New state law may shield ‘zombie’ projects in Brunswick County

By Shelby Sebens
Shelby.Sebens@StarNewsOnline.com

http://www.starnewsonline.com/article/20091028/ARTICLES/910289975/1002/NEWS06?Title=New-state-law-may-shield-8216-zombie-8217-projects-in-Brunswick-County

The Permit Extension Act passed without opposition in both the Senate and House and was signed into law in August as a way to help developers suffering from the declining economy.

But the new law could mean some so-called “zombie” developments continue to linger, leaving lot owners in the lurch and taxpayers to pick up the pieces.

In Brunswick County a slew of developments are in a zombie-like state, not quite dead but barely living.

Avalon on N.C. 211, for example, was supposed to hold 400 homes but is now abandoned, with yellowing sidewalks and dead palm trees.

The county filed a lawsuit against Lexon Insurance Co., which provided the bonds guaranteeing the development infrastructure of Avalon, after it did not pay out the money when the county declared it in default.

The insurance company now has filed a motion to stay, claiming the county acted prematurely because the new law gives the developer an automatic permit extension to finish the work.

The law states any developer with valid building permits from January 2008 to the end of 2010 does not have to go back to county or town governments to get the permits extended.

The intent was to give developers more time to get houses moving.

“We’re trying to help local developers that are trying to survive,” said state Rep. Frank Iler, R-Brunswick, who voted for the new law.

But the law also could mean trouble for town and county governments that are trying to recoup infrastructure funds from developers that have abandoned ship.

In Shallotte, for example, the town is in the process of calling some of the bonds for San Rio, a Caribbean-theme subdivision planned for 2,000 homes that sits unfinished.

Town Attorney Laura Thompson said the law is an issue the town is examining.

Legal interpretation

Just what effects the law will have remains to be seen and interpreted, perhaps by the courts.

Brunswick County Attorney Huey Marshall says Lexon doesn’t have a basis for its motion.

“We disagree with that opinion,” he said.

He said the county argues that because Brunswick called Lexon’s bond into default before the law was passed, it cannot be applied here. He also said the state of the development is different from what is considered in the law.

There is a clause in the law that says it cannot prohibit government agencies from revoking a permit.

Defaulting on a bond could be considered a reason to do that, said Richard Ducker, associate professor at the University of North Carolina at Chapel Hill School of Government.

But he also said he did not know if the new law allows a government to call the bond under the original performance guarantee, since it gives the developer an extension.

The fear for Brunswick County and its towns is if developments like Avalon have more time to linger without finishing water, sewer and roads, the taxpayers will have to foot the bill. Or buyers of lots in defunct developments will be stuck unable to build homes, although the performance bonds were meant to complete their infrastructure in such situations.

Brunswick County has already paid $100,000 to settle another lawsuit stemming from the collapse of Avalon, money it had hoped to recoup from Lexon.

Ducker said he has heard concerns from several government officials about the law.

“This is affecting hundreds of projects in one way or another,” he said.

But while the law may allow for some zombie zones to remain, Ducker said he believes it will ultimately help fulfill the intended purpose of reviving development.

Carolina Beach Planning and Development Director Gary Ferguson said the Permit Extension Act is a double-edged sword for the town.

“It’s good for the town in that it moves projects along that otherwise would have been stopped by the time clock,” he said.

But, he added, “things can also get built in noncompliance with current rules in place today.”

Building codes are constantly changing, Ferguson said. Extending permits will also allow buildings to be constructed under regulations in effect when the permit was issued, even if the construction is not executed for several years because of the extension.

StarNews correspondent Amanda Hutcheson contributed to this report.

Shelby Sebens: 343-2076