Suit against developer seen as likely to grow, take years to wrap up
Posted on Thursday, June 26, 2008
The Arkansas attorney general’s office said this week that its lawsuit against Sharp County developer Wayne Watkins will likely expand and could take years to wind its way through the system.
Deputy Attorney General Jim DePriest said that at least one defendant may be added to the suit but it is too early to say whether the office will investigate banks that loaned Watkins millions before he defaulted and left the country.
“The banks might end up losing the most money of all,” DePriest said. “By the same token, it is curious that the banks didn’t discover this problem earlier. You can draw any number of conclusions from that, but they would all be speculative.” For now, he said, the banks aren’t the focus of the office’s investigation.
“We don’t contemplate looking at any of the banks as a defendant in this case, but we don’t close any doors.” Watkins, 59, spent more than two decades developing family and camping resorts along the Spring River. He sold hundreds of parcels of land, mostly to outof-towners looking for a place to retire.
Many of his customers lost their money and the land they thought they were buying when Watkins defaulted on $ 2. 6 million in loans he obtained by using the land he was selling as collateral, according to sources.
Thirty-three additional purported victims have contacted the attorney general’s office since the Arkansas Democrat-Gazette published a series of stories on Watkins’ failed land deals in May. The office had previously received 22 other complaints, one dating back to 2003.
Attorney General Dustin Mc-Daniel filed a lawsuit last week against Watkins and three of his business partners, accusing them of “unconscionable” behavior that violated the Arkansas Deceptive Trade Practices Act.
The full scope of Watkins ’ failed land deals is not known because some people are likely not aware that they paid for land they don’t own.
The office is concentrating on notifying the defendants, DePriest said.
Informing Watkins won’t be simple because he’s said to be living in an unknown location in Mexico. Watkins is wanted on a Sharp County warrant on one count of felony theft of property that is more than a year old.
Officials will try first to notify the defendants by mail and then eventually by asking the Sharp County sheriff’s office or a private process server to locate the men.
The suit names as defendants Watkins, Spring River Beach Club, Biggers Bluff Corp. and Watkins ’ associates Clifton Johnson, Howard Baswell and Virgil Griffin.
After the defendants are served with the lawsuit, they’ll have a deadline for responding to it. The lawsuit will then move on to the evidence-gathering phase, which DePriest anticipates will take some time. None of the defendants have been served with the lawsuit.
“When you think about how many people I’d like to depose or interview as witnesses in this case, I can think of hundreds right now,” DePriest said. “I would expect a long, hard road.” In the meantime, DePriest explained that his office is eager to cooperate with local and federal law enforcement agencies searching for Watkins and continuing their investigations into his business dealings.
FBI investigators already have visited the attorney general’s office to view complaint files, he said.
One possible additional defendant in the lawsuit is former Watkins employee Donna Goodwin, who has used Watkins’ power-ofattorney rights since he left the country, DePriest said.
“We’re not done. At this time we deemed it advisable to leave her out of the defendant category,” he said. “That doesn’t mean we’ve exonerated her in any respect. It’s a strategic decision.” Because Goodwin recently filed for personal bankruptcy, including her as a defendant might have delayed action in the case because the office may have had to petition bankruptcy court before proceeding, DePriest explained.
Goodwin didn’t return a message left at her Ash Flat home.
In 2006, the suit alleges, Goodwin refused to provide a warranty deed to a couple who had completed their payments to Watkins nine years earlier.
Watkins financed many of the deals using installment land sales contracts, which promise a deed once the land is paid off. Until the contract is fulfilled, the land remained in Watkins’ name.
Without a deed, the couple couldn’t record their ownership.
Mark Montgomery, president of Bank of Salem, said Watkins borrowed money from his bank to buy and develop the Turkey Pen subdivision in Sharp County.
“That was his business, selling property,” Montgomery said, adding that his bank saw nothing about Watkins that would have been a red flag. “Selling land on contract is a normal avenue of business. That’s done all over the United States.” Watkins had not yet sold any lots when the bank loaned him money, Montgomery said.
“That’s normal banking practice to finance land and finance development of the land,” he said.
As collateral, some banks, including Heritage Bank and the former Union Planters Bank (which was bought by Regions Bank ), were given lists of people who had signed contracts with Watkins. The lists showed that Watkins expected to take in $ 300, 000 to $ 400, 000 from those contracts, depending on the year.
Montgomery said his bank did not receive such lists.
Randy Dennis, president of DD&F Consulting Group, a Little Rock bank-consulting firm, said banks that received lists of buyers from Watkins weren’t legally obligated to contact those people before foreclosing on the property. Institutions would likely weigh the cost of tracking down buyers with the likelihood of collecting money for the land. Often, he said, foreclosure is the fastest, safest bet.
“You want to collect your money, and regulators may require them to foreclose on the property to get their money and make the bank whole,” he said.
The presidents of Heritage Bank and Simmons First Bank of Searcy declined Wednesday to comment about their banks’ dealings with Watkins. A spokesman for Regions Bank also declined to comment, citing client confidentiality.
The state Bank Department has received no complaints about banks connected with Watkins.
The department regulates banks with state charters, including Heritage Bank and Bank of Salem. The department routinely conducts “safety and soundness evaluations,” said Brent Taylor, the department’s attorney. Examination reports and findings are confidential, Taylor said.
Many of the people who lost money when Watkins defaulted on more than $ 2 million in loans that he had secured using the land they thought they were buying have wondered why banks would lend Watkins so much money, even after his finances began to crumble.
Dennis said banks routinely conduct credit and lien searches and look at tax returns and financial statements before loaning developers money.
“The banks would underwrite the loan as long as he had a clean record,” he said. “Unless he’s known to these bankers for years and years and, you know, ‘Billy Bob is as good as gold,’ I’m not sure why people would keep lending him money.” Because most banking records aren’t open to the public, it’s unclear what rationale banks used in loaning Watkins money and extending his loans.
Banks began filing suits against Watkins over defaulted loans in 2003, but Watkins secured new loans and extensions until as late as 2006 from the Bank of Salem.
“Maybe they didn’t realize he’d defaulted on other people,” Dennis theorized. “In theory, whoever he defaulted on would have reported it to the credit bureau, or it would have shown up on some kind of lien search or some kind of background check on the guy.”
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