State Auditor says mayor used elected position for personal gain in real estate deal

OCEAN ISLE BEACH, N.C. (WECT) – The State Auditor is asking the Brunswick County District Attorney to look into possible criminal charges surrounding a real estate deal in Ocean Isle Beach.

The Auditor says Mayor Debbie Smith’s purchase of the town’s old police department violated state law, allowing her to use her elected position to derive a direct benefit from the Town. The Auditor also says Smith used inside information not readily available to the public for personal gain.

The Mayor and Town Attorney adamantly disagree with the State Auditor’s findings.

On Thursday, State Auditor Beth Wood released a nearly 200-page Investigative Report into the questionable real estate transaction. In 2018, the town completed plans to build a new Town Hall and Police Department. In February of that year, a resident expressed an interest in purchasing the old police department on West 3rd Street. Town Council was interested in selling, and paid to have the land appraised.

The appraisal for the old Police Department came back at $460,000. The State Auditor’s Office and Ocean Isle Beach town officials dispute whether the Town ever got back to the resident who expressed an interest in purchasing the property, but he did not end up buying it.

In June 2018, Town Council went into closed session where the Town Administrator informed Council that the interested resident did not respond after she attempted to contact him about the offer amount. The meeting minutes state the council then decided, “not to put this property on the open market for sale until later this Fall.”

In August of 2018, Smith submitted an offer to purchase the property for $460,670. Smith and her brother co-own a real estate business nearby, and hoped to expand their office into that space. Smith drew up the offer herself to submit to the town, and Council was informed of her offer in open session at their next meeting in September. They voted to advertise for upset bids, allowing any interested party to buy the police department property themselves for $483,753.

When no upset bids were received, council voted to accept the mayor’s offer in open session on Oct. 9, 2018. The mayor abstained from the vote to avoid the appearance of a conflict of interest.

While Smith and Town Attorney Mike Isenberg believe the transaction was entirely legal and above board, the Auditor is standing by her findings.

“The mayor basically is involved in a real estate transaction…. and they are not by statute supposed to be dealing in things that will benefit them as an elected official. Also, the mayor used insider information, there was an appraisal, it was public information, but who would know to even go look, number one, that the town had even had an appraisal done because the conversations were had in closed session meetings. And then secondly, that pricing of what the town would accept was never really put out there publicly,” Wood explained. “You really had the mayor dealing with information that nobody else knew, and for anybody else to be able purchase the same piece of property, they would have spent $20,000+ more to purchase this same piece of property.”

Wood takes issue that she drew up the contract herself. She says even though Smith didn’t vote to approve the sale, she was sitting at the table, potentially exerting influence on others who were voting.

Prior to this year, using your elected position for personal gain as defined by state statute was a misdemeanor in North Carolina. In January 2022, the offense became a felony. Wood said that she currently has 31 complaints sitting in her queue for investigations right now, and 26 of them have to do with elected officials, often in small towns, abusing their position for personal gain.

“I would hope to see that number going down because what has now become effective… is for any elected official found to be misusing or abusing their position for personal gain, it will result in a Class H felony. That is not for me to charge or indict, but the law does now exist that have consequences for elected officials,” Wood added.

Because the alleged violation in the Ocean Isle Beach matter happened prior to January when the new law went into effect, the maximum potential consequence would be a misdemeanor conviction and the sales contract becoming void.

The Auditor’s investigation started after Wood’s office received five complaints from members of the public about the questionable real estate transaction. Smith contends the timing of the complaints was politically motivated.

“It was two years between the town accepting an offer, before the police department was ready to move into its new location. It’s kind of peculiar that this issue did not come up at any time during those two years. Then it came up just prior to a municipal election. I do feel like we followed the law, I disagree with the Auditor’s position, and the reasons are addressed in the town’s [written response to the Auditor’s findings],” Smith said.

While Smith submitted the offer to purchase the police department in 2018, the deal didn’t close for two years. Town officials say that’s because there were delays completing the new police department, and officers were not ready to vacate their Third Street location until 2020.

“The offer was made in public, it was discussed in public, it was advertised in the newspaper, it was posted in town hall on the door, and was offered for an upset bid. The town chose this upset bid method to obtain the highest price for the town in the sale. No upset bids were received,” Smith added.

Smith has served as the mayor of Ocean Isle Beach for 20 years, but did face an opponent in the election last fall. She insisted she has never used her office for self service, and added that she has provided real estate services at no charge to the town for $15 million worth of other land purchases since taking office.

As part of its official response to the state auditor’s findings, the town included an email from the man who initially expressed an interest in purchasing the old police department. He wrote in that email that he made the inquiry for a client who later changed his mind about wanting to purchase the property. He said since it was no longer a viable deal, it wasn’t high on his radar, and he simply cannot recall if the town ever contacted him with the appraised price.

“The Town maintains that the sale of the former Police Department property complied with all applicable laws and procedures. As noted in the State Auditor’s Report, the Town Staff and Board of Commissioners have fully cooperated with the State Auditor’s Office during the course of their investigation. The Commissioners, the Mayor, and the Town Administrator all voluntarily submitted to interviews and the Town provided all documents and information requested by the State Auditor. Given the ongoing nature of this matter it would be inappropriate to comment further at this time,” Isenberg added when asked for an interview on Thursday.

District Attorney Jon David released a statement Thursday afternoon stating that his office “will scrupulously review the information to date to determine the appropriate path forward.”

Here is David’s statement in full:

“Earlier today, the District Attorney’s Office received a report from the State Auditor’s Office pertaining to the acquisition of the Town of Ocean Isle Beach Police Department building and land by a real estate company owned by its Mayor Debbie Smith. The findings from the Auditor’s investigation were referred to my office to determine if sufficient evidence exist to pursue criminal charges. Because we just received this information, I am without the benefit of knowing the depth and scope of the investigation or important facts which underlie the decision to make this referral. Accordingly, we will scrupulously review the information to date to determine the appropriate path forward.”

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