I really need to crank up the wayback machine, but I think the poor response to I BELIEVE YOU is what lead to the album being shelved. this is kind of a blur, because CHRISTMAS POITRAIT and THE SINGLES 1974-1978 were also released in that timeframe.
by the time LOVELINES was released, WHERE DO I GO FROM HERE had been a hit for England Dan a John Ford Coley, but I don't know if carpenters recorded it first or at the same time, as with TRYING TO GET THE FEELING AGAIN and Barry Manilow.
There isn't a lot of info out there on the aborted 1978/1979 album (I don't think Richard's ever spoken about it as an entity), but I think it was essentially nixed because Richard had to go into rehab. Looking at that list of tracks as well, it doesn't look much to me like the tracklisting for a finished album. For instance, some of the songs were recorded for TV specials rather than specifically for a forthcoming album.
That does still leave the question open of why 'I Believe You' was released at all at this stage, given that (I suspect) they were still a long way off having a completed album for which it would be a lead single at that stage, plus the fact that it was coming out alongside a Christmas album it had nothing to do with - and also that Richard and Karen were in no shape to promote it either (and didn't).