April 22, 2004
IN
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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."
WHO'S ACCOUNTABLE?
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."
Helpful
hints
For tips on Internet commerce:
For information on Shelter Cove:
- Humboldt County Planning and Building
Dept: (707) 445-7541. (Building
restrictions, requirements for permits, etc.)
- County Tax Collector's office: (707) 476-2450. (Public auction information, parcel
ownership records, etc.)
- Shelter Cove Resort Improvement District:
(707) 986-7447.
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