Nearly two years ago, a Baltimore builder named Jerrold Gottlieb bought a large but ailing resort development on the Chesapeake Bay in Southern Maryland.
Residents, including many retired Washingtonians, hoped that his purchase would lead to the construction and purchase of new houses, road repairs and restoration of marinas, stables, a corral and other facilities the previous owners had sold to raise money.
Indeed, some of those things happened at the Chesapeake Ranch Club, which since has been renamed Chesapeake Shores. But development has not proceeded as fast as the residents and Gottlieb had hoped, for the major financier of this Calvert County project is Old Court Savings and Loan.
The Baltimore thrift ran into management problems in the spring and is in state receivership. Its funds are frozen. Moreover, the state of Maryland has filed a $200 million civil fraud suit against the owners and principals of Old Court charging risky investment practices, among other things, and Gottlieb recently was added as a defendant in that suit.
"This is an extremely delicate time for us," said Gottlieb's spokesman, Bob Meade. " Things have slowed down a lot."
The effects on Chesapeake of Old Court's troubles surfaced as early as the spring, after Old Court President Jeffrey A. Levitt made and then withdrew a $2 million bid to buy the bankrupt Chesapeake Ranch Country Club, which had the county's only golf course.
Old Court planned to lend money to a syndicate of investors that had agreed to buy 300 lots, once homes were built on them, according to Gottlieb. This "end financing," the last phase of Old Court loans, has been delayed by the thrift's troubles, Gottlieb said.
The state agency that has assumed management of Old Court delayed Gottlieb's attempt to draw portions of a $2.2 million construction loan for the project because Old Court "had no record of this loan" in the appropriate courthouse, according to Gottlieb.
"After haggling with the conservator over who should pay the recording costs, I paid it," said Gottlieb, who said he then received the funds.
Recently the state stopped paying Gottlieb the road maintenance fees and monthly dues that Old Court, as owner of some Chesapeake Shores property, owed, according to Meade. Meade declined to elaborate.
Old Court was the first financial institution that Gottlieb approached when he was seeking a loan to purchase the Calvert County development of about 6,000 lots. Gottlieb said he realized at the time that his prospects for getting a loan were not the best, because he had been in corporate and personal bankruptcy and had been rejected for a Visa credit card.
Also, the property was in litigation over more than $1 million lot owners allegedly owed in dues and fees.
"I don't think a typical banker would be crazy about making a loan for the Ranch Club, because it was a very complicated situation," Gottlieb said. "A lot of bankers don't like to get involved in complicated dealings."
Gottlieb said that he wanted to give Levitt, a longtime friend and business associate, first crack at making what Gottlieb thought was a good investment. Levitt's lawyer said his client could not answer any questions about his relationship with Gottlieb or the resort community because his client is under investigation as part of a state probe of savings and loan activities.
Old Court came through, and Gottlieb received approval for loans totaling $7.7 million. Old Court lent Gottlieb money for both acquisition and construction, an unusual practice in the real estate business, according to financial experts.
"Normally, you'd try to get two or three different lenders on the second loan," said an official of Chevy Chase Savings & Loan. "It's a way of hedging the risk."
Gottlieb has completed 75 of the first 100 modular homes he planned to erect at Chesapeake Shores, according to Meade, and workers are laying TV cable, which he hopes will entice buyers. He has made improvements to the beach at man-made Lake Lariat.
Residents learned that the project was in some trouble this summer, months after the runs on deposits began at Old Court and threw the Maryland thrift industry into turmoil. At a meeting with property owners, Chesapeake Shores property manager William Winn said the resort's fiscal posture was precarious, according to a tape recording of the meeting.
Gottlieb, he said, was spending money "out of his pocket" for improvements to the development's roads and lake beach.
"He wants to sell houses and sell lots . . . , " Winn said at the meeting. "I gotta tell you, I think he's a great guy, trying to take on this thing that's in the red."
Some residents remain unconvinced.
"We're just waiting, taking it a day at a time," said Lee Swisher, president of Chesapeake Ranch Club Members United, a group critical of past club management and skeptical of this one.
Gottlieb, 48, bought Chesapeake Ranch Club Inc. by purchasing the stock for an undisclosed sum on Feb. 1, 1984. The next day he was discharged from the personal bankruptcy he had declared in August 1979.
To help accomplish his goals, Gottlieb created several corporations. He formed JGOC Holding Co. Inc., named for himself and Old Court, to hold the Ranch Club stock he bought.
He formed Crest Homes, to place modular houses on lots that the Ranch Club corporation either owned or acquired. He formed Crest Management Co. to rent and manage the houses that Crest Homes brought in.
Bay Side Acres, a wholly owned Old Court subsidiary, was formed to transfer property from the Ranch Club corporation to Crest Homes.
Gottlieb became president of all the corporations. As an employe of Bay Side, he is paid a share of the profits.
Gottlieb said that under his direction the Ranch Club corporation acquired tax-delinquent lots at public auction for $775 to $3,000 each, with most in the $800 range. The lots then were transferred from Ranch Club to Bay Side to Crest Homes.
Gottlieb said Crest bought 100 lots from Bay Side at double what Bay Side paid Ranch Club for them.
This transfer of lots among three interrelated companies is known as "flipping" in the real estate industry.
In this case, the value of the lots increased from $2,000 to $4,000 simply by their sale between the separate corporations, according to Gottlieb.
The Ranch Club investment was not the first time that Levitt helped him, Gottlieb recalled.
In 1979, after filing for personal bankruptcy, "I was within weeks of having my house foreclosed on," Gottlieb said. Levitt, who then was president of First Progressive Savings and Loan and a close friend of Gottlieb's employer, arranged for a second mortgage on Gottlieb's home to pay off the first.
Later, Gottlieb built houses for Levitt in Harford County and put together developments in Baltimore County and Fairfax County. For all these projects, Old Court lent him $8 million.
Gottlieb is the son of poor Russian-Jewish immigrants who lived first in Cuba and then in Baltimore, in an area just east of the city's recently redeveloped Inner Harbor. After graduating from Johns Hopkins University in 1958, Gottlieb sold life insurance and then started putting together a group of investors to buy small parcels of Ocean City, Md., land.
In 1974, he founded G&B Builders with Sol Bank, a Baltimore builder. The firm did some rehabilitation work in Baltimore, then defaulted on $2.2 million in contracts on 17 city-owned properties in 1976-77.
G&B ran into trouble, by Gottlieb's account, because of his preoccupation with problems plaguing a 309-lot development he was building near Ocean City. He ran out of funds for the development and declared corporate bankruptcy in 1978.
Citing a "failure of construction business," Gottlieb filed for personal bankruptcy in August 1979. He listed $83,329 in assets, including a 1976 Cadillac, and$2.9 million in liabilities.
The Chesapeake Ranch Club was begun in 1957, when second-home developments for the middle class were starting to attract buyers and investors from the Washington area. A Chevy Chase liquor dealer who started the project with 250 acres sold it in 1960 to Robert A. Philipson, a Washington accountant. Philipson eventually turned over the project to his son Bruce, who sold it to Gottlieb.
Over the years, the hilly and heavily forested project acquired stables, a rifle range, dance pavilions and guest motel units.
By 1981, land sales had slowed and Ranch Club declared bankruptcy. The amenities were sold and closed. Many lot owners stopped paying dues and fees, in protest, and lengthy litigation ensued.
Allegations surfaced in the court cases of padded payrolls and lavish corporate spending of club funds for fancy cars, gas, food, rent and mortgage payments.
Although lot owners lost the most recent round of litigation in Baltimore federal court, they filed a new lawsuit in August, naming Gottlieb and the previous owner as defendants and demanding an accounting for fees and dues, plus $43.7 million in damages. No date for the trial has been set.
Gottlieb recalled that Levitt tried to discourage his interest in the Ranch Club venture. But when Gottlieb declared that he planned to proceed with or without Levitt, he said, Levitt agreed to help.
"Jeffrey didn't like to lose a deal," Gottlieb said.