The residents of a Leesburg subdivision that went belly up during the real-estate bust face a financial dilemma that's the result of greedy investors, a failure by lawmakers to think ahead and maybe the alignment of the planets.
Unfortunately, the same the thing could happen to homeowners across Florida.
The retirees at the Cottages of Sanders Grove at the Heritage report that they've just had their homeowner-association fees jacked up from $180 a month to nearly $500. And that's just for this year.
If they can't — or won't — pay, the association can foreclose on them. And guess who controls the association? The investor who just bought the project. What a clever idea. Raise the rates, and when people can't pay, take their houses.
In addition, New Jersey resident and new owner Hans Hsu has found a way to force the homeowners to cover the legal cost of foreclosures and any fight they might want to put up over the higher fees.
Here's the story:
Pringle Development had just begun selling and building the 182 retirement homes on 58 acres off County Road 48, south of Leesburg, when the real-estate bubble burst. There was one model home, 16 resident-owned houses and a clubhouse.
Pringle went out of business, and a bank took control of both the unbuilt subdivision and its homeowner association. The way the association was formed under Florida law — and this is typical of most homeowner associations — the developer controls the board of directors until three months after 90 percent of the homes are sold. Then, seats on the association's board pass to the people who own property in the community.
The purpose of the association is to levy fees to take care of the subdivision's common areas and buildings, such as a clubhouse.
While the subdivision is being constructed, the developer wants the place to look pristine so that customers will buy. Makes sense. People living there want the same thing, so the interests of the two parties coincide. Lawmakers apparently couldn't imagine a scenario in which they wouldn't.
While the bank controlled the subdivision, residents continued to pay the homeowners association $180 a month, and residents say the bank paid the fees for the unbuilt lots, so the place stayed in semi-respectable condition.
Then Country Estates South, whose president is Hsu, bought the subdivision Jan. 30 for about $1.1 million. As the new owner, he also chooses the new board of directors for the association.
Over the past month, the new board decided to make some changes in the rules that govern the association. The rules specifically state he can make changes while he continues to control the association.
Hsu's board wiped out a provision that prevents the association from raising its annual fees by more than 15 percent; gave themselves the power to meet in Orlando instead of at the community; handed the directors the power to approve or reject any sale in the community and to evict a new buyer who is unapproved; eliminated the veto power of the homeowners over the budget; and established the board as the sole authority to raise fees and direct expenses.
As if those changes weren't draconian enough, residents say the owner announced the higher fees to them recently during a "conference call" that amounted to one of his employees holding up a cell phone few could hear.
That's when he dropped the news that he wouldn't be paying any fees on the empty lots he owns. He justified that by saying he'd have to cover the reserve for emergencies, residents said. What he did not mention is that one of his new rules eliminated the requirement for the homeowner association even to maintain a reserve fund. So, covering emergencies is optional for Hsu.
The full cost of the budget, he said, would be borne by the residents, according to those who attended the meeting. Hsu did not return calls asking him to explain, and staffers at the office of his lawyer, C. John Christensen of South Milhausen in Orlando, said he was on vacation and declined to provide any contacts for Country Estates South.
And here's the vicious kick: Hsu threw into the budget a new expense the homeowners have to pay — $10,000 in attorney fees. So, if they decide to fight the higher fees, they'll be funding their opponent's defense. That's just plain wrong.
This is not a fancy subdivision. There's a clubhouse where residents say two of the three air conditioners are broken. That's it. There's not even a community pool.
Homeowners are furious and terrified, and no wonder. Dick Dekowski, a 67-year-old retired computer programmer, summed it up: "We're sitting here with houses worth zero."
Another homeowner, Carol Chastain, said she left the recent meeting because she was so upset she was afraid she would vomit and didn't want to embarrass herself.
A nationally recognized expert on homeowner associations, Evan McKenzie, an associate professor of political science at the University of Illinois at Chicago, said that across Florida, new investors are taking over associations and increasing the fees. Sometimes, he said, an increase is needed.
But this situation, he said, is "very, very nasty." He said he'd never seen a new investor shift the financial burden to the homeowners.
"If I were living in one of those units, I'd be getting myself an attorney," he said.
And there you have it. A relaxed retirement for folks who worked hard their whole lives just vanished. Now, they're going to have to fight, thanks in part to the power that legislators handed homeowner associations years ago. Just more victims in a long, shameful legacy of land controversies in Florida. When will this state ever learn?