Complaint alleges fraud by developer Rarity

A developer's legal trouble in Colorado deepened last month as several new plaintiffs sought to join a lawsuit over luxury residential communities in East Tennessee.

A complaint filed with the U.S. District Court in Colorado last month alleges that investors in East Tennessee's Rarity Pointe and Rarity Mountain developments were defrauded in a complex scheme that promised an "outrageous" return with no money down.

The complaint names as defendants Rarity Communities, First Tennessee Bank and Rarity Pointe salesman David Roos. Rarity Communities is owned by developer Mike Ross, creator of a series of Rarity-branded communities across East Tennessee.

At least 10 individuals named as plaintiffs in the suit were told that their good credit was the only investment required to earn a return of 500 percent or more as early investors in the upscale Rarity communities, the complaint alleges.

Plaintiffs include investors Monica Ariowitsch, Nancy Smith, Craig C. Nelson, Harold Nelson, Pat Huey, Richard Deem, Cindy Lawrence, William H. Simmons, David Gordon and Anthony Chara.

Also among the defendants are RMT Cottages LLC and RPL Properties LLC, both companies owned or managed by Ross, who said he was aware of the suit.

"We find it has no merit," Ross said of the lawsuit.

The defendants are seeking damages and expenses to be determined at trial. They claim that the damages will compensate them for the reduced value of the land they acquired, with the reduction in value based on a lack of documentation of the original value and a failure to complete the projected amenities, including golf course, clubhouse and equestrian facilities within the specified time frame.

Some defendants also claim that unauthorized or unexplained deductions were made from the escrow accounts holding the rebated club fees that were supposed to be used to pay the mortgages on the lots they owned.

The lots were presented as a "presale" opportunity only available to participants in a joint venture agreement managed by Dharma Investment Group LLC of Boulder, Colo. Dharma also is named as a defendant in the lawsuit.

The complaint alleges that Dharma representative Mike Kass worked with Roos to present the investment opportunity to investors at a real estate investment conference in Colorado.

Dharma is described as a leading private investment firm pioneering Hindu and Buddhist faith-based investment.

Investors who purchased lots in 2006 for $445,000 were told they would be rebated at closing up to $75,000 for the value of the golf course and club memberships that were included with the lots.

Money rebated from the memberships was to be put into an escrow account and used to pay the property mortgages until the lots could be resold.

The deal promised that the lots would be put up for resale within eight months of original purchase and would be resold within two years at a substantial profit. The complaint alleges that an investment brochure promised an "Outrageous ROI."

Money that was to be deposited in the escrow accounts has never been fully accounted for, the complaint alleges.

Other misrepresentations alleged in the complaint include promises that the golf courses, clubs and equestrian facilities would be completed within 18 months and estimates that 50 percent of the lots had been sold. The complaint states that approximately 15 percent of the lots have been sold.

First Tennessee Bank also is named as a defendant in the complaint and accused of not performing due diligence. According to the complaint, investors received 100 percent loans on the properties by First Tennessee without supporting documentation.

The complaint also alleges that investors and lenders depended on documentation provided by Assurance Title Co. of Vonore. The complaint alleges that Assurance, which was owned by Ross, violated ethical obligations to its clients by not performing due diligence.