Officials cited safety concerns as the reason for closing Lakeview Drive.
Pictures from Chopper 11 HD showed yellow crime tape blocking the road and emergency vehicles parked nearby. There appeared to be a large hole in front of the dam through which water was pouring.
Town officials said at a news conference Thursday morning that there appeared to be at least two areas were the dam had failed and water went under the foundation.
"It appears there is some system failure," Town Manager Randy Beeman said. "We believe it stated with the drainage system underneath the concrete slabs where there is a large hole near the wall."
Hope Mills Police Captain Joel Acciardo told ABC11 Eyewitness News engineers told police to monitor the lake level Wednesday night.
Residents who live by the lake located south of Fort Bragg and Fayetteville say town officials instructed them Wednesday afternoon to loosen the ropes to their boats because the lake was going to be lowered two feet. Shortly after being given those instructions, the same officials told residents the lake may have to be lowered as much as nine feet to inspect the dam.
Town Commissioner Terry Smith told ABC11 that they started a controlled release Wednesday afternoon after engineers noticed silt coming out of the lower side of the dam.
Officials say the Hope Mills Lake dam is new and was replaced in 2008. About $14 million was spent building the dam after storm damage over Memorial Day weekend in 2003 damaged the old one - causing it to burst. The town spent five years coming up with the money to replace it.
Roughly $9 million in state and federal funding was used, but the Town of Hope Mills still has a $4 million outstanding loan to pay.
"It's a sad day for the Town of Hope Mills," Beeman said.
Authorities and engineers are now trying to determine how the new dam became damaged. Beeman said the dam was not insured.
There was no immediate word if the town would try and get the company that built the dam to repair or replace it or if it planned legal action. Mayor Eddie Dees was out of town Thursday, but told ABC11 that he's been in contact with the contractor who built the dam and he says the contractor has assured him that he will make it right.
"Very sad, because I don't know if we will ever have water back or not," resident Margaret Thompson said.
The water from the lake rushed into Little Rockfish Creek. No flooding has been reported downstream.
Supporters of the lake began posting comments on their Facebook page Thursday morning.
"Here we go again," wrote one.
"I'm starting to think our lake is cursed," wrote another.
Recently, the lake has made also headlines because of a large reptile. Last week, a six to seven foot alligator was spotted in the water, but authorities never caught it. A resident spotted the animal in a nearby creek as recently as Wednesday.
Officials said Lakeview Drive will remain closed and motorists should avoid traveling in the area near the dam. Meanwhile, July 4th holiday celebrations planned for the lake will be moved to the Municipal Park area.