East Lyme Land Trust under scrutiny of state attorney general
Mar. 9—EAST LYME — The state Office of the Attorney General has opened an inquiry after the East Lyme Land Trust purchased 120 acres of pristine land near Lake Pattagansett while putting up its share of a vaunted preserve in the Oswegatchie Hills as collateral.
Assistant attorneys general Rebekah M. Burgio and Caitlin M. Calder in January initiated a review of the purchase and its financing through a letter to land trust attorney Anthony Novak.
The land trust purchased the land known as the Hathaway property in September with the intent of selling it to the town. The organization's president, Ron Luich, this week said the nonprofit conservation organization lacks money and manpower.
But both Novak and town attorney Mark Block described negotiations to sell the land to the town as currently inactive.
Novak told The Day the mortgage is coming due in roughly a month. That means the Oswegatchie properties identified as collateral might have to be sold off to avoid foreclosure if the town doesn't purchase the Hathaway property, according to the attorney.
The Hathaway land with frontage on Lake Pattagansett and the river that feeds it had been in the same family since the King of England allegedly signed over the deed in the late 1600s. Plans guiding the town's development singled it out as East Lyme's number one preservation priority going back two decades. Novak identified saving it as the land trust's number one priority now.
He added that land trust members don't want to sell off the six Oswegatchie Hills parcels.
"But that may be their only recourse without the town's help," he said.
The land trust's plan to turn the Hathaway site into the Pattagansett River Watershed Preserve is supported by a $400,000 state grant.
Longtime resident Norman Peck Jr. called it "highway robbery" for the land trust to use the Oswegatchie Hills property as collateral. In 2002 Peck deeded a 10-acre portion of property in the hills to the land trust with a caveat it remain undeveloped. He said he went to the attorney general's office with his concerns so the agency can address it.
"Somebody's trying to steal it and use it as credit to pay off a mortgage," he said. "And I think that breaks some sort of law."
The deed signing over Peck's property included the provision it "be kept as undeveloped open space in perpetuity."
"They can't sell mine," Peck said.
The public charities unit of the attorney general's office is empowered to look into issues related to charitable gifts, enforce state laws regulating charities, and protect access to public lands.
Novak on Feb. 6 issued a three-page letter to the attorney general's office, as well as 54 pages of supporting documents and a 2022 appraisal of the Hathaway property. He provided the documents, except for the appraisal, to The Day.
Protecting the hills
Other documents obtained by The Day show attorneys for the town and the land trust in December were negotiating conditions on a purchase agreement that would save both the Hathaway property and the Oswegatchie Hills property by transferring them from the land trust to the town.
The land trust purchased the Hathaway parcel last year for $2.3 million from Steve Harney, a self-described conservation intermediary and former East Lyme resident who bought it for $1.1 million about 14 months prior.
Harney flipped from owner to lender when he took on the property's mortgage for the land trust. He used six parcels controlled by the land trust — comprising about a fourth of the otherwise town-owned Oswegatchie Hills Nature Preserve — as collateral for the loan.
Harney was a member of the land trust until he resigned in 2020 due to "involvement in upcoming open space initiatives," according to his resignation letter.
The attorney general's office said "several parties" reached out to it with concerns regarding the purchase and its financing.
"Accordingly, we are currently reviewing this transaction and have some initial questions and requests regarding the Land Trust, generally, and the transaction, specifically," the letter said.
The list of seven questions ranged from a request for details about the land trust's organizational structure and procedures, to why it was necessary to use additional properties as collateral for the loan.
Kris Lambert, president of the Friends of the Oswegatchie Hills Nature Preserve, said her organization is one of the parties that made a complaint with the attorney general's office.
Like Peck, she was concerned that the land trust would put the Oswegatchie Hills parcels in jeopardy when some of them were deeded with the understanding it would remain as open space forever.
"I just can't reiterate enough that the Friends, as one of the primary managers of the preserve, their ultimate goal is to be sure that the hills are protected," she said. "Because of that obligation, we felt we needed to make sure everything that was done, was done appropriately and legally."
The attorney general's office last year got involved in a high-profile case in Killingworth while the Connecticut Yankee Boy Scouts Council was in the process of selling its 250-acre camp to a private developer. A press release from state Attorney General William Tong said he asked the council to delay the sale to a private real estate developer while his agency looked into questions regarding the legal status of the property.
Tong's office ultimately "identified a charitable restriction on one of the six parcels offered for sale that required the land be preserved as 'open space parks and/or natural areas,'" according to the agency.
This week, Harney said he's been more than patient working with the land trust and the town as the mortgage comes due. He reiterated the possibility of bringing in an affordable housing developer like the one who expressed interest in building 175 affordable and market-rate units on the Hathaway property that could include single-family homes, townhouses and a component for the 55-plus community.
Harney is currently involved in a proposal to build 19 single-family homes and four six-unit townhouses in an affordable housing development on about 12 acres carved out from another land trust property comprising 301 acres along the Montville border. The application is currently being reviewed by Zoning Official Bill Mulholland.
Harney said he sees the value to the town of leaving the Hathaway property as open space.
"I'd be really happy if the town woke up and said 'you're right, we should buy this thing,'" he said.
First Selectman Kevin Seery described the town as interested in purchasing the Hathaway property and the land trust property in the Oswegatchie Hills.
But he said its up to the lawyers to hash it out after Block, the town attorney, advised them not to speak directly with members of the land trust or anyone else involved.
Novak in his December letter to Block asked for a phone call to discuss the issue.
Block said he hasn't communicated with Novak since that letter.
'It's questionable'
The land trust's response to the inquiry from the attorney general's office included the deeds for six parcels in the Oswegatchie Hills deeded to the land trust going back to the 1970s. Using the language in the attorney general's inquiry, Novak wrote in his letter he was not aware that any of the properties pledged as collateral are subject to "public or charitable use restriction."
Along with the deed specifying Peck's parcel remain undeveloped in perpetuity, a deed on a 15.2-acre parcel carried a provision with "all the force and effect of a 'conservation easement'" to ensure the property remains natural and open forever.
Novak's letter stated it was necessary to use the additional properties as collateral on the loan because of the risk presented by the conservation easement slated to be put on the land by the state as part of its grant funding.
Since the state does not allow mortgages on land it's helping to preserve, the collateral properties were necessary in the event that the loan was not paid off before it came time for the conservation easement.
The state in a May 2021 grant letter recommended completing the sale and opening the preserve within 24 months.
The attorney general's office has also asked for a copy of the minutes from the land trust's Board of Directors meeting during which the purchase was approved. Those minutes do not exist, according to Luich, the land trust president.
But a Dec. 29, 2021 resolution from land trust Secretary Sandy Olbrys authorized Luich to negotiate the purchase. The document said the resolution was "duly adopted and ratified" by the Board of Directors two days prior.
