An Annapolis developer has agreed to refund more than $800,000 in mortgage payments to 89 property owners in recreational developments around Virginia's Lake Anna following an investigation by the Department of Housing and Urban Development into the developer's sales practices.
The settlement agreement stems from the failure of development companies owned by James C. Foote to register sections of Pine Harbour and Bluewater subdivisions with HUD as required by the Interstate Land Sales Full Disclosure Act that regulates lot sales in recreational land developments still under construction. Foote, who admitted no wrongdoing in the agreement, said it was an oversight that he failed to register the subdivisions.
Foote and his organization told customers that he planned to build a "Beach Boat and Racquet Club" on the lake, which the former employes said would cost $1 million. The club, which is planned to include tennis courts, swimming pools, hot tub, a bar and dining room, has not been built and Foote has yet to obtain a building permit to begin construction.
Foote said he has always told buyers he will build the club this year. He said last year his plans have been scaled down considerably from the version shown customers when they purchased lots.
Foote promotes Lake Anna land sales with a glossy 16-page color brochure that includes a picture of him, bare-chested, in a naval uniform calling himself "Admiral 'Big' Foote" and urging buyers to "Join the Lake Anna Navy."
The cover photo shows a motorboat speeding through blue water. Large letters emblazoned across the bottom proclaim, "Virginia's best kept secret . . . Lake Anna."
The photograph was taken on the South River in Maryland.
"What difference does it make?" Foote asked. "It's water."
Lake Anna was constructed by Virginia Power as a cooling lake for its nuclear power plants. The 13,000-acre body of water, known for its bass fishing, is the largest fresh water lake within 100 miles of Washington. It is located in the middle of a triangle formed by Richmond, Charlottesville and Fredericksburg.
In 1979, Foote began developing lots along the southern shoreline of the lake in rural Louisa County. He bought farmland at relatively cheap prices, staked off lots, carved gravel roads through the woods and marketed his developments as weekend getaway communities for Washington-area residents.
Foote began an unprecedented winter promotion campaign in 1984 when his company, Lake Anna Real Estate, sold $1.6 million in lots at a time most developers had already closed their doors for the season.
Details about land-sales practices at Lake Anna are outlined in HUD investigative files and court records of a recent lawsuit that Foote won against some of his former salesmen, including sales manager Raymond Scott. Those salesmen cooperated in the HUD probe.
Registration of most large, undeveloped subdivisions was mandated by the 1968 Interstate Land Sales law. The measure was drafted in response to widespread fraud in the recreational land sales industry during the 1960s. It allows HUD to monitor the progress of developments and to assure that buyers receive full disclosure about their purchases.
In most recreational land developments, lots are sold at the same time the project is under construction. Before a lot can be sold, developers are required to give buyers a property report. The report outlines the developers' legal responsibilities to complete the development.
For development sections in the early 1980s, Lake Anna Real Estate sales personnel registered the section under federal law and gave customers a property report.
Frederick L. Greene, one of Foote's former salesmen, testified to HUD investigators, "When Pine Harbour was first being developed, we had a booklet . . . that had all of the . . . warnings in it that you normally see in a HUD report; such as you could lose all of your money . . . and there's no guarantee."
But Greene said, "We were getting a large number of cancellations. People would buy a piece of property, go home and read that, and then call the next morning wanting to cancel. So they the reports were taken out and the cancellation rate dropped substantially."
R. Michael Corbett, Foote's vice president, described Greene's contention as "ludicrous and 100 percent false" and said that the company did not stop handing out reports at that time.
Later, in an Oct. 7, 1982, letter to HUD, Corbett said that Lake Anna Real Estate was not required to register future development in the Pine Harbour subdivision and therefore did not have to give buyers property reports. Corbett cited the section of the law that exempts developments if homes are sold in conjunction with each building lot.
Corbett said in his letter that if the company dropped its home-building plans, "We will immediately comply with the registration that is required."
Lots were sold after Corbett's letter without homes constructed on them. Corbett and Foote said last year that the homes were not built after a financing deal fell through with a Northern Virginia mortgage company and that through an oversight they did not notify HUD.
"We should have filed the HUD report and we didn't," Foote said. "It was just a dumb move on our behalf. There was never any intent to defraud anybody."
Alan R. Stailey, a senior consumer protection specialist who is heading up the HUD investigation, said of Foote, "He's not unfamilar with the act. . . . He's not in the position to say, 'Hey, I didn't know this was what I was supposed to do,' when in fact he had lots of experience with it."
Following HUD's investigation, Foote agreed to contact the property owners who did not receive a property report and asked them if they wanted their money refunded. He told HUD last November that 89 said they did. Foote has agreed to refund the money and is now negotiating another agreement with HUD that will extend the time for him to do so.
The Virginia Real Estate Board recently found that Foote's business "did engage in the sale of real property without being properly licensed." Corbett, without admitting any violations, agreed that the firm would use a licensed broker in the future.
Foote's organization also sold 50 lots in Pine Harbour before the land was subdivided and approved by the county, according to land records. County Administrator William C. Porter said county regulations require that all subdivisions be approved before lots are sold.
Corbett said then Louisa Board of Supervisors Chairman Frank B. Boxley gave him permission to sell the lots prior to subdivision. Boxley said he never did.
To kick off Foote's record-setting sales campaign in 1984, his salesman made their Lake Anna pitches in the skyboxes at the Capital Centre where they took prospective customers to watch Capitals and Bullets hockey and basketball games, wooed customers at the D.C. Convention Center trade shows and advertised in newspapers and on television.
The message was simple: buyers were eligible for future memberships in his lakefront club if they bought any building lot at Foote's recreational subdivisions. Most lots were not on the waterfront and the club was a prominent part of the sales pitch.
The salesman's job was to steer customers to the back lots.
"Our main business at Lake Anna Real Estate was not to sell waterfront lots. . . . We were there to sell back inventory," Scott told HUD investigators.
Priced between $12,000 and $15,000 each, these lots were the ones most people could afford. Lakefront lots were priced as high as $70,000, Scott said in an interview.
"The Beach Boat and Racquet Club gave people who couldn't afford waterfront the ability to live like waterfront people," Greene said.
Scott said in the interview that one way the company obtained lists of potential customers was through drawings and trade shows at the D.C. Convention Center. A large color television set was the offered prize and people were encouraged to fill out entry blanks with their name, telephone number and address.
Soon the contestants received a call from a salesman telling them they had won a television set, Scott said. They could pick it up if they visited the Lake Anna Real Estate office near the lake and listened to the sales pitch. There was no obligation to buy.
The usual prize, however, was not the color television set on display at the trade show, but a small black-and-white set worth $52.
"We gave away one a year," Corbett said of the color television set. "We don't give away one a show."
When customers showed up at the Lake Anna Real Estate office to collect their prize, Foote's salesmen were instructed to follow Corbett's explicit sales instructions outlined in his "Selling Procedures Guide for 1984." His booklet is a mixture of religious fervor and high-pressure sales tactics.
"Ask, and it shall be given unto you. Seek, and ye shall find. Knock, and the door shall be opened unto you," Corbett preached in his lengthy sales gospel.
"Don't misunderstand the meaning of this message," he warned. "It means that in all your endeavors, don't stop halfway through, don't be afraid to sell and close hard, don't let the negative that surrounds you come into your life and distract you from the ultimate goal."
"Closing hard" was of key importance to the organization. It meant trying to make the sale the first time a buyer looked at the property. The salesmen knew most people had no intention of buying on the spot, so the sales force was instructed to make customers believe there was a good chance the lot they were interested in would be sold to someone else.
The tactic described in Corbett's guide is typical of one used for years throughout the recreational land sales industry, according to HUD. Corbett's sales plan worked like this:
The salesman, who was instructed on everything from how to dress to using deodorant and mouthwash, would drive the customers to look at lots in Pine Harbour and Bluewater subdivisions on the lake. On the way the salesmen would use the two-way radio he was required to have in his car. He would call the Lake Anna Real Estate office and ask if a certain lot was available. If it was, he would show it.
If the salesman was having trouble persuading the customers to buy, he would radio back to the office again. This time, instead of asking if the lot was still available, he would ask if it was "open." This was the code word for other nearby salesmen who could overhear the transmission on their own two-way car radios. It meant their colleague needed help. Their standing instructions were to create an impression that there was an immediate demand for the lot their fellow salesman was trying to sell.
"When you hear this transmission, then you should go immediately to that lot, and then show it regardless of the degree of interest that your 'up' customer has exhibited. Your fellow salesman is close to a sale, and needs some help. Help him, because it could be you out there," instructed Corbett.
When asked what he thought about the sales tactic, Corbett replied: "We've done it in the past. I don't think it's deceptive."
Foote used a similar sales tactic nearly two decades ago in his Lake of the Woods development 22 miles west of Fredericksburg. Then, he had his employes pose as a couple who showed up and expressed interest in a particular lot just as the real customers were trying to decide whether to buy.
"We used to do it a lot," said Foote. " . . . I think people need some reason to buy before somebody else gets it. . . . It's helping them to make a decision. Either they want it now, or they don't.
"Talk to the auctioneers," Foote said. "They have shills in the audience all the time. It starts things going. It's part of promotion."
Both Foote and Corbett said they no longer use these tactics. They said salesmen are still required to have two-way radios in their automobiles for inventory control.
As Corbett said, "You have to be more sophisticated in your approach."