John Arrastia, with Genovese Joblove & Battista.. (J. Albert Diaz)
When Fort Lauderdale forensic accountant Barry Mukamal was appointed bankruptcy trustee for a homeowners association in Miami Gardens, the group had no assets and no cash.
The Majorca Isles development was falling apart, with broken front gates, an unusable gym and an occasionally green swimming pool. Construction of the planned 681-unit community, built by the nation’s largest residential homebuilder, D.R. Horton, was halted with about half of the units done after the recession hit.
The developer’s next step was to sell 90 percent of the completed units, the legal threshold to turn over control to the homeowners association. Mukamal said he soon found D.R. Horton left the association’s finances in about the same state as the property itself: a total mess.
“It became evident to me early on that the HOA was struggling almost from the day that D.R. Horton turned over the HOA to the homeowners,” said Mukamal, an accountant with Kapila & Co.
The trustee unraveled a history of shoddy record-keeping, ultimately alleging in a lawsuit against D.R. Horton that the developer failed to institute a collections process for assessments and decided to shift economic losses to the homeowners by slashing promised amenities such as security guards. Miami lawyer John Arrastia of Genovese Joblove & Battista represented Mukamal in the litigation.
U.S. Bankruptcy Judge A. Jay Cristol ruled in the trustee’s favor Oct. 21, finding D.R. Horton’s actions “can only be classified somewhere between not nice and evil.”
After a three-day bench trial, Cristol awarded the Majorca Isles Master Association $16.3 million in damages, plus interest. The award includes $12.5 million in punitive damages for “wrongful conduct … motivated solely by greed for unreasonable financial gain.”
An attorney for D.R. Horton, Kevin Reck of Foley & Lardner in Orlando, did not respond to a request for comment by deadline.
Cristol found the developer initially put its employees in charge of the homeowners association as well as condominium associations for Majorca Isles. When the recession hit and about half of the homeowners stopped paying their fees, the employees decided to shirk their obligation to the homeowners association in favor of funding the condo associations, the judge found.
Cristol ruled D.R. Horton manipulated the budgets, understating the amount of uncollectible fees and its own funding obligations to the homeowners association, creating a monthly assessment the company knew could not fund the association’s operations.
D.R. Horton also didn’t push those who owed fees to pay up, Cristol ruled, in keeping with the trustee’s arguments.
“They never had a collection process in place, and one could surmise that that was because they didn’t want a collection process,” Mukamal said. “They didn’t want to have foreclosures in the community while D.R. Horton was still selling units.”
The trustee argued that D.R. Horton did whatever it could to sell the units quickly so it could turn over the homeowners association, including keeping up with landscaping while slashing other amenities.
“They put lipstick on the pig,” Mukamal said. “In order to make it look presentable, they planted flowers until the community was sold out. And then they abandoned it.”
The defense argued it had actually overfunded the homeowners association by hundreds of thousands of dollars, but the judge quickly dismissed that argument, finding “no evidence was presented at trial to support any claim of overfunding.”
“In the end, the court wonders why this case came to trial, as the defendants failed to present any credible evidence in defense of the allegations in the complaint,” Cristol wrote. “The testimony of the defendants and their experts irrefutably support the trustee’s case.”
Arrastia said the facts of the case were difficult to piece together because D.R. Horton had kept so few records. But he said he was proud of the final judgment he won and the work Mukamal has done to keep the community running on a shoestring budget.
“I’m from that neighborhood originally, and I thought that this was a good opportunity to show that the system and the judge were more than willing to do the right thing, and do something for the little guy instead of corporate America,” Arrastia said. “This was certainly a situation in which corporate greed overshadowed the best interest of the consumer.”