The Villa Owners Meeting I

:                                        A Lot of Hocus Pocus

Here we have what appears

to be the thinking of some

Board members in response

to questions about what

happened to Villa reserves.

While not intending to offend with my finger pointing illustration, I'm sure Villa owners were quite offended when Roz, in responding to a question about the whereabouts of Villa reserve monies, said, in effect, "you will have to sue us to find out."

The Villa owners meeting produced an incredible outcome, but not an unexpected one for what amounted to nothing more than a magic show about numbers. Some, no doubt, could not see through the smoke and mirrors and were warmly taken in by the numbers demonstration. Others, fortunately, were not so easily overwhelmed.

But first, the accolades. As moderator of the program, Roz Berman, who was assisted by Mike Dixon, did an outstanding job in gathering, researching and in attempting to respond to the numerous questions that have been asked by Villa owners over the past several months, as well as a great job in fielding questions from the audience.  And then there was Norm McCullough, that soft spoken, tireless knight who has been leading the charge in behalf of the Villa owners for information and accountability. While I suspect that Norm is somewhat conflicted in his quest, and who wouldn't be given the obstacles he has faced all along and the great burden he has assumed, he continues to be very troubled and for good reason.

The clear thrust of the presentation made by our two Board members was threefold:

• The Villa owners got credit for all of the money they were entitled to and more. In other words, they are owed nothing more.
• The Board has no interest in seeking an accounting of monies Del Webb/Pulte held in trust for the Villa neighborhoods.
• The Board refuses to represent the Villa owners in seeking an accounting or in reopening negotiations with Pulte to secure the funds the neighborhoods believe they are entitled to.

When I say “The Board,” I’m really not referring to a vote of the Board members, because that has not happened, but to what that Friday afternoon information session conveyed to the Villa owners who were in attendance.

So that this money matter can be made more clear, the recently concluded negotiations with Pulte dealt not with the money the Developer had a fiduciary duty to hold in trust (the money actually owed), but with something quite different. It dealt with a much more obscure issue of whether the Villa neighborhoods were properly funded at the time of transition pursuant to a disputed reserve study. Please keep in mind that those matters are as different as a house is to an apple. They have nothing to do with one another. While a reserve "study" may at best show you how much money is needed to fund future repairs, the actual reserve balance is an amount that was supposed to be made available at the time of transition and held in trust by the Developer to accomplish those future expenditures. As you can see, the money in the so called trust fund can be more or less than what the reserve study indicates was needed. In other words, the trust fund can be over funded or under funded.

The central issues for the Villa owners are 1) they do not know; 2) if the money held in trust was greater than the amount needed, or in our case, the amount Pulte paid ($240,000), that difference should be transferred to the Villa reserve accounts; and 3) if that amount that should be transferred is sufficiently large, then the current annual increase in assessments of $500 must be either rescinded or substantially reduced.

For the sake of this discussion, let's say that Pulte was holding money in trust for Villa reserves and that money amounted to $400,000. It's probably a lower amount, but for illustration purposes only, I’m using $400,000 as a convenient rounded number as a starting point. But rather than turning that money over to the Association at the time of transition in 2005, Pulte turned over nothing of the monies Pulte had designated for reserves. Later, this "omission" is raised with the Developer and negotiations commence. The Developer then ponies up $240,000, but not the $400,000 that Pulte ostensibly had held in trust for the Villa neighborhoods. Of that amount, say, $180,000 was attributed to the amount needed to “fully fund” the reserves according to some disputed reserve study, plus an additional $60,000 was added for this and that future need. Negotiations are concluded and Favil West and Kay Dwyer execute that settlement Agreement promising to keep the details secret. The Board later accepts the money and it is deposited into the Villa neighborhood accounts.

Then comes the meeting this past week, which was intended to explain everything, but, in reality, explained absolutely nothing.

Yes, that meeting explained absolutely nothing. You may ask, again using my illustration, "wasn’t Pulte holding $400,000 in trust for reserves for the Villa neighborhoods?" And "wasn’t Pulte supposed to turn over that amount to the Association at the time of transition?" And the answer to both questions is, of course, "Absolutely."

What’s sort of interesting about that apparent omission to fork over that money at that time is that Pulte turned over other monies to the Association, but not these funds. Something was going on, but just what has never been disclosed or made clear. For example, did our accounting folks or others drop the Villa reserve ball and not demand those funds at time they were setting up all of our banking accounts? Please, what were those discussions all about at the time of transition?

Now, we are not talking about rocket science here. The math is pretty straight forward, even simple. Using our illustration, let’s see what this amounts to, starting with a given of $400,000 to be held in trust:

Based on our illustration, Pulte owes the Association $160,000 more than what they have already paid. If true, now we can understand why Pulte insisted on including in that Agreement provisions that held Pulte financially and legally harmless and transferred any subsequently determined "additional liabilities" that might be owing to our Association. How clever was that?

Now, Pulte, who during this period was either running the Association or was on contract to manage the Association, might come forward and tell us any number of things in support of their position (assuming they have a position), such as:

• They had no fiduciary obligation to hold in trust $33.80 a month as reserves from the $125 a month that Villa owners paid to the Association.
• They commingled those funds and used that money as needed to meet operating needs.
• The negotiated Agreement signed by the then president and treasurer relieved Pulte from any further liability in this matter.

It really doesn’t really matter what the arguments are. In the end, the Developer owes the Association an accounting, and it would seem, any difference in the amount that has already been paid ($240,000) compared to the amount determined due based on the amount that was ostensibly held in trust for reserves.

Speaking of an accounting, Roz Berman volunteered some interesting information about that at this meeting. Unless I misunderstood, Roz said that she, herself, has all of the records necessary to make such an accounting. That accounting, I gather from her remarks, would reflect all monies paid by Villa owners to the Association over the period in question.

If true, and I may be a bit naïve about this, Roz could easily generate with considerable accuracy the numbers the Villa owners have been seeking all along. Am I correct about this, Roz?

For example, Roz can go into her records and come up with the total additional income paid by Villa owners up to the point of transition. That money was always paid at the same rate of $1,500 annually, or at the equivalent rate of $125 per month per household.

Say, for example, Roz plugs in the numbers and comes up with the following sum (understanding that this is an example only and that the actual sum is likely to be somewhat lower):

That one figure represents the holy grail or pot of gold at the end of the rainbow as far as the Villa owners are concerned. Assuming Roz can do just that, she can then calculate how much of that amount was, let’s say, intended for reserves and how much was intended for operating expense. Since we know that the reserve allocation was 27.04% of the total, or $33.80 of $125 a month, we can get a hold on the amount of money that Pulte should have turned over to the Association. I would be very surprised if Roz has not already added up the numbers and made that very calculation.

So, what would Roz find? Well, taking 27.04% of that total income amount yields $400,000. That’s the precise figure that the Villa owners are looking to obtain. Why? Because that is the amount that Pulte declared that they had held in trust for the Villa owners at the rate of $33.80 per month. So, the question for Roz is, “what is that accumulated sum?”

That next step should be no surprise to anyone. Ask Roz to produce that one significant number, the accumulated sum of all Villa only monies paid to the Association. With that single figure, anyone can calculate the reserve amount and the operating fund amount. Surely, if Board member Roz Berman has that information, she has no reason for withholding it. Right?