Rarity Bankruptcies

3 Rarity firms file for Ch. 11

RMT Cottages files before foreclosure sale

By Josh Flory knoxnews.com
One of East Tennessee's best-known development companies, Maryville-based Rarity Companies, took another hit this week as three of its related firms filed for Chapter 11 bankruptcy protection.
RMT Cottages LLC was among the companies that filed Chapter 11 petitions on Wednesday, two days before a scheduled foreclosure sale at Rarity Mountain, in Campbell County. RMT is the developer and original owner of lots at Rarity Mountain, and Maryville developer Mike Ross, the head of Rarity Companies, is RMT's manager. Ross could not be reached for comment.

Ross' original plans for Rarity Mountain included approximately 800 custom homes, a 45-unit condo hotel, and a shopping district with some 100,000 square feet of retail space. While those plans didn't come to fruition, a significant amount of construction was performed on a golf course designed by famed designer Pete Dye and his son, P.B. Dye.

The project would have brought much-needed economic development to a struggling area in the coal country along the Kentucky-Tennessee border, but it's not clear what will emerge from the bankruptcy proceedings. William Baird, the mayor of Campbell County, said Friday that the city of Jellico was "looking for Rarity Mountain to give them the shot in the arm that would bring them back to prosperity. And it hasn't materialized."

Baird sounded an optimistic note about the development's eventual prospects, though. "I'm sure that it'll eventually come to fruition; it'll just take a while," he said.

Two of the entities estimated that their assets and liabilities both fall in a range between $10 million and $50 million. PM Properties estimated assets between $1 million and $10 million, along with estimated liabilities between $10 million and $50 million.

The bankruptcy filing forestalled a foreclosure sale that was slated to be held on Friday at the Campbell County Courthouse in Jacksboro. According to a legal notice published in the LaFollette Press, the sale was prompted by a default on a loan from GreenBank to RMT Cottages. David Fielder, an attorney for GreenBank, said Friday that because of the bankruptcy filing, "we've got to re-assess where we're going."

"We'll evaluate what's happening in the bankruptcy proceeding and then make whatever appropriate arrangements we need to sell the property later if the bankruptcy is unsuccessful," he added.

Fielder said that as he recalled it, the foreclosure was to cover the residential portion of the project, but said he didn't have the details in front of him.

Over the years, Ross built Rarity into an East Tennessee real estate juggernaut, with luxury developments from Jasper to Jellico that attracted homebuyers from across the country. But the national recession and collapse of the real-estate market were body blows for Rarity's target market of retirees and second-home buyers, and the company has been battered by legal and political woes. This week's bankruptcy filings were among the first filed by Rarity companies.

Last year, GreenBank bought most of the unsold portion of Rarity Club, a Marion County community on Nickajack Lake, at a foreclosure sale. That project is also the subject of at least two lawsuits.

Rarity Rivers, located on Chickamauga Lake near Dayton, Tenn., ran into financial trouble as Ross partner on the project, Cleveland businessman Steve "Toby" McKenzie, filed for bankruptcy protection.

The developer is also facing legal trouble for the Rarity Bay and Rarity Pointe developments in Loudon County. Mike Dunavant, a district attorney general from Ripley, Tenn., is looking into property assessments and irregularities in documents linked to lots sold at Rarity Bay in Vonore.

Also last year, a former business partner filed a lawsuit in U.S. District Court against Ross and a slew of other defendants, alleging among other things that property was sold based in part on false representations and that a portion of the proceeds from lot sales in various developments were diverted for the personal use of Ross and/or others, instead of being used to benefit the developments in which the lots were sold. At the time, an attorney for Ross said the developer strongly denied the allegations.

Rarity Mountain has also been the subject of litigation, with several people who purchased lots filing a lawsuit in U.S. District Court in Colorado, alleging among other things that investors were enticed with promises of an "outrageous" return of 500 percent or more on their investment. Ross said in 2009 that the suit had no merit, and the case was dismissed in January after a settlement was reached.

By at least one measure, it appears that Rarity Mountain properties may have lost a great deal of their value. In June, lots at four different Rarity projects were sold at an auction after the lot buyers were hit with foreclosure proceedings by First Tennessee Bank. One Rarity Mountain lot that had sold for $445,000 in 2006 was sold at auction for only $5,500.