Prior majority lot owners’ plans failed, leading to more than $32-million debt

From the Sparlin Complaint, page 28-29:

i. Figueroa’s representation in October 2003 that Western Recovery Services (WRS) could get by with $6 million in capital depended on two key assumptions: first, that it would focus “exclusively” on a project in the Corona de Tucson area of’ Pima County (“Corona” [New Tucson]); and second, that by 2004 it would be selling lots to homebuilders at a rate of 233 per year, generating more than $8 million in annual income that would be used to make payments on the development loan and keep that debt at a constant balance of $5 million.

ii. No Corona lots were sold in 2004, putting the project more than $3 million in the hole as compared to the 2003 budget projection. This forced WRS and its successors in interest to incur additional debt on the development loan, increasing its debt far beyond the $5 million it had planned for and requiring a much greater future rate of lot sales to compensate for the added debt service.

iii. Only 54 Corona lots were sold in 2005, putting the project further in the hole: more than 400 lots behind its builder sales projections, creating a funding deficit of $14 million and requiring further draw-downs on the development loan.

iv. Corona lot sales totaled only 89 in 2006, creating further escalating debt.

v.. On November 11, 2007, after repeated defaults on a development loan balance that had grown to more than $32 million, the National Bank of Arizona foreclosed on the entire Corona project, cutting off the only source of current revenue for the enterprise.

vi. None of the serious shortfalls in builder sales can be dismissed as the unforeseen result of adverse economic circumstances, since they occurred during favorable real estate market conditions that preceded the subsequent real estate downturn.

From an October 2003 WRS study of how they planned to make New Tucson (“Corona”) work:

Company will acquire an additional 100 lots at $7,500 per lot cash in years 2-5, from other owners in the various Units bringing the total owned lots to 1,400.

They never offered me this much and I would not have sold.

lotflipstudy2

After conducting a study of other developments in the area they concluded:

Based on the information contained in this section, we believe that a group of 4-6 national and local builders each absorbing approximately 5 homes per month, or a total of 20-30 per month, is a reasonably conservative estimate. The projections assume that the initial average lot price will be $35,000, and that the absorption rate will be 233 owned lots per year indicating a 7-year (October 2010) sellout of the entire subdivision.

A recent letter of value from Southwest Appraisal Associates, Steve Cole, MAI, has valued the completed lots at an initial price of $35,000, projected first year absorption at 288 lots, and assuming constant market conditions a five-year sellout of the lots.

By the time they got around to blading, scraping and dumping 10,000 dump truck loads of dirt on Unit 5 (2007), I knew they would never finish the whole subdivision in 5-7 years. Thus, the imposition of $6000 liens on lots in Units 7, 8, 9 & 10, would accrue quite a bit of interest, which would make the deal/contract, unconscionable.

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