D.R. Horton Inc. markets itself as “America’s homebuilder.”
On its website, the Fort Worth, Texas-based company advertises it will make residents’ dreams come true.
At Majorca Isles in Miami Gardens, that dream has taken on the qualities of a nightmare with broken front gates and random garbage piles left by outsiders. There’s also a padlocked, half-finished park choked with weeds and a malfunctioning heated pool, which usually is under repair and sometimes green. Not to mention the gym, where equipment has not been maintained properly.
In a Jan. 29 lawsuit filed in Bankruptcy Court, the court-appointed trustee for the master homeowner association alleges D.R. Horton left the HOA in financial shambles, essentially abandoning the project when the housing market collapsed.
The trustee, forensic accountant Barry Mukamal, a partner at Marcum in Miami, is a seasoned bankruptcy veteran. He said he’s never seen a builder undercut an HOA and community like D.R. Horton did at Majorca Isles.
“This is not the way a Fortune 500 company should operate,” Mukamal said. “These weren’t flippers. These were primarily middle-class, hardworking people trying to build a community.”
D.R. Horton, the largest U.S. homebuilder by revenue, was ranked 498th on the 2012 Fortune 500 list but fell off last year. During the year ended Sept. 30, the company closed 24,155 homes for net sales of $6.6 billion.
Berry Jerome, a Miami-Dade police officer, said he decided to buy a four-bedroom townhouse in Majorca Isles in 2007 after hearing about all the promised amenities. Now he has seen some of his neighbors ditch their homes, become renters again and take the credit hit.
“There were a lot of people who paid $350,000 for their homes, and they actually walked away because of the horrid conditions,” Jerome said. “D.R. Horton left the whole neighborhood in disarray, leaving every single account with a negative balance.”
A call for comment to D.R. Horton attorney Amalia Papadimitriou, the company’s Florida general counsel, was referred to company headquarters, which did not respond. Attorney Vincent Damian Jr., a partner at Salomon Kanner Damian & Rodriguez in Miami, also represents the builder and did not return a call or email for comment.
Mukamal is represented by attorney John Arrastia, a partner at Arrastia Capote & Phang in Miami. Accountant Frank Kessler, a senior manager at Marcum, has been tapped by Mukamal to do some heavy lifting in the case.
Majorca Isles is near Sun Life Stadium on County Line Road just east of Florida’s Turnpike. The community was envisioned as a 650-unit townhouse complex on a man-made lake.
Under state law, the builder controlled the homeowner association and its board until 90 percent of the units were sold.
Company plans for the development changed when the housing boom busted. The 11-count lawsuit alleges various forms of breach of fiduciary duty followed D.R. Horton’s decision in 2011 to cut the community in two. The original section suffered financially, and the newer development was slated for construction when the market revived.
D.R. Horton failed to forward the dues collected by the subassociations in the community to the master HOA. The lawsuit alleged the company instead used the money to make sure the new phase looked good for potential buyers, Mukamal said.
“It never developed the community it touted and instead engineered an abrupt and unannounced withdrawal from construction, leaving the development halfway finished with the master association in disastrous financial condition that led to almost immediate insolvency,” the lawsuit states.
Potential buyers would see well-manicured landscaping while H.R. Horton starved the master association responsible for larger amenities such as the gym, pool and park, he said.
“It created a false impression of financial viability, which allowed D.R. Horton to placate existing homeowners and sell new homes to the public as quickly as possible and at the highest possible price, all to the detriment of the master association,” the lawsuit states. Mukamal said, “It was putting lipstick on a pig.”
It took about a year for the association to file for Chapter 11 bankruptcy protection after D.R. Horton cut the cord. U.S. Bankruptcy Judge A. Jay Cristol appointed Mukamal as trustee in July 2012. He said he inherited an HOA for a complex that had slipped into disarray and was running a $20,000 monthly deficit.
Complicating matters was that D.R. Horton inexplicably failed to keep records on dues paid and owed. Mukamal said it has been a “one-way street” when it comes to getting information from D.R. Horton.
The developer didn’t press residents who didn’t pay dues for money because that could have resulted in foreclosures, which likely would have depressed property values for new customers, Mukamal said. In addition, outsiders vandalized facilities and dumped their garbage where they pleased.
Arrastia, who filed the lawsuit on behalf of Mukamal, told the Daily Business Review that D.R. Horton’s move to cut the project in two during the housing market’s freefall was “cunning” and “Machiavellian.”
Mukamal said the builder has returned to the neighborhood, building single-family homes next door. Residents of the roughly 355 units at Majorca Isles watch in anger as a brand new neighborhood sprouts next door while their neighborhood remains a shadow of what was promised by the builder seven years ago.
“There was no road map for who owed what, who was paying and who wasn’t paying and what funds were used by the phase HOAs that really belonged to us,” Mukamal said. “All that had to be constructed from source records, which was extremely expensive, laborious and time-consuming.”
The trustee’s team counted about $1.3 million in uncollected dues. Mukamal has recovered about $400,000 and is seeking around $900,000 from D.R. Horton.
Mukamal also wants the builder to reimburse costs for reconstructing the records and pay professional fees associated with the case. If he doesn’t get the company to pay, a special assessment might have to be levied against first-phase homeowners.
Mukamal has been able to turn the green pool blue and fix a few of the maintenance problems. But Kessler, his right-hand man in the case, said, “Barry just put his finger in the dike. He stopped the hemorrhaging.”
Kessler said accountants determined about $300,000 that should have been collected in dues can’t be accounted for at present.
Mukamal said he is outraged at the builder’s conduct and wants to learn in discovery if D.R. Horton has left other master HOAs in financial ruin.
“It’s inappropriate oversight and management,” he said. “If this was a car, then they left it with flat tires, an empty gas tank and a dead battery.”