How Much Should Durham Pay to Help Homeowners After a Developer Went Bust? | Durham County | Indy Week
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How Much Should Durham Pay to Help Homeowners After a Developer Went Bust? 

After a heated debate last week, 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, 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, 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 the morning after the council meeting, 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 and locate bond money for most of these projects. In a few cases, however, that didn't happen. For those developments, the city agreed to pay 10 percent of the cost homeowners would incur.

Ravenstone and Stone Hill Estates were different. The city had underwritten the surety bonds that the companies insuring those developments were supposed to use to pay for the remaining infrastructure costs. But those insurance companies—Surety and Indemnity Company and Selective Insurance Company of America—sued the city instead.

In 2014, a federal court 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.)

The federal court's decision turned on what the city considers a technicality, but even so, the insurers had gotten out of paying for most of the costs. Residents of the subdivision, however, argue that the city messed up, so it should be on the hook, not them.

"It's important to note that the city is 100 percent at fault in the issues affecting our community, and our families are still being asked to pay an $800 penalty for their mistakes, mismanagement, and intentional neglect," Michael J. Kerkau, the president of the subdivisions' homeowners association, writes in an email. "What makes Ravenstone absolutely unique in the history of Durham is that, at the time the developer failed and literally disappeared, all of the required work could still be funded by the surety bonds, which were required. Our problems began with these bonds."

For development to proceed, Kerkau says, the city required specific wording to be included in those bonds; it was that wording that led a federal judge to rule that the insurance companies didn't need to pay to fix the damage.  

In 2015, after residents of the subdivisions pleaded for help, the city council decided to go beyond the 10 percent it paid to other developments. Instead, council members voted to pay 50 percent of the costs. Mayor Bill Bell cast the lone no vote, arguing that the city should pick up the entire tab.

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 last week. At the council meeting, he said the city should "foot the whole bill."

"It's not about treating people equal," he said. "It's about fairness."

"Over the past decade," says Kerkau, "as the unfinished infrastructure degraded and the ill-fated court case languished on [and] bankruptcies and foreclosures peppered our neighborhoods, the city built a posh new city and spent millions on new developments and rehabilitation projects. ... In the time since the developer's failure, our residents paid more than $9 million in city taxes alone, but received only emergency services and trash pickup.  Repeatedly, the Durham police have told me directly that there is virtually no crime in our community. All of this means that Ravenstone has been a cash cow for Durham for years. Yet we are still being asked to pay more to correct the city's mistakes."

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 last week 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 $35.98 per year. Homeowners in Stone Hill Estates would have paid $1,503.28, or $187.91 per year, according to city records.

Schewel, Johnson, and Reece thought that was a fair deal. 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 at the council meeting, the homeowners should pick up some of the tab.

"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."

With the city forking over 85 percent, homeowners in the subdivisions 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, or $56.37 per year.

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

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