The outcome of three lawsuits brought by residents of central Florida’s Solivita retirement community may determine how the state’s community development districts operate in the future.
Despite objections raised in a December public hearing, the Poinciana CDDs voted a second time to impose 30 years of charges on residents to buy developer-owned amenities.
Those charges are central to two of three legal proceedings pending in court pitting residents against their CDD supervisors, setting the stage for potentially precedent-setting decisions in a sector long used in the Sunshine state to support development and pay for infrastructure.
“What makes this case critically more important than the parties involved is a precedent will have been established much to the benefit of over 600 community development districts and their affiliated populations as the era of misguided supervisors issuing bonds without regard to real values of assets procured…will finally come to a close by a judicial act without the need of Legislative repair!!” 93-year-old Martin Kessler wrote in his final brief to the Florida Supreme Court.
Kessler, who is representing himself in an appeal of the Poinciana CDDs’ bond validation case last year, also said equally important in the case is ending the practice of a developer being allowed to sell what he believes are over-valued assets to a CDD community.
Florida law, he argued, requires that a CDD make a “fair value computation” of products to be purchased when making payment to satisfy a financial obligation such as a bond.
Polk County Circuit Judge Randall McDonald rejected Kessler’s argument when he refused to validate $102 million of bonds on Aug. 31 sought by the Poinciana CDD and the Poinciana West CDD supervisors, who are charged with overseeing infrastructure in the Solivita development.
Kessler is asking for the Supreme Court to overturn that ruling.
The case, which is fully briefed, now waits for the high court to decide whether to hold oral arguments.
At issue is the CDDs’ plan to use $102 million of debt to purchase existing amenities - most of which are 15 to 17 years old - such as pools, parks and restaurants from the developer, Avatar Properties, and its parent AV Homes.
In addition to the $72.9 million price tag for the existing amenities, another $11.2 million would be used by the developer to build a new wellness center and a 600-seat performing art theater, and $11.4 million will be used for issuance costs, some to reimburse the developer who paid CDD costs for studies, evaluations, and legal fees up front.
Judge McDonald refused to validate the bonds, saying that the assessments the CDDs planned to charge residents to pay the debt were not “properly, fairly, and reasonably” apportioned among all homeowners. In other words, the assessments were not equal.
That was an argument won by Solivita residents Brenda Taylor and William Mann in a separate challenge of the validation.
McDonald, however, also rejected other complaints Taylor and Mann cited, including one in which they contend that the CDDs and the developer improperly used an income-based approach – as opposed to obtaining a just value from a certified appraiser as required by Florida law - to capitalize 30 years of future club membership fees currently charged by the developer in order to value the amenities in excess of their worth.
They hired Urban Economics Inc., a state certified real estate appraiser that found the market value of the amenities to be $19.25 million.
McDonald disagreed with Taylor and Mann, who are also asking the Supreme Court to overturn his judgment.
While the Supreme Court cases are pending, the Poinciana CDDs are moving forward with the same amenity purchase plan based on a revised assessment methodology. They filed a second bond validation case on Oct. 24, which has been assigned to Polk County Circuit Judge Steven Selph.
The CDD supervisors say they are motivated to buy the amenities because they believe the developer could sell them to a third party, and the districts would lose control over what residents pay to use them.
On Dec. 13, the supervisors voted to adopt a new assessment scheme designed to satisfy McDonald’s objection, after a lengthy and sometimes heated public hearing that is posted
Taylor, who with Mann is appealing the first validation case, told CDD supervisors they still object to the new special assessments.
“They are not fairly and reasonably apportioned based on the benefits received by the assessed properties,” Taylor said. “AV Homes and the districts reformatted the transaction but it remains substantively the same.”
Taylor and others who appeared at the hearing called the assessments “arbitrary and capricious,” because they are based on a “club fee scheme” currently charged by the developer.
The legality of club fee, which residents are charged to use the amenities in Solivita, is also being challenged in a class-action lawsuit filed by Norman Gundel, Mann and Taylor against Avatar and AV Homes.
That complaint is separate from the two bond validation cases, and argues in part that the developer is legally obligated to turn over the existing amenities to the CDDs under Florida law.
Gundel told CDD supervisors Dec. 13 that if the court agrees with residents’ argument no bond assessments will be necessary.
“You do not know now before you vote if the club membership fees are legal or if the amenities must be turned over” to the CDDs, Gundel said. To “put this burden on us today when you don’t know would be arbitrary and capricious.”
One woman told supervisors that she had hoped the bond deal would include reserves for repairs because some of the amenities being purchased are 17 years old.
The CDDs’ budgets will require a separate assessment for operations and maintenance in addition to the assessment for debt service.
In a statement before the Dec. 13 vote, Supervisor Lita Epstein explained why she objected to approving the new assessments.
“I will be voting no because we don’t know if the income stream on which the evaluation is based is a legal income stream and we don’t know how the Supreme Court will rule on the issue of requiring a property appraisal by a licensed Florida property appraiser,” she said, referring to the developer’s club membership plan.
Mike Eckert, the CDDs’ agent and an attorney with Hopping Green & Sams PA, said no judge has ever said that the club membership plan is illegal, and that only a lawsuit has been filed at this point.
“But based on everything I have read and I have researched, I have no doubt that it is a legal income stream,” he told supervisors. “You will have a decision from the judge on the class action before such time as you ever sell bonds or adopt the final assessment resolution.”
The resolution passed Dec. 13 was necessary for the second bond validation case, he said, to assure bondholders that everything possible has been done to secure the revenue stream with assessments.
The resolution does not certify assessments for collection, which will not occur “if the amenities sale never goes through,” according to Eckert.
Eckert said he anticipated that a decision on the bond validation appeal before the Florida Supreme Court will be handed down “around the first quarter” of 2018.
Judge Selph is expected to set a hearing soon in the CDDs’ second bond validation case.
In the class-action suit, Polk County Circuit Court Judge Andrea Teves Smith is considering several motions, including one to dismiss the case and counterclaims filed by Avatar and AV Homes against the Solivita plaintiffs. An evidentiary hearing is set for April 6 to determine if the case should go forward as a class-action suit.
