Developer Brett Harper had big plans for downtown Snellville: a high-end office and retail center with a burbling brook running through the center.
But Harper's funding dried up last fall after his lender, The Community Bank of Loganville, was shut down by federal regulators.
Bulldozers stopped in mid-scrape, exposing raw, red dirt at the Gwinnett County site. When it rains, silt and mud wash into a nearby stream, threatening fish and other aquatic life.
Thousands of sites across metro Atlanta have been similarly halted as developers and builders go out of business amid one of the worst real estate slumps in memory.
The result: a ghost town of half-built homes, vacant lots and crumbling construction sites, each with the potential to cause environmental damage. The problem has fallen squarely on the shoulders of banks, which have foreclosed on many of the stalled projects.
The stakes are high. The cost of maintaining large sites can run into the tens of thousands of dollars — quickly eclipsing the value of some properties, such as lots in unbuilt subdivisions in the outer suburbs.
Banks face thousands more in fines should damage occur on their watch. They may also be forced to clean up polluted waterways, an expense experts say could reach the low six figures.
It's unfamiliar territory for a profession more comfortable with spreadsheets than silt fencing. Bankers are scrambling to hire work crews to shore up properties and packing seminars to bone up on arcane environmental rules and regulations.
"It's a complete shift and refocus of your job," said Gary Guthrie, a senior vice president at United Community Bank, the state's third-largest lender.
The bank has dedicated an entire team to deal with distressed real estate the bank now owns, from maintaining sites to marketing them for sale.
"You go from your goal is to make good new loans and produce income for the bank, where the goal really now is in large part to deal with real estate-related problems."
So far, damage like that taking place at the stalled Snellville project is the exception, experts say.
Most foreclosed construction sites are being maintained by lenders, said Bert Langley, a manager at the state Environmental Protection Division. And those left unprotected got a boost from spring rains, which helped build a carpet of weeds and other vegetation to prevent erosion.
Langley said his office, which oversees metro Atlanta, has not issued any citations or fines against banks during the recent crisis. Some cities and counties have reported minor problems, he said, though nothing requiring state action.
But the potential for widespread problems exists, Langley said. Many vacant lots in North Georgia are set in rugged, steep-sloped terrain, where too much rain could cause large sections of earth to erode and wash into streams.
"As we go further and further away from these sites having anyone maintain them, it's going to get worse and worse," Langley said. "Banks are recognizing they've inherited huge responsibilities."
Until the recent financial crisis, banks occasionally foreclosed on unfinished projects or vacant lots. But when they did, they quickly unloaded the property to new investors, avoiding questions about long-term maintenance.
State environmental officials said many bankers didn't even know they were responsible for maintaining foreclosed construction sites.
"They've never owned things like this for long enough for it to become an issue," Langley said.
The issue has compounded an already difficult situation for many banks.
Do they hold on to foreclosed property, hoping the market turns and they can sell it at a higher price? Or do they unload property more quickly to avoid paying ongoing maintenance costs?
Some banks in the Atlanta area are saddled with massive inventories of vacant lots — land bought for new home construction, often with utility pipes jutting out of the ground.
With so much supply, the value of lots has dwindled. Some lots have been appraised at little or no value at all, once the cost of maintaining the property is factored in, said Walt Moeling, a banking attorney at Bryan Cave Powell Goldstein.
"For a bank, it's generally better to dispose of the real estate, particularly if it doesn't have a short turnaround potential," he said. "Banks don't want to be in the business of managing property as a full-time business."
Some bankers simply aren't bothering to pay attention to erosion control issues because of the expense and headaches involved, experts say, gambling that no issues will arise — and if they do, they won't get caught.
"There are a lot of areas where there's 10 or 20 or 30 or 50 acres that's not got anything on it, not any vegetative cover on it, no asphalt on it — it's just untended," said John Pearson, owner of Cold River, a Cumming-based company that helps banks and other property owners maintain construction sites.
Some bankers say it makes no sense to let properties deteriorate. That will only make them more difficult to sell, said Mark Hancock, managing director of The Private Bank in Alpharetta.
"It's just like owning a home. You have to finish a house, put a fresh coat of paint on it, if that's what it takes to sell it," he said.
Once erosion starts, it can be tough to stop, said Bobby Elliott, who as public works director for the city of Cartersville is responsible for making sure construction sites are in compliance with environmental regulations.
Cartersville, like many parts of suburban Atlanta, is pocked with vacant housing lots — about 700 at last count, Elliott said. No problems have yet occurred in the Bartow County city, he said, but many lots are showing early signs of erosion.
But it can be tough to address any problems. In many cases, Elliott said, banks are foreclosing on the lots, a process that can take months. The banks won't do any work until they formally take over the property, he said.
"It's a no man's land where there's no one we can go after to have the site fixed," he said.
As time passes, the potential for damage grows.
"At some point, it's going to get really bad," he said.
The Snellville development, known as the Boulevards of Scenic, serves as an object lesson for what can happen if properties are not properly maintained.
Silt has washed below some sections of erosion-control fencing into a small creek. In other places, mud has built up so high that it threatens to flow over fencing. A drainage pipe has been vandalized, sending even more mud toward the waterway.
Work stopped on the project six months ago when the lender, The Community Bank, failed. The $13 million construction loan was taken over by the Federal Deposit Insurance Corp.
Harper, the developer, says the FDIC has denied his requests to draw on the line of credit he had with the bank — effectively shutting down the project even though he had been current on his payments. Without funds, Harper has been unable to properly maintain the work site.
In a letter to the FDIC written earlier this year, Harper's attorney, J. Marshall Martin, said the site is deteriorating and has "fallen out of compliance with erosion control requirements," exposing his client to potential fines from state environmental officials.
The FDIC says the work site is not its responsibility. Neither the FDIC nor a bank has foreclosed on the property, leaving the developer in charge.
Brad and Darla Heeter, whose landscaping firm was hired to stabilize the site, said they are owed about $160,000. From their office, located next door to the construction site, they have a front-row seat to the damage that's occurred.
Brad Heeter said the site is an environmental "nightmare" and is surprised state officials have not cited the property.
"It's in bad shape," he said.
Stacy Shelton contributed to this article.
About the Author
