Settlement follows October 2016 judgment for $16.3
By Deborah Goonan, Independent American Communities
According to the lawsuit that concluded in October 2016, Majorca Isles was approved as low to moderate income housing (up to 681 units) organized as individual condo associations with an umbrella Master Homeowners Association. Most of the mortgages were FHA insured.
Construction began in 2006, but ended in 2009 when only half of the units had been completed by DR Horton.
The poor economy exacerbated troubles that began as early as 2006, with D.R. Horton-appointed board members’ failure to keep accurate financial records. This record keeping failure led to the Master Association’s inability to collect delinquent assessments, and ultimately, to its declaration of bankruptcy in 2012.
The case clearly illustrates the fundamental flaw of putting real estate developers in control of entire communities, making it next to impossible to hold them accountable without engaging in years of complex litigation. The following passage written by Judge Jay Cristol, U.S. Bankruptcy Court, says it all:
Because of the economic downturn and loss of jobs, many condominium owners were not paying their monthly maintenance assessments. Debtor had a need for about $40,000 a month to pay its obligations and only $20,000 a month was coming in. The collections of both the condominium associations and the master homeowners association monthly maintenance payments were being made by the five condo associations, and they were obligated to forward the master homeowners association portion of the assessments to the Debtor. However, there was not enough income to cover the condominium association expenses and the master homeowners association expenses.
A conflict of interest thereupon developed for Rafael Roca, Amalia Papadimitriou, Christian Gausman, and Karl Albertson, employees of D.R. Horton who were Horton-appointed directors of the condominium associations and the master homeowners association. At this point, they were wearing three hats: D.R. Horton employees, homeowners association directors and condominium association directors. They owed a duty to the condominium associations and a conflicting duty to the master homeowners association where they were also directors. They decided to favor the condominium associations over the homeowners association and diverted funds due the homeowners association to condominium association expenses, thereby breaching their fiduciary duty to the homeowners association.
When it appeared that the deficit funding obligation to D.R. Horton was reaching $50,000 per month, D.R. Horton, through its employees, decided to shift the economic loss of D.R. Horton to the homeowners by cutting services and amenities which the homeowners were entitled to receive and stopping the deficit funding that D.R. Horton was obligated to supply.
These actions by D.R. Horton can only be classified somewhere between not nice and evil. The responsibility for D.R. Horton’s actions is on D.R. Horton by virtue of D.R. Horton’s employees Rafael Roca, Amalia Papadimitriou, Christian Gausman, and Karl Albertson wearing their three hats, as D.R. Horton employees and agents [for which their acts are the responsibility of D.R. Horton under respondeat superior], and as directors who controlled both the condominium associations and the master homeowners association.
In the face of the losses on the project, D.R. Horton implemented turnover of the associations and cast off the condominium associations and the homeowners to fend for themselves.
The details of this case are stunning. The Judge agreed with Majora Isles bankruptcy trustee, Barry Mukamal, that the Master Association not only failed to keep adequate financial records, but, under the direction of boards appointed by D.R. Horton, it also fudged accounting records to understate budget deficits in order to justify artificially low assessment obligations. In this way, the developer was able to continue selling condo units, giving consumers the false impression that monthly assessments would remain affordable.
D.R. Horton also chose to eliminate amenities that had been promised to condo buyers, including guarded gate security. The money savings benefited the developer, but resulted in an increase in crime and vandalism of the clubhouse, for which owners have been responsible since turnover of Master Association control in 2011.
By the time turnover occurred in 2011, Majorca Isles was woefully underfunded, saddled with crushing uncollected debt, and provided with an unsustainable annual budget. Bankruptcy was the only viable option.
The pool, tot lot, and gazebo fell into such a state of disrepair, they were unusable.
Judge Cristol offered praises to Chapter 11 Trustee, Barry Mukamal, for his selfless devotion of service to the owners of property in Majorca Isles.
D.R. Horton was found to be in violation of Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA). The court agreed that individual directors breached their fiduciary duties, and committed conspiracy in doing so. D.R. Horton aided and abetted these breaches, according to the Judge.
Actual damages were estimated to be $3.8 million, and punitive damages were determined to be $12.5 million.
As is common in complex litigation, D.R. Horton subsequently appealed the $16.3 million dollar award, ultimately agreeing to an out of court settlement with Mukamal on behalf of the Association for $11 million. Details of that settlement are unpublished.
Homebuilder settles with Miami Gardens association for $11 million
JULY 12, 2017 4:09 PM
Developer D. R. Horton has reached an $11 million settlement with the Majorca Isles Master Association, the Miami Gardens community that was left in the lurch after the builder pulled the plug on the project during the recession.
Horton had appealed the October 2016 decision made by a federal judge in Miami, who ruled the Texas-based developer must pay $16.3 million in damages for engaging in “immoral, unethical, oppressive, and unscrupulous” trade practices “that offend established public policy for its financial benefit, conspiracy, and breaches of fiduciary duty.”