Investors who purchased three building lots at $90,000 each have won a nearly $11 million default judgment against real estate developers in the rural northwest Georgia town of Trenton.
Dade County Superior Court Judge Brian House ordered the developers of the Preserve at Rising Fawn to pay $10 million in punitive damages, plus compensatory damages of $900,000 and attorney fees of $15,000 to a Virginia couple who bought land in a luxury mountain retreat that was never built.
“Please tell me you took that case on contingency,” plaintiff’s attorney Scott Kuperberg of Busch, Slipakoff & Schuh said his lawyer friends asked.
“Who among you would have taken that case on contingency?” he asked his friends in response. “This wasn’t a car wreck. This was a contract dispute.”
His clients paid him an hourly rate for his work on the case. He said his clients—Vincent and Ann Mihalik—were shocked but very happy with the verdict from a one-day undefended bench trial Nov. 29.
Now, Kuperberg said, he plans to meet with his clients again to discuss collection. He said he will advise pursuit of the defendants’ assets in the future, even if they have no current assets. The defendants are Southern Group, Southern Real Estate of Tennessee, Travis Shields, Joshua Dobson and Thomas Dobson of the Chattanooga area. The companies were administratively dissolved in 2011, according to the complaint.
“We are very surprised at this, I can tell you that,” Shields said in a phone conversation. Shields said he and the co-defendants—his brother-in-law and father-in-law—didn’t answer the lawsuit because they couldn’t afford an attorney. “We’ve had a lot of financial problems,” he said. He said he contacted a lawyer who wanted a $25,000 retainer, and he didn’t have the money.
“We couldn’t afford a defense and didn’t think we needed one,” Shields said. “I thought the case was frivolous. But I should have answered.” Shields, who now works as a land surveyor, said he didn’t know in advance about the Nov. 29 hearing.
Shields said he is searching for an attorney to appeal the judgment, which he said is “exorbitant” and “unbelievable” and could never be paid—not even the attorney fees portion.
“We borrowed ourselves into oblivion trying to do what we promised,” he said. “It’s not that we were evil people.”
Shields compared the real estate market crash with a tsunami. “It reminds me of how the water recedes right before it hits and people walk out farther than they’ve ever been. Then the wave comes crashing down on them.”
The plaintiffs bought the Heritage at Rising Fawn land in 2006: three lots for a total of $270,000. It was early in the development. Roads hadn’t been built. Utility lines hadn’t been installed. But the Mihaliks said the developers promised infrastructure and amenities, including a clubhouse, fishing lakes, a fitness center, a pool, a playground, a game room, walking trails, time share cabins, an equestrian center, preserved common spaces to show the natural beauty of the area and land held off the market to create scarcity to drive up prices.
The couple said they were promised handsome profits and the opportunity to to resell their lots through the development company’s agents.
Only the equestrian center was built, according to the complaint.
The deal was unusual from the start, Kuperberg said. The plaintiffs were told they needed no money down and could get 100 percent financing. They were told the $54,000 earnest money required by lenders would be paid by the developer for them, in exchange for a second mortgage on the land. At closing, the Southern Group received a $32,400 commission on the sale, according to the complaint.
The judge’s order also released the plaintiffs from that second mortgage.
While the plaintiffs knew they would be making mortgage payments on the land, they expected to be able to flip their lots for a profit, Kuperberg said. Instead, appraisals fell. Some of the other lots in the development were recently sold at a tax auction for $1,000 each, according to the complaint. Meanwhile, Kuperberg said his clients have paid nearly $300,000 in mortgage payments. The actual damages awarded by the court reflect that figure times three.
Ann Mihalik testified at the hearing that she visited the property that morning and was stunned to see how little had been done. She had to use a four-wheel drive vehicle to get to her property because no roads had been cut.
Kuperberg said he filed the lawsuit as a civil RICO complaint in order to seek triple damages. The complaint contends the defendants “actively participated in a fraudulent scheme to artificially create inflated prices for properties in the development.” The suit alleges that the defendants “employed a scheme to defraud the Milhaliks, obtained money from the Mihaliks by means of untrue statements of a material fact.”
The judge signed Kuperberg’s proposed order and filled in a blank for punitive damages with $10,000,000 written by hand. Kuperberg said he actually asked for more: $28 million. But he said the judge expressed concerns about that large a verdict standing up on appeal.
The case is Mihalik v. Southern Group, No. 12-CV-00146.