By Deborah Goonan, Independent American Communities
Sometimes the underdog wins.
And this report by Lauren Ritchie of the Orlando Sentinel proves that it is possible for a homeowner with very minimal litigation experience to prevail with perseverance and a solid legal argument.
What I love about this case is that it promises to settle a long-running battle of homeowners against their developers: the common practice of developer-controlled boards to allow the home builder to opt out of contributing to the association’s reserve account.
Read the article below, before my additional commentary below.
Inexperienced lawyer wins epic courtroom battle in Lake
Lauren Ritchie, Orlando Sentinel
Feb. 1, 2017
“I think this probably might be a little over Mrs. MacKenzie’s head, to be quite candid. … I will offend everybody in the room, but this isn’t something that — to be involved in this kind of litigation at this level, you can’t just walk out and say that ‘I’ve drafted wills,’ or ‘I’ve done real estate closings’ and walk into a courtroom and deal with something like this…
…it’s just that she’s not experienced in this area of law and that became obvious to all of us pretty early on.”
Lake Circuit Judge William Law
Transcript of July 27, 2016 hearing
Three years ago, a Mount Dora attorney who has been a member of the Florida Bar for 35 years but never really practiced law got annoyed by the builder-controlled homeowner association at Sullivan Ranch, where she lives.
Sara MacKenzie thought that Centex Homes, owner of vacant lots in the subdivision south of State Road 46, should have been paying its share for those lots into required reserve funds — fees that today are estimated at $1 million. She sued.
And so it began.
The battle with Centex, owned by one of the largest homebuilders in America and represented by a politically high-powered, well-respected Florida law firm, stretched over three long, painful years in which MacKenzie, 71, struggled to litigate a complex question in an extremely specialized area of law. MacKenzie and her bank account were up against the company owned by PulteGroup, which reported $816 million in pre-tax earnings in 2015 along with a $2.3 billion reinvestment in growing the company.
Let’s look at the big picture here. Why are common interest, association governed communities preferred by local governments and large developers? Well, it’s because they shift costs and financial risks away from County government and private developers to individual property owners. Instead of either the local government or the developer bearing the financial cost of construction and ongoing maintenance of common infrastructure and amenities, home buyers pay up front in the cost of new construction, and then perpetually in the form of HOA assessments.
But while the community is still being developed, there needs to be a plan to finance long-term maintenance, repair, and improvements. However, a developer that still owns a substantial number of unsold lots or units will often look for loopholes to avoid paying a reserve contribution for each unsold parcel. The reason is obvious — to reduce costs and increase profits.
However, especially when we are talking about a major home building corporation such as Pulte Group, one that generates billions of dollars in revenue annually, it’s hard to justify that paying its share of reserves is an economic hardship. That’s why Sara MacKenzie sued Centex in the first place, and persevered for three years, despite the fact that many of her neighbors now despise her.
It doesn’t seem to matter to MacKenzie’s neighbors that requiring Centex to contribute more than a million dollars to their reserve fund will help avoid substantial special assessments in the future. And, keep in mind that, if homeowners are either unable or unwilling to pay special assessments, deferred maintenance of infrastructure and shared amenities is inevitable.
Now that the case is being returned to the lower court, it will be interesting to see if Centex looks for ways to explain why it owes far less to Sullivan Ranch HOA than what is claimed by MacKenzie.
Certainly, developers are hitting the panic button on this issue now. Watch for them to start creating or amending CC&Rs and/or lobbying for state legislation that will allow them to shirk their financial responsibilities, shifting even more costs to home buyers and homeowners.
An interesting side note. If you do a Google search on Sullivan Ranch in Mount Dora, you’ll find a slick website designed to sell buyers on new homes in an idyllic community setting. Remember, this is advertising. As with any other advertising, take it with a grain of salt. Be a savvy and discerning consumer. Ask questions and talk to current owners and residents before signing a sale agreement.
If you visit the HOA website don’t expect full disclosure either. In fact, typical of most planned communities, very little information is available on the public side of the website. You can look at information about amenities, but little else. Most information is password protected for members only. There is no public access to governing documents, the HOA annual budget, or even a statement of the amount of HOA assessments per home.
Ask yourself, why is that?
To access the information you need to make a smart buying decision, you need to consult County records and should consider hiring a real estate attorney to represent your interests. Avoid working solely with the home builder’s affiliated sale agents, home inspector, title company, and lender.
And be aware that, in any common interest, association governed communities, every shared asset has its corresponding shared costs and liabilities.