of anything like that,” he said.

In any case, said Shields, though the collapse of the investment program was regrettable, Southern Group has done nothing illegal. “Us not being able to fulfill our part of that agreement is in no way criminal,” he said. 

Individual investors told the Sentinel they had understood the proceeds of their loans were to go into an escrow account to pay their monthly mortgage payments. Shields said that though Southern Group had created an account through its attorney, Kenneth Chadwell, to set money aside for the payments, there had never been an escrow.

“The way that account was set up was just like if you went and set a personal savings account up, you can come get the money out of it any time you want to. That’s not an escrow account,” said Shields.

Neither, he said, had Southern Group misled any lending institution. Cornerstone Bank, Farm Credit Services, Citizens Tri-County Bank and SunTrust were the lenders most often used in the program, he said, with (Louisville, Ky.-based) Farm Credit financing the majority of these loans.  All had been made aware of the investing program, said Shields, and all had used their own appraisers to verify the lots were worth the loan amount.

“Farm Credit has come to our project many times,” he said. “They’ve even had their higher-ups come, and we give them tours of the property and they leave smiling every time.”

Shields estimated that Southern had entered into option or partnership arrangements with 100 to 150 lot purchasers. In June, the development told the Sentinel, and the Sentinel duly reported, that it had sold a total of about 300 lots to 200 buyers at the Preserve/Wild Moon. A typical lot cost $175,000.

What happened to the money borrowed by these buyers against their lots? “First of all, you can’t say that all that money is earmarked for infrastructure,” said Shields. “For one, we had to pay Mr. Johnson for the land. We also had to pay our employees and overhead for the running of the company.”

He referred also to underground utilities and 10 miles of road. “We have dumped millions of dollars into infrastructure,” he said. “That is a huge project.” 

Shields says he sees the potential for numerous foreclosures should Southern Group not be able to work things out with its investors, but he says the developer is calling them daily to do so. “We’re trying to find a way to get through this to where the client is kept whole, the bank is kept whole, and we’ve got a shot at our company surviving,” he said.

Southern offers affected lot owners three options, he said:

First:  The buyer simply keeps possession of his lot, and the developer takes a loss on the money it already has in the deal. “We’re no longer your partner,” said Shields.

Second:  The developer subdivides lots suitable for subdivision – those with terrains that allow for more than one dwelling – and restructures the loan, adding another lot that it owns free and clear as additional security. That way, the lender has three lots as collateral should worse come to worst.  The banks have been generally positive about the idea, said Shields, but have been slow to get it approved by legal departments and boards of directors.

Third:  The lot owner invests further, building an income-generating cabin on the lot suitable for vacation rentals.  “Our rental program is one of our bright spots right now,” said Shields.  “It was full last weekend.”

Shields conceded that the loan restructuring plan is complicated somewhat by tax liens against Preserve/Wild Moon lots by the county. The developer had owed Dade about $300,000 in real estate taxes on unsold lots plus penalties and interest accruing daily. Now, it seems, it has previously represented itself as liable– or at least lot buyers have considered it liable – for paying a good portion of the taxes on sold lots as well. Eugene Johnson estimated the total required to settle all the taxes as $2 million.

Both Johnson and Shields both complained about this tax situation, which is complicated by the fact that the developer platted – prematurely, as they now insist – the Crook acreage into lots which are taxed at the same rate as the ones already sold, though many lack roads or basic infrastructure. It’s a mistake that Dade should allow Southern Group to correct, says Shields.

 As for Johnson, he grumbled, seriously or not, that he would give the property to a charitable institution if it continued costing him so much in taxes. “I’d donate it to the crippled kids or the foster kids or something, and I’ll stop the taxes,” he said.