Michael Patrick/Knoxville News Sentinel This aerial photo shows Mike Ross' Rarity Mountain development in East Tennessee.

JASPER, Tenn.-John and Jennifer Heimbold thought they had found their dream place to retire in 2007 when they bought a picturesque lot at Rarity Club on Nickajack Lake.

But four years later, the San Diego couple are among more than 50 property owners in the lakefront resort still waiting for the promised golf course, marina and wellness center.

"We're surviving, but this has devastated us," said Jennifer Heimbold, a 69-year-old retiree who said she and her husband have given up on their plans to move to Tennessee and are still in San Diego.

"We looked all over and this seemed to be exactly what we were looking for, with all of the amenities of a golf course, wellness center and lakefront living in a state with no income tax. This sure isn't the retirement we had planned."

The Heimbolds and others collectively paid Rarity Club developers more than $26 million for lots in the 578-acre complex. But nearly five years after TVA sold the property and crews began clearing the land, there are no residents, boat slips or golf courses in what was designed to be the costliest residential development ever built in Southeast Tennessee.

Mike Ross, the Maryville, Tenn., developer of Rarity Club and eight other Rarity resort communities across East Tennessee, conceded last month that he tried to build and borrow too much. When the housing slump hit three years ago, he was left with too few sales and dollars to fulfill his development plans, he said.

But others involved in the creation of Rarity Club insist the initial sales were enough to get far more done on the promised amenities and to spur completion of at least the first phase of Rarity Club.

"I've watched this from the ground up, and I'm very disappointed," Jasper Mayor Billy Simpson said. "The economy didn't help, but the developer didn't do what he said he was going to do."

Chattanoogan John "Thunder" Thornton, who assembled the Nickajack site by swapping other land with TVA, sold the land to Ross but is now suing him.

"We have our own little Bernie Madoff of Marion County," Thornton said, referring to the former New York investment adviser now serving a 150-year prison sentence for bilking more than $18 billion from his clients.

"He [Ross] sold $26.5 million of property and borrowed another $15.5 million from the bank," Thornton said. "But it looks like he only put about $3 million back in this project and diverted the rest to other projects or for his own use. It's just not right."

Ross denies any wrongdoing. No criminal charges have been filed against Ross or his partners.

Backers insist the Nickajack Lake project still has tremendous value and hope it may be completed with new owners. The bank that took over the property nearly two years ago has hired a local real estate agent to market the Rarity Club nationwide.

"There's still a lot of money a developer can make off of this property," said Tommy Stanfill, a broker for Century 21 Cumberland Realty in Jasper.

For now, however, the only completed house in Rarity Club - a lakefront home priced at nearly $1.5 million - sits vacant. Another foreclosed, unfinished home on the lake is listed for $450,000, less than the $550,000 cost of the lot alone in 2007.

"We feel cheated," said Laura Grody, a Chattanooga resident who bought a lakefront lot with her husband, Harold, four years ago for $390,000. "They sold the lots, but didn't put up the amenities they promised. We got the roads but not much else."

Big dreams and lawsuits

Ross acquired the 578 acres for Rarity Club from Thornton, who negotiated for three years with TVA for the lakefront property.

Thornton and Ross are Maryville natives and the two biggest residential real estate developers in East Tennessee.

Before starting Rarity, Ross successfully built lakefront and golf course communities on Tellico Lake in the 1990s.

"When I saw the quality that Mike Ross has put together on Tellico Lake, I figured he was the right man," Thornton said in a recent interview on Rarity's history.

Ross had plans for more than 10,000 high-end homes on the lakes and mountains of southern Appalachia in East Tennessee.

"I had quite a bit of success when the economy was strong and the market was booming and I knew there were 76 million baby boomers coming along and starting to retire," Ross said in an interview last month. "It's a huge market, so even 10,000 homes is only a drop in the bucket."

But among nine Rarity Communities he began, four ended up in bankruptcy and two others are either stalled or facing foreclosure. Ross still is selling lots at Rarity Bay, Rarity Pointe and Rarity Ridge. Including other undeveloped properties and affiliate businesses, seven Ross-related ventures went bankrupt.

"The market is just really, really tough right now," the 61-year-old developer said. "There aren't a lot of buyers out there, but we're still going to work every day trying to find folks that would be interested in helping us revive all of our communities when the economy improves."

Two groups of property owners at Rarity Club have sued Ross for failing to build the gated luxury community he promised.

The property owners want Ross or the bank that financed the project to complete the amenities outlined in sales brochures, although not necessarily specified in the property deeds.

The civil suits are pending in Hamilton County Circuit Court. No trial date has been set, although Ross and others have given depositions.

Ross claims he ran out of money when the real estate market collapsed in late 2008.

Thornton says he lost at least $10 million from the collapse of Rarity Club, although Ross paid him enough to cover his initial investment plus more than $3 million from early lot sales.

Thornton has developed his own high-end properties in Tennessee, Wyoming, Utah and Hawaii. He rejects Ross' claim that Rarity Club stalled strictly because of the economy.

"The money he got from the sale of these properties was enough to build most of the amenities he promised, but he took that money and spent it elsewhere," Thornton said.

John Harvey Cameron, a Jasper attorney who represents his wife and six other homebuyers at Rarity Club, claims in court documents that Ross "engineered the diversion of funds and sale proceeds of well in excess of $10 million [from Rarity Club] for other purposes."

Cameron's lawsuit accuses Ross of "breach of fiduciary duty, misappropriation, mismanagement, misrepresentation, fraud and negligence."

Ross said he lent $6 million from Rarity Club to a Campbell County development, Rarity Mountain. The loan was later converted to an equity investment in Rarity Mountain, but the money was lost when Rarity Mountain filed for bankruptcy.

Ross said he also brought money to Rarity Club from other Rarity projects and used it to develop several miles of roads for the first 165 lots.

New Owners, New Hope

Green Bank, which acquired Rarity Club in August 2009 by foreclosing on Ross' partnership, is trying to revive the project by hiring Century 21's Stanfill to market the property. Most of the developed acreage was mowed in the past two weeks to help lure more buyer interest.

Green Bank also agreed to cut the listing price of the 578 acres from the foreclosed price of $15.8 million to $14.3 million.

Standing atop a hill overlooking the subdivision streets and home lots platted along the winding shoreline of the Nickajack Reservoir, Stanfill called the picturesque site "one of the most beautiful you'll find anywhere."

"Where else can you be on a gorgeous lake like this with the mountains all around it only a 20-minute drive from Chattanooga?" he asked. "It's too good of a piece of property not to have someone come in and develop it. It's going to happen."

Sacred Little Cedar Mountain

Thornton convinced TVA to sell the land by donating to TVA more than 1,000 acres on Burns Island and Cedar Mountain - both sites that archeologists determined were more important to protect.

But American Indian groups opposed the initial deal and say the area's history should be preserved.

Rarity Club is built opposite the former site of towns called Nickajack and Running Water where Chief Dragging Canoe lived after he left Chickamauga Creek in the 18th century.

Tom Kunesh, former state commissioner of Indian Affairs, said he used to walk and hike regularly in what he calls "the most beautiful place" on the Nickajack site.

"This is sacred land and should be protected," he said.

Corky Allen, a paralegal in tribal Indian affairs, said he hopes there is no development.

"These are public lands that should never have been used for private profit," he said. "TVA needs to undo what should have never been done."

But Stanfill, a 23-year real estate veteran in Jasper, insisted the Rarity Club project "means too much to our community for it to just sit there."

Ross paid TVA to develop five miles of trails on Little Cedar Mountain near Interstate 24 and was required to make at least one fourth of the marina open to the public.

"Rarity Club is such a big thing for our community - just like a major new industry," Stanfill said. "It's not a question if this will be finished. It's just a question of when and how."