Falling Apart At The Seams

By Lou Gonzales
The Gazette

Road graders, backhoes and drilling rigs thundering up Black Canyon Road have shattered the mountainside tranquility of Cedar Heights.

They are tearing up the peace of mind that residents thought they had bought in the upscale development on the western edge of Colorado Springs and burying what is one of the biggest projects for Cedar Heights' developer.

The heavy equipment is there to fix broken sewer lines and test unstable soils in an effort to shore up the crumbling slope of the mountain Cedar Heights is built upon.

Cedar Heights, home to some of the city’s elite – judges and lawyers, doctors and engineers, generals and CEOs – is embroiled in a class-action lawsuit against developer Steve Schuck; his financial backer, Denver cable pioneer Bill Daniels; and Schuck’s Fred Veitch.

The lawsuit alleges inadequate construction methods have sent the development’s private roads sliding down the mountain. It demands that the roads be brought up to city standards – at someone else’s expense.

Daniels, Schuck, and Veitch have filed a countersuit, demanding that the homeowners call of the legal assault, which Schuck alleges has brought sales of new Cedar Heights homes to a halt.

Caught in the middle are residents unable to sell their homes as the value of the houses, like the lots they sit upon, slips downward.

DREAM BUILT ON A LANDSLIDE

Cedar Heights is a place where the clicking of deer hooves on pavement is all that usually disturbs the quiet. But the mountain community overlooking the Garden of the Gods, despite its outward appearance of being above the cares of the world, was born of controversy.

The original developer, Charles Helenberg, won approval for his dream of million dollar homes on a mountainside  even after city planners nixed the idea, said Paul Grogger, professor of geology at the University of Colorado at Colorado Springs.

“Eighty-five percent of the development is on an ancient landslide,” said Grogger, who in the late 1970s and 1980s was on the city’s planning committee. “We told City Council about the potential for disaster, but they ignored the warning and blithely went along with the developer.”

Backed by $20 million in loans from six now-failed savings and loan associations, Helenberg started developing the site in 1982.

But he had sold only 40 of 100 developed lots when his lead lender, First Federal Savings of Hagerstown, Md., failed in 1985.

The FDIC took over the development, and the picturesque mountain lanes, pitted with potholes and choked by weeds, started buckling and shifting on the steep slopes.

During that time, the FDIC commissioned an engineering survey which found that the roads, by then in a state of advanced neglect and disrepair, weren’t just suffering form potholes and cracked pavement.

“The deteriorating pavement is only a symptom of a major geotechnical problem caused by poor construction,” the survey said. Substandard construction practices such as using inappropriate backfill, improper compaction and poor engineering would eventually cause major road slippage, the survey warned. The only permanent solution: Completely excavate and rebuild all roads and utilities at a cost estimated between $10 million and $20 million.

A succession of developers tried to buy Cedar Heights, but deals fell through – until Schuck bought it in 1992 for $2.2 million, a fraction of its worth.

Schuck, backed by loans from multimillionaire Daniels, was bouncing back from losing almost everything he owned to satisfy nearly $30 million in loans from failed thrifts and other creditors. The development was to be a reputation rebuilder for Schuck, a way to prove himself with a spectacular comeback.

“This was my flagship project,” Schuck said. “I took what was a liability with unsolved problems and changed it into one of the most livable communities in the city.”

The community was transformed into a mountain wonderland with gas lit street lights. By 1996, it hosted one of the most expensive Parade of Homes ever, and Schuck Communities launched a wildly successful ad campaign. The development went from 40 households to nearly 150.

Schuck anticipated at the time that he would pour $10 million into the development. But he got an immediate return on his investment by selling 60 developed lots at prices ranging from $75,000 to $250,000. The potential for another 280 highly desirable half-acre sites in the northern half of the project seemed to guarantee success.

But everything started to unravel in March 1997, when Schuck Communities tried to turn over newly resurfaced roads – private roads he spent nearly $1 million on – to the Cedar Heights Homeowners Association. The roads were supposed to have been maintained by the association since 1993.

A Schuck Communities brochure boasted the roads had been brought up to city specifications.

City officials, though, say the roads do not meet city specifications in areas such as grading and the fill dirt Helenberg built the roads upon.

The homeowners obtained copies of the FDIC geotechnical survey, as well as another survey commissioned by Schuck. Like the FDIC analysis, Schuck’s survey also recommended total rebuilding of the roads and utility infrastructures as the best and most lasting fix, and the only way to get the roads up to city specs.

Even so, Schuck elected to go with one of three less expensive repairs outlined in the survey he commissioned.

“The roads were not in poor shape,” he said. “They were in substandard condition, and I spent millions of dollars on them and other amenities. Some of the residents expressed their appreciation for what we did.”

But a voting majority did not. But they saw the repairs and resurfacing as cosmetic and temporary. Once the transfer took place, they would be liable for upkeep they feared would be extensive and expensive. They refused to take possession of the roads.

“I lived through Helenberg and got burned. So when Steve Schuck came in, I wasn’t quick to sign on to his promises.” Said Chris Tessarowicz.

HIGH STAKES FOR RESIDENTS  

As the legal dispute over the roads rolls through the courts, some homeowners have called in engineers to pin slipping foundations to bedrock as the soils shift and swell, disturbed from their prehistoric resting place by water collecting on road cuts and newly installed landscaping.

City crews twice this month have repaired sewer line breaks. Officials anticipate a third break soon and will make the fix when it occurs. Rich Niles, collections operations manger for the Colorado Springs Utilities water department, reassures homeowners that the breaks, so far, appear to be minor.

But Grogger, the geology professor, is less optimistic.

“There will be slow movement wherever water collects,” Grogger predicts. “There is not a lot that can be done at his point.”

The stakes are high for homeowners. The community association, led by municipal judge Spotswood Williams, warned homeowners their $350-a-year dues wouldn’t cover the potential loss if the residents assumed responsibility for the road. A 1997 letter to residents outlined possible costs of anywhere from $2,000 to $20,000 per lot.

In a development where the average home was purchased for about $300,000, residents can be considered well off. But that doesn’t mean they have unlimited resources to throw at a moving mountainside.

“We’re not all lawyers and doctors. My husband drives a semi and I am an office manager,” homeowner Sheryl Metcalfe said. Her employer, Casa Bonita Homes, helped get her into her dream home. “If I get sued and the homeowners are assessed money, they might as well just take my keys – I just don’t have that kind of income.”

By law, anyone trying to sell a home in Cedar Heights must disclose the legal cloud hanging over the neighborhood. Anyone buying in Cedar Heights will automatically be part of the association class action. And depending on the age of the home they buy -  some of the earliest home in Cedar Heights are not part of the legal imbroglio – anyone moving into the community maybe subject to the countersuit as well. The chilling effect: Only two homes have been sold this year.

“Who would want to buy it with this hanging over out heads?” Metcalfe asked.

The effect is mutual: Schuck has shut down sales operations.

“We cannot sell lots under this cloud of uncertainty," says Schuck, who fears exposing his company to additional liability.

Schuck still believes in the development. The roads are drivable, functional and safe, he says. In this view, the residents want too many guarantees.

“When one lives on a mountainside, one makes a pact with Mother Nature and accepts that not every contingency can be addressed,” Schuck said. “Land moves, and has moved for thousands of years.”

Residents say they’re aware of the potential perils of mountainside living. But they recall that the sales material from Cedar Heights boasted of being within the city limits with “all city services.”

Schuck, who now manages the property for North Colorado Video – the Daniels-owned company that took over the development in May 1995 – closed the Cedar Heights sales office in April and has not been on the property for months.

The remainder of this article is under construction please stop back at a later date.