Above: Computer displaying a view of the steep terrain of Shelter Cove.
by EMILY GURNON
GIOVANNA MARTINEZ STARTED THINKING about buying property online after she and some friends had a conversation about how good an investment land could be. She surfed eBay for properties in California, and came across "fantastic" pictures of Shelter Cove, an area the 33-year-old accountant from Pleasanton, in the Bay Area, had never visited.
Martinez wanted to learn more, and soon found a number of Internet auction sites that included Shelter Cove parcels.
She couldn't believe what she was seeing.
"I was so excited because I thought, God, beach property for $4,000 or $6,000 for a third of an acre. That's unheard of," she said. "Pleasanton homes cost $800,000." The prospect of living near the ocean was particularly attractive for Martinez when she imagined building a place that her elderly father -- a native of Genoa, Italy -- could also share. "He loves the ocean, the smell of the salt sea. So I thought, wouldn't it be great if he could spend the last days of his life or years of his life enjoying the ocean like he did when he was a kid?"
She was assured by the seller, Henderson, Nev.-based real estate salesman Jaime Medina, that the property was buildable, that it was a great investment, that he had sold parcels there for years and knew the area well. She called Humboldt County and confirmed that he was the legal owner. So, last fall, Martinez and her husband bid on two lots on Cedarwood Court, using $12,480 she had saved over the last several years. Almost immediately, she was told she was the winning bidder and informed that her money must be received within 24 hours. Martinez sent one cashier's check for $6,240 and a personal check for the same amount.
The doubts began almost right away.
"Over the weekend, I kept doing more research and more research. I called two of the local [Shelter Cove] Realtors. They said they would never, ever list property on that street because it was just too steep," Martinez said. One told her, "I wouldn't give you 50 cents for that lot."
When she called Medina, who had paid only $3,500 for one of the lots last year, he said the deal was done. She was able to put a stop-payment on the personal check, but the other $6,240 was gone.
"I felt like, oh my God, what have I done? I lost my savings; I acted stupidly," Martinez said. "It was very heartbreaking. You just get caught up with all these pictures. They're just selling you a dream. Who wouldn't want to live in a house with a view of the ocean? When I hear the name Shelter Cove, I get nauseous."
A LONGTIME SCAM
The problem of unbuildable lots is not a new one for Shelter Cove. (See Journal cover story, "The Shelter Cove saga: From land scam to popular resort," Aug. 28, 2003.) Ever since the 4,189-parcel area was developed in 1965, many buyers have defaulted on their taxes after finding that their properties were virtually worthless -- too steep to build on without a massive investment, or, in the upper half of the development, which is not connected to the sewer system, simply too steep or too small to put in a septic system. (The county will not issue building permits for parcels that need septic systems if they have a greater than 30 percent slope.)
Buyers have been fooled from the earliest days of the development, when some were flown in on private planes from Southern California, and wined and dined during an all-day sales pitch. What's different today is that the scams continue -- via Internet auction sites.
A number of auction Web sites, including eBay, Bid4assets.com, GovernmentAuction.com [screenshot at left], and JaimeMedina.com, offer or have offered Shelter Cove lots for sale. The sites typically make no legal claims as to the build-ability or value of the lots, urging buyers via small print to "do your due diligence" before bidding. Still, the language is clearly intended to present a certain image. The descriptions abound with hyperbole, if not outright lies.
"Beautiful coastal resort investment," "Fabulous residential lot," "California's best kept secret," "Perfect for a retirement homesite," "This is a great investment!!" The written material is accompanied by stunning photos of the cove -- most of which have no relation to the land being offered except some degree of proximity. (One site prominently displayed a photo of a large beach-front house, when the auction was for a piece of vacant land. [Screenshot below right] )
Like much of Shelter Cove, Martinez's "Fabulous Residential Lots," as they were described on Medina's Web site, were located in a heavily wooded area that consists of nothing but trees and the street itself. The road, littered with brush and fallen tree branches, appears to have not seen any vehicles for months -- and its steepness would discourage many a would-be visitor.
One Nevada bidder who bought a Shelter Cove lot on Bid4assets.com said she reneged on the deal when she found out she could never get a building permit for her lot; it was located too close to a creek that fed into the development's water supply, and the required septic system could taint the water.
"The pictures and information all indicated that this was a genuine buildable property," said the woman, who declined to give her name. "Bottom line, we told Bid4assets we would not honor the bid because we were misled." The seller then turned around and offered the same lot on eBay, she said.
The mere fact that a Shelter Cove lot is being offered on an online auction does not necessarily mean it is worthless. But at least some of the parcels seen online within the last month were sold previously at public auction -- which means the previous owner decided to relinquish it to the county rather than pay the back taxes.
That in itself should raise red flags for people, said Humboldt County Tax Collector Stephen Strawn, who is obligated by law to resell defaulted properties at public auction. Someone who knows that their property is worth something is likely to sell it rather than simply stop paying the taxes, he said.
CROOKS IN CYBERSPACE
Real estate is one of hundreds of categories of merchandise sold by online auctions. Purveyors of questionable pieces of land hold no monopoly on the scam market.
"Online auction scams of all kinds are our No. 1 complaint," said Susan Grant, director of Internet Fraud Watch, a project of the Washington, D.C.-based National Consumers League. Whether you're looking at antiques or real estate online, "things can sound a lot better than they really are."
In fact, in 2003, a record 37,183 complaints were reported to Internet Fraud Watch -- and 89 percent of those involved online auctions. California led the list of "top five crook locations," according to the group.
Though most online commerce is perfectly legitimate, scammers find the Internet to be a convenient tool, Grant said. "If you're a crook and you're trying to reach a group of potential victims, the Internet just increases your reach." And the buyers? "For whatever reason, people seem to trust things on the Internet more than they would with someone who shows up at their door trying to sell them something." The fact that real estate sales are on the high end of the price range among auction items makes it even more crucial for buyers to do their homework, Grant said.
The buyers of unbuildable lots are not the only ones forced to contend with what seems like an intractable problem. The local real estate brokers in Shelter Cove, whom no one has accused of malfeasance, say they are affected by it every day.
Asked if he sees the ripple effects of the Internet scams, Vern Bonham of Shelter Cove Realty laughed. "We get 40 calls a week if we get one!" said the Shelter Cove native. "It's crazy."
People call saying, "I'm thinking of bidding on this lot online -- what is it like?" or, worse, "I just bought one," Bonham said. "The heck of it is, only the smart ones call us. Most of the people who call on the auction properties have already purchased them." He said he warns people of the problems and advises them to come and look at a lot before they purchase.
He and others knowledgeable about the cove, including Strawn, the tax collector, estimated that as many as half of the lots are unbuildable. In the last assessment period, 2,459 of the 4,189 lots, or 59 percent, were valued at $10,000 or less, far cheaper than most buildable lots are selling for in Shelter Cove. Seventeen percent, or 716 lots, are listed as "low value," or worth less than $2,000, and therefore not subject to taxes. However, the county must still send out tax bills to collect the assessments placed on the lots by the Resort Improvement District, the agency that provides utilities and fire protection for Shelter Cove. (Strawn said his earlier estimate for last year's Journal story of 15 percent of the lots being unbuildable was "very conservative.") So far, only about 400 homes have been built there.
"The Internet is one of our best mediums for getting information," Bonham continued. "But people who like to take advantage of people use it. There are so many people that are getting ripped off. This is the proverbial West Coast swamp land."
Bonham said he got angry at one seller, the same Jaime Medina who sold Giovanna Martinez her lots, and wrote to him at one point after he saw how Medina was describing four Shelter Cove lots on eBay. "I sent him an e-mail saying, `You're misrepresenting these properties,'" Bonham said.
Reached at his Henderson, Nev., office, just outside Las Vegas, Medina said he did not have time to answer a reporter's questions. He said only that he "knew Shelter Cove," but had not seen any of the properties advertised on his Web site.
The Las Vegas office of the Better Business Bureau said that it had received two complaints about Medina, and that he has an "unsatisfactory record" with them. One worker there said, "He swears up and down he's not a company. He didn't quite grasp the concept that yes, you are a business, and you should respond to complaints. He didn't quite get that."
THORNY LEGAL RECOURSE
Real estate brokers and agents licensed in California are required by state law to disclose any potential problems they know about a property. Private owners, too, must comply with the real estate disclosure requirements of California Civil Code Sec. 1102 -- generally, that they must disclose problems -- but that only applies when the land has one to four dwelling units on it. No such disclosure requirements exist for empty lots.
However, the seller of an unbuildable lot may be successfully sued for what's known in the legal world as "negligent misrepresentation," according to Geri Anne Johnson, a partner with the Harland Law Firm LLP in Eureka, which specializes in real estate law. If a person makes a claim about a property -- that it can be built on, for instance -- without knowing whether or not it can, with the intent of fooling the buyer into acting on it to their detriment, the buyer may have a case.
But, in the world of Internet sales, another complication arises. What if the seller or the real estate agent doesn't live in California? What if neither the buyer nor the seller lives here?
"Your local state court -- where traditional power usually stops at the state line -- simply may not have the power to make a binding ruling over an online seller based in another state hundreds of miles away," according to an online article by Nolo, the self-help law service based in Berkeley. (See "Cyber Squabbles: Where do you sue?" at www.nolo.com.)
In the case of Shelter Cove, a California buyer would probably have no trouble convincing a court that it has jurisdiction over an out-of-state seller, because the property itself is located here, said Rich Stim, a practicing attorney and senior editor at Nolo. A buyer in Oregon, however, might have a harder time getting his case heard in an Oregon court.
Hani Durzy, a spokesman for eBay, said the online site has "mechanisms in place for people who feel that an item was significantly misrepresented to report that to us." But, he added, "There are 21 million items for sale on eBay" at any given time. "We do not look at listings before they're posted on our site. We rely on community vigilance."
Everyone from the tax collector to the head of the Resort Improvement District to the local real estate agents in Shelter Cove agree: The unbuildable lots are a problem, and the Internet sales just make matters worse. But they disagree on who is responsible for fixing the whole thing.
Strawn, the tax collector, said he is required by law to sell lots that become delinquent and remain in arrears for five years. He is not allowed to take them off the tax rolls, he said. At public auction, he advises bidders on where to go for information about what they can or cannot do with the lot.
Richard Culp is general manager of the Shelter Cove Resort Improvement District, responsible for providing utilities, fire protection and recreation to the local residents. He said he, too, hears the complaints about unbuildable parcels, but insists those lots make up only "a handful" of the total. He also said he's powerless to do anything.
"We have no authority other than to serve utilities. We don't have anything to do with the selling of property."
The county accepted the development back in the `60s, and now "washes its hands" of Shelter Cove, Culp said -- including ignoring the development's deteriorating roads.
Culp said last week that he did not know of any lots that the county collected no taxes on. "I'm not aware of any instances where the county has no taxed value but [the tax collector] is continuing to send out an assessment on behalf of the district. That is something that we could correct. Then, I agree, the district's assessments on that property would not be appropriate."
The district's annual assessments include a "special utility tax" of $80 per parcel and a "fire protection tax" of $25 per parcel.
When told this week that the number of parcels assessed at less than $2,000, and therefore not taxed, came to 716, Culp gave a different statement.
The under-$2,000 assessment is merely "a starting point for looking at whether or not lots might be buildable. I don't know by what process that devaluation took place. Somebody has to look at these on an individual basis and determine that they're not buildable. There's nobody with the incentive to make that happen."
If the Shelter Cove development were proposed today, it would never be approved, said Kirk Girard, director of community development for Humboldt County. Current law requires county officials to verify that any proposed lot be "suitable for its intended use." In other words, if it's zoned residential, you darn well better be able to actually put a house on it.
But the damage is done, Girard said, and the laws of the marketplace prevent the county from doing much about it.
In the case of some of the lots, "unbuildable" is a function of economics, he said. You might be able to build if you wanted to put in a foundation that could cost 10 to 20 times what a standard foundation would, for instance. That's up to the owner. "We don't have any obligation to take unbuildable lots off the market. It's just not a role that local jurisdictions can do, because it's a taking [of private property]. It's somebody's private asset. Government doesn't have the right to go in and take somebody's private asset." (Yes, the county can condemn a building, but it cannot do the same with raw land, he added.)
A POSSIBLE SOLUTION
Perhaps most promising in the way of solutions is an idea hatched by Peter Dal Poggetto [photo at right] , a former San Jose education specialist who bought a house in Shelter Cove two years ago. Last year, he proposed to the Resort Improvement District's board of directors that an arrangement be made whereby the owners of unbuildable lots could donate them to a land conservancy. The board formed a committee, with Dal Poggetto as the chair, to look into the possibility. Since then, he has talked with the Sanctuary Forest, a Whitethorn-based group, and the California Coastal Conservancy.
"What really got them interested is the fact that it borders on the King Range," Dal Poggetto said, referring to the 60,000-acre national conservation area just north of Shelter Cove run by the Bureau of Land Management, with 80 miles of hiking trails from the beach to the 4,100-foot King Peak.
At this point, the committee is waiting to hear whether they might be able to get a grant to do a feasibility study on the land transfer, which the Coastal Conservancy says is necessary.
"I kind of look at this whole thing, if it happens, as us righting a wrong, the wrong that was done when this thing was put together," Dal Poggetto said. "We may be giving back to nature what greed tried to take away.
"It would reduce a lot of the stuff we see on eBay" and other online, as well as live, auctions, he continued. "It's unnecessary and it's unfortunate, because people are getting burned, and we might be able to put a stop to it."
In the meantime, Shelter Cove lots continue to be bought and sold -- both through conventional means and via the Internet.
In fact, the area, which has about 400 homes, is experiencing an increase in building activity. (See the Journal's story, "Boom Time," Sept. 4, 2003.) There were 12 building permits taken out for new construction in the first six months of last year. Since Jan. 1 of this year, there have already been 14. A small hike in terms of actual numbers, but those constitute a 90 percent increase over last year if the trend continues.
The growth reflects the county's overall building boom, said Girard, the community development director. From 2001 to 2004, there has been a 30 percent increase in residential permits issued, including new construction and remodels.
Baby boomers are coming of age, California's population is growing, there's a dwindling supply of coastal land, interest rates are at their lowest level in decades -- all of these factors contribute to Shelter Cove's prosperity, said Gene Persall, a broker who has worked for the past 20 years in the town. That, in turn, affects the live and online auctions, which are seeing many more bidders, he said.
"It's been a frenzy -- people are bidding these things up," Persall said. "People are buying auction stuff for $14,000 or $15,000, whereas before you might have gotten it for $4,000."
Still, $15,000 may seem like nothing if you think you're buying paradise.
Persall estimated that a buildable lot up the hill will cost $25,000 to $40,000. (Bonham, the other broker, said a "really nice lot with a view" in the upper area would go for $60,000 to $125,000.) At the high end, a really spectacular one, a small, flat parcel across the street from the ocean, just sold for $295,000.
ABOVE: Peter Dal Poggetto's Shelter Cove home, built successfully in the 1970s in part because it occupies four adjoining parcels.
ABOVE: The view across the street at a lot that appears far too steep to build on.
'THE DIAMOND OF THE NORTH COAST'
Bonham said many of the people he sells to come from urban areas they want to escape. "Shelter Cove is the diamond of the North Coast," he said. "This place is stunning. This is what Santa Cruz was 40 years ago. And it's getting better." A couple he showed around last week saw a whale breach right in front of them. "Those folks couldn't sign fast enough," Bonham said.
Still, there are reasons why Shelter Cove has remained a largely lost town on the Lost Coast, said Todd Santos, 72, an Auburn (Placer County) engineer who bought a home there in 1998. "It is very remote by any standards. The young set are used to traveling on a freeway and getting [places] in a hurry, and it takes 45 minutes to get from the freeway out to the coast. It's just not convenient. For the older generation, there's a problem with medical services, and a lot of people just don't want to be out there and have a heart attack and face a 45-minute drive to a very small hospital in Garberville, or a helicopter flight into Eureka."
Santos and his wife enjoy their home, though he said he's also made what he called unwise purchases of unbuildable Shelter Cove lots at public auctions. In at least one case, he's let the parcel go for taxes. "I've got a terrific view from that lot that I refuse to pay taxes on," he said. "There's a bunch of lots like that. Unless a person just wants to set his chair out by the side of the road and look at it, there's not much you can do with it."
© Copyright 2004, North Coast Journal, Inc.