Anguish grows as lot owners see Valley of Lakes dream go dry

The once-posh housing
development, now in
financial difficulty, will be
auctioned Friday

By LISA SCHEID
Times Leader Staff Writer

HAZLE TWP. - For Valley of Lakes resident Cindy Irvin, the American Dream of a single-family home with a two-car garage has gone bust.

In 1989, the lot and the then-15-year-old house she owns with her husband were appraised at $92,000.

This year, when she went to a local bank to refinance her home and lower the interest rate on her mortgage from 10 to 8 percent, an assessment set a value of $68,000 for her property.

The refinancing was denied, and Irvin blames her troubles on the financial woes of her housing development.

Like the mountains that surround Valley of Lakes and Eagle Rock Resort, persistent financial troubles have loomed for years over the once grand and posh development that spans four townships in lower Luzerne and upper Schuylkill counties.

Irvin and other residents of the 4,004-acre resort trace the problems of Valley of Lakes to what they say are a string of broken promises from the development owner, Frank Cedrone who is principal owner of CBG, Ltd.

Among those problems:

• Support businesses - restaurants, ski slopes and an equestrian center - have closed for lack of CBG financial support.
• Road, water and sewer maintenance has been sporadic at best.
• Residents who purchased property and homes, buying not only a place to live but the expectation of a luxurious style of living, have received far less than expected.

Now the development's owners owe $23 million to First Eastern Bank.

Because of that debt, the development is scheduled to be auctioned Friday to the highest bidder who can pay off the bank loan.

As uncertain as the prospect of a sheriff's sale is, some residents say one they have now.

Cedrone, of Marlton, N.J., purchased the property in 1986 for between $2.5 million and $3 million. In a July 1989 interview published in The times Leader, Cedrone said he planned to clean and refill Lake Algonquin and repair its dam by the end of 1989.

Today, Lake Algonquin remains dry, and residents such as Hazleton Environmental, have lakefront property without a lake.

In the interview Cedrone also said he planned to open an Arnold Palmer-designed golf cours by 1991.

Today, the course remains unfinished and residents such as Ray Dongelewicz, who retired to Valley of Lakes to be a short walk from the fairway, still can't tee off.

Cedrone maintains the lake and golf course were planned but not promised by those dates. And plans, he has told residents, change. Especially when the economy and his financial backer - First Eastern Bank - don't cooperate.

"If the bank had not become troubled, we wouldn't be in trouble," Cedrone said Friday.

Cedrone said a deal is being worked out with an out-of-state investor to satisfy a portion of the First Eastern debt - enough, he hopes, to stave off the sheriff's sale.

Friday, Frank Hoegen, Cedrone's lawyer, said a letter of financial commitment still has not been signed and he could not release the name or names of potential investors.

But, Cedrone vowed if he can play a role in Valley of Lakes after it emerges from reorganization, the resort will return to its heydays with active ski slopes, equestrian center and restaurants.

"One way or another it's going to be resolved," said Greg Lyon, an attorney in the U.S. Trustee's Office, which oversees bankruptcy proceedings.

Lyons said the debt of Valley of Lakes is one of largest bankruptcies in the U.S. Trustee's Office Middle District, which includes Pennsylvania.

Either the bank will proceed with Friday's foreclosure sale or the U.S. Trustee will force refinancing of the debt. There is no equity in the property, so CBG cannot tough it out, he said.

Hoegen is forthright about the development's financial woes.

As beautiful as the Valley of Lakes scenery is and as much potential profit as a resort promises, the development is not an attractive investment, Hoegen said.

Because of the size of the debt and the size of the property, only a few developers are in a position to invest in the resort. Hoegen said he's been talking to anyone who says they have the capital to invest in such a large undertaking.

"It hasn't been easy, and we've talked to every kook out there," Hoegen said.

Debts galore

Three years ago George Morris gave up his truck-driving job in New York and retired to the Valley of Lakes development expecting to enjoy the amenities of "Northeastern Pennsylvania'a premier resort."

Now that the resort has been in bankruptcy for more than a year[***]

Since declaring bankruptcy in March, 1992, the resort's 11 ski trails and lodge, two restaurants and equestrian center have been closed. [***]

club opened for a few [***] day. the summer of 1992, it was closed completely - the first such shut-down in 15 years.

According to bankruptcy court documents, CBG had six smaller businesses operating in Valley of Lakes development: Trachele Inc. and Chez-Rael Inc. ooperated the two restaurants; Eagle Rock Ski Area ran the ski slopes and [***] Equestrian Center, and Oneida Water Co. operated the water ssytem.

Franzosa Trucking is one of several local unsecured creditors left hanging without remuneration. Unsecured creditors are businesses owed money for service or materials as opposed to secured creditors who have an interest in the property. CBG owes Franzosa more than $56,000.

CBG also owes RP Construction RP Construction of Paterson, N.J. $718,164 for construction; Arnold Palmer Golf Management of Cleveland $489,373 for design of the golf course; No. 1. Contracting Corp. of West Pittston $340,982 for construction; and Chiara Associates of Philadelphia $921,122 for advertising.

CBG owes a total $216,514 in property taxes to the four townships - Black Creek, Hazle, East Union and North Union - and $146,202 to the Internal Revenue Service for federal withholding taxes.

The total secured and unsecured debt of CBG and its affiliates totals about $38 million.

So far, CBG has not submitted a refinancing plan that is required by law and must be approved by the bank and approved by the federal bankruptcy court.

Not the first time

This is not the first time CBG has edged toward a foreclosure sale. Cedrone avoided a scheduled sheriff's sale in September by saying he had a deal nearly sealed. But the undisclosed deal, with an investor from outside the country, fell apart.

The bankruptcy and possible sheriff's sale of Valley of Lakes is old news to the resort's residents. Residents remain skeptical of Hoegen's announcements of deals and near deals to stave off foreclosure.

"This whole situation forms a pattern," said resident Ray Dongelewicz,. A retired executive, Dongelewicz came to the Valley of Lakes to find peace and quiet. Instead, he said he found problems.

He and other residents worry about the values of their homes, maintenance of the development's roads and water and sewer systems.

They wonder how long they will have to wait for a lake and a golf course that was scheduled to be built years ago.

They wonder how long they must wait for the reopening of the ski slopes, restaurants and equestrian center that lured them to buy property at what once was touted as the "premier resort of Northeastern Pennsylvania."

"Our big concern right now is the money we pay in maintenance fees and the (operation of) water and sewers," said Morris, the 47-year-old truck driver who moved to Valley of Lakes three years ago. "I understand they have no money left for maintenance."

But Hoegen said fears such as [***] Morris' are ill-founded. Hoegen said the roads have always been maintained and CBG has done its best to maintain the water and sewers.

Yet residents still are [***]

In 1980, before Cedrone purchased the resort, the Valley of Lakes Civic Association newsletter described the development as having roads that were impassable, garbage that had piled up and frequent interruptions to the water service.

The financial picture was so dismal the civic association members took turns volunteering as [***] holidays because the bank could not pay for guards.

Cedrone bought the development in 1986 and improved conditions at Valley of Lakes. Cedrone employed more than 200 people who ran the equestrian center, ski resort and restaurants. He added sewers and upgraded the water system. Residents were pleased.

But the resurgence of amenities was short-lived.

The Investigation

Not able to get satisfaction locally, some residents have called on state authorities to investigate the development's problems.

J.P. McGowan, deputy attorney general in Scranton said he is investigating residents' complaints about liens placed against their property for refusing to pay $35,000 in contractor's fees to clean up damage from failed sewer pumps.

Last spring contractors helped repair and clean up damage when sewer pumps failed around four residences near the resort's Lake Choctaw. Residents contend CBG should be responsible for the repirs to four residences near the resort's Lake Choctaw.

McGowan said the attorney general's office plans to ask the Luzerne County court to drop the lien against the four homeowners. He said he is waiting to see if a new owner of the 4,004-acre resort will address residents' complaints before a lawsuit against the operator of Valley of Lakes, CBG Ltd., is filed.

Four other residents complained directly to the Public Utility Commission that water service had been interrupted "at worse on a daily basis" since the bankruptcy was announced in 1992.

One of those residents, George Morris, had complained to PUC prior to the bankruptcy. He said his home was without water for as long as four hours as many as two days a week.

Susan Jin Davis, an attorney for the Office of Consumer Advocate, said her office took up the four residents' cause because it was likely more people in the community were affected by the water shut-off problems.

An engineer whose opinion was sought by Davis and presented to PUC, said a $5,000 device would prevent water pressure problems.

"But to a company in bankruptcy, $5,000 is ridiculous," Morris said.

Hoegen said CBG is working to fix the problems.

On Monday, the PUC hearings on the water service complaint against Oneida Water Co. will end. Davis said the PUC decision will probably be released mid-January.

Residents have struggled with fluctuating property values. Few are willing to talk about the problem for fear discussion of property values will only drive values lower.

A member of the resort's civic association who is an executive at a Hazleton company said Valley of Lakes property values have declined about 30 percent since Cedrone declared bankruptcy. He said [***] sold for as much as $100,000 for three-tenths to four-tenths of an acre, the size of most Valley of Lakes lots. The property owner contends those properties have declined becuase the amenities promised are not completed.

In 1980, the Valley of Lakes Civic Association successfully sought a reduction in property [***] are again considering seeking a reduction in assessments.

There are about 300 homes either built or under construction in Valley of Lakes. Some lots do not have accessible roads or sewer hookup. The total number of lots in Valley of Lakes is 6,400.

VOLCA vs. Cedrone

Many of the residents complaining to PUC and to the Attorney General's office have memberships in VOLCA, the Valley of Lakes Civic Association.

From the day Cedrone announced plans to revive Valley of Lakes, VOLCA members say he declared he would not recognize the association. Since then, the relationship between Cedrone and the association has deteriorated.

This summer state police were called to break up a VOLCA pig roast, which Cedrone said, was held without proper permission from Valley of Lakes management.

The 10th annual pig roast, held at the picnic pavilion was a fund-raiser and provided an opportunity for the approximately 400 VOLCA members to talk about the bankruptcy. In a newsletter prior to the pig roast, the association suggested residents try to gain position in the bankruptcy negotiations.

Although police took no action at the pig roast, CBG representatives removed tables, took apart the grill, turned off electricity and locked the public bathrooms near the picnic site.

CBG then revoked priveleges from VOLCA board members to use common areas in the resort.

In letters to all residents, Cedrone called VOLCA an "organization of dissidents whose goal is the demise of CBG."

He called the group adversarial and disruptive.

In a letter sent to Cedrone, the association blamed Cedrone for the development's problems.

"It could be argued that your reasons for not recognizing VOLCA can also be attributed to CBG Ltd., which itself is directly responsible for the anguish and suffering of many people owning property in Valley of Lakes."

VOLCA members, as an organization, declined to discuss at length their dispute with Cedrone. The organization released this statement Friday night:

"VOLCA would really like to see every property owner get what they paid for. After years of unsuccessful attempts at refinancing it may be time that a new buyer come forward with enought money to complete this development. We want our development finished. A lot of great people live here and we would welcome the opportunity to help a new buyer finish this community."

"The place sells itself. It's a gorgeous place," Morris said. "I hope to stay here. The way things are going, I don't know."