SOA Option to Buy SGCC for $1 Prior to Bankruptcy

Posted By Dan Kanyr

“….As protection against SGCC bankruptcy, a provision was included in the SGCC Lease Agreement allowing the SOA to purchase SGCC (land, facilities, amenities, etc.) for $1 prior to bankruptcy.”A quote from the  Somersett Board of Directors (BOD) summary communication to SOA homeowners on the lease agreement signed with SGCC.

Page 8, Section IV-8 SGCC Lease Agreement states:  “In the event SGCC intends to file for BANKRUPTCY under any chapter, SOA shall have the first right of refusal to prior to SGCC filing for BANKRUPTCY to purchase the SUBJECT PROPERTY for $1.  If SOA elects to purchase SUBJECT PROPERTY there shall be no additional requirement for SOA to reimburse any SGCC member for any reason, including initiation payments…”

The preceding may sound good, but it is not what it seems.  In reality it offers nothing of value to the Somersett homeowner.  In this Article, I will review:  1) the validity of the communication; 2) the legality of the $1 option; 3) the value of the option; 4) who really benefits from this clause; and 5) property values.

1)      The BOD Communication 

The BOD wants homeowners to believe their interests are protected by the $1 option. This is far from the truth. The option offers no security to SOA. The Quitclaim Deed  transferring  the golf course real property to SGCC only allows for use as an  18 hole championship golf course.  Otherwise, the title to the real property and all water rights reverts to Blake Smith’s Somersett Development Company (SDC).

I asked the BOD where is the “security”?  I got two answers. 1) SOA could use the option to block an undesirable buyer. and 2) to paraphrase Blake Smith : if you don’t think it is any value don’t exercise the option. I can always take back the land and sell it to developers and sell the water rights.

The SOA BOD grossly misrepresented the $1 option when they communicated with members. The communication leaves the impression SOA is secured by the SGCC real estate.  In fact, SOA would only get the right to operate an 18 hole championship golf course that by that time had gone bust twice.

2)      Legality of the $1 Option

SGCC is owned by its equity members who each signed contracts defining their interests and how they can be sold, transferred, etc.  It is doubtful the SGCC has the legal authority to wipe out each equity member’s share.  Did SOA check the legality of this clause?

3)      The Value of the Option

When SDC negotiated early turnover of the SGCC to the Equity members in August 2010, SDC agreed to underwrite $450,000 of SGCC operating deficits for 2010, $200,000 in 2011 and nothing beyond, as well as transferring $1,000,000 in the escrow account for the clubhouse. These monies have proven to be insufficient to offset SGCC’s actual operating deficits, as it has been reported that the SGCC’s  operating deficit for 2011 was ~$685,000.  So the option for the SOA to buy the club  is not for $1, but rather a potential negative $685,000/year as it would subject the Somersett homeowners to fund all SGCC operating deficits.  How would this be accommodated?  Only through increased homeowner assessments.

4)      Who benefits from this clause?

The $1 option benefits only SDC and  SGCC. It offers more harm than good to SOA members. The clause misleads homeowners into thinking they have real security.  Consider the two alternatives from the SOA’s viewpoint.

Bankruptcy: The court would appoint a trustee to either re-organize SGCC or liquidate the SGCC assets. SGCC land would revert to SDC under the  Quitclaim Deed. Vendors and others owed money by SGCC would be re-paid at some % of their claim.  SDC could then contract with a golf management company to operate a public course, sell SGCC as a golf course, sell the land to developers (with a zoning change), or deed the land to the city as a public area, etc.

Sale to SOA prior to Bankruptcy: The clause leaves open the door for SGCC members to seek an enhanced subsidy agreement from SOA or an outright sale where equity members are paid for some or all their interests.  SOA finances would be stretched by SGCC’s substantial negative cash flow.  The option clearly helps SGCC equity members, not SOA.  Also SDC has a financial interest in sustaining the SGCC.   SGCC pays the taxes and maintenance on the course which otherwise be SDC’s responsibility.  SDC’s financial interest in the land costs it nothing. In this market SDC is unlikely to find a buyer for the land except at the most distressed prices so SDC is not in a hurry to get the course back.

5)      Property Values:

Much has been said about the drop in property values if the golf course closed. This was prominent in the D’Andrea discussions.  Prior to the real estate collapse, golf course lots commanded significant premiums. Even in this down market a golf course lot is a positive.  What if SOA acquired SGCC as an amenity for its members?  In my opinion, property values in Somersett would likely plummet. Why?  Potential Somersett home buyers would be limited to people who wanted to join a country club. Home buyers would be required to pay for an SGCC membership whether they wanted it or not.  They could buy in other communities without the cost. If SGCC membership were so desirable, SGCC would not be groveling for new members at ever lower prices.

In conclusion, the $1 option is a bad deal for SOA.

QuitClaim Deed


Transition

Posted by Geoffrey Brooks

Somersett

I just attended two classes run by the Community Associations Institute concerning HOA management, operation and finance.  What did I learn?  The Nevada law is being continuously improved to try to protect the homeowner, in spite of this, HOA’s are still a lawless jungle. Justice is not swift!

Blake Smith, even though he ceased to legally comply with the developer ownership and control criteria in 2009 (Somersett auditor’s report), is leaving by November 2012. He has transferred some residual Somersett Development property contiguous with the Somersett Country Club (SGCC) by quick claim deed, so that they have to pay the taxes and upkeep without ownership.  This document shows that Somersett Development Ltd. is in the process of winding down, indicating that the declarant is not now an active participant in the community in the same way as when he originally developed Somersett.

Whereas the developer has a primary role of ensuring that his investment is protected, he also owes a fiduciary duty to the owners. The standard is just as high as a homeowner controlled board. The wise developer recognizes his legal responsibilities to the community and understands that the transition process (transferring community control to the owners) begins with the FIRST sale, the continuous education of new purchasers as to their rights and obligations, and finally, the transfer of HOA control from the developer to the homeowner.  This is facilitated by the formation of an appointed “Transition Committee” comprised of homeowners.

At turnover, The Transition Committee has to ensure that the developer has provided the HOA with all documents pertaining to the creation and management of the Somersett PUD.  This includes the following: 1) financial, legal and personnel records, 2) minutes of board and association meetings, 3) copy of the articles of incorporation, the declaration, the bylaws, the rules and regulations, the book of resolutions and the public offering statement, 4) a history of the development of the community along with all approved tract maps, building and landscape plans, 5) copies of all state and local approvals along with confirmation that all regulatory requirements have been accommodated, 6) all contracts signed by the developer and 7) the title and documentation for all properties transferred to the HOA has to be verified, along with schedule of expected life, maintenance, copies of bonds, warranties and a list of the manufacturers and contractors used.

The preceding is a daunting task with the objective that the Somersett homeowners are duly informed and can now control their own destiny.

It is the owners (not the existing or new board) who generally have the power to amend the declaration, particular provisions of the bylaws (CC&Rs), assessments, and to approve significant expenditures regarding leases, contracts and use of surplus funds. This is done by a vote of a specified percentage of owners for consent.

The new homeowner board will have the same fiduciary duty to the community as the current developer controlled board.  This is an umbrella term which includes a duty of loyalty and a duty of ordinary care. Specifically prohibited is having board members take unfair advantage of the HOA.  Board members breach the duty of loyalty if they sign a contract with a company in which they have a material interest in and the contract could be considered unfair to the association. In the case of Somersett, as there is an arm’s length arrangement between the private equity owned SGCC residents and the HOA (it is in our CC&R’s) they would be considered conflicted if they decided to run for the board as they would not be able to fulfill their fiduciary duty to all 2400+ unit owners of Somersett.

I urge all homeowners to overcome their apathy, take a time to understand what is happening in Somersett. Stand up, attend transition and board meetings, exercise your obligations to everyone else in our community.  We ALL signed the purchase documents for our “Somersett unit” dream location where we acknowledged the community rules and obligations. We need to hear from you, and we need you to vote for the future!

Smart Meter Update

Somersett
Expansive Somersett

Posted by Carole Fineberg

Today was a pre- hearing conference where a schedule for future hearing as well as document submittal dates were announced. We now have the following dates in the schedule.  This is not official text from PUCN but only as I heard the announcement from Chairman Burtenshaw at the hearing today. The dates will not change, but there should be a fuller explanation of what will happen on each of these dates.  Specific times will be included when the full announcement comes out from the PUCN office.

Sept 11, 2012 – Testimony by PUCN and BCP staff due to be turned in to PUCN Office.

Sept 25, 2012 – Rebuttal by NVE to PUCN and BCP staff due to be turned in to PUCN Office

October 4-5, 2012 – Hearing for sworn testimony by BCP, NVE, PUCN and public comments

Today there were approximately 9 commenters from the north and about 15 from the south so there were excellent comments from both halves of the state.  All comments were salient, cogent points in opposition to any required fees associated with the NVE Opt-Out program proposed by NVE on May 2, 2012.

In today’s testimony from Nevada ratepayers, we not only saw a complete model of Nevada citizens, but a clear persona of a public that we have become as a nation of freedom loving Americans. From doctors to rocket scientists and from housewives to carpenters, citizens spoke out poignantly against any fees for opting out of having a smart meter.  It was enormously clear that this is not a partisan issue and that it permeates the very core and at all levels of the American cross section. All comments were delivered with prowess, with dignity and with diligence to fact and resource.

Thank you to all who testified and attended meetings in both halves of our state today.

More updates to follow or check for more information at http://www.nevadaconstitutionalalliance.com/

Mike Hazard

Las Vegas, NV

The Smart Meter Battle Continues

Smart Meter

Posted by Carole Fineberg

We have entered a new phase of the battle. Nevada Energy (NVE) has come back with a proposed “tariff” (fee) to opt out of the Smart Meter program for Northern Nevada of $107.66 up front and $11.01 per month. The Public Utilities Commission of Nevada (PUCN) has up to 5 more months to respond. The real burr in the saddle is that this may not be a permanent situation. NVE could come back in a year or two and say there simply are not enough folks opting out and the Smart Meter will become mandatory and your up front and monthly costs are lost completely.
Please try to sign up for the Service List for Docket #12-05003 to be informed of pre-hearings, hearings and decisions. Currently, there only about 13 folks who have signed up and we want to see those numbers grow. You can accomplish this by doing one of the following three items:

  1. Print out and complete the Service List for this Docket Number #12-05003. This will automatically notify you when there is going to be a pre-hearing, a hearing or a decision. You can fax it back to the PUCN at 775-684-6110. This is not committing you to speak at a hearing (that’s another sign-up process), but it shows interest in the process, which PUCN needs to see, or they’ll think we don’t care and decide at will what works best for NVE and PU
  2.   Go to the PUCN Office in person at 1150 E. William St. in Carson City and ask one of the front counter persons to be put on the Service List for Docket #12-05003. The receptionists are very helpful and trust me; they want us to participate in this process, so please sign up as soon as possible.
  3. Or you can call the PUCN front desk at 775-684-6101 and ask to be put on the Service List on Docket #12-05003.

For additional information on the Smart Meter controversy and what other communities are doing to opt out of their implementation, please visit the following websites:

http://www.powermag.com/POWERnews/Illinois-Regulators-Reject-Ameren-Smart-Grid-Plan_4697.html

http://www.ocregister.com/news/smart-356027-meter-good.html
http://ovnblog.com/?p=6279

http://stopsmartmeters.org/how-you-can-stop-smart-meters/sample-letter-to-local-government/ca-local-governments-on-board/

No Such Thing As A Free Amenity

Posted by Ex-Country Club Member

It continues to amaze me that many Somersett residents (mostly golfers) champion the SGCC Lease Agreement as a good deal because: 1) The afforded amenities are not costing the residents anything (i.e., no increase in our monthly dues), and 2) As stated by the SGCC Board of Directors in their welcome letter to Somersett residents “for your additional benefit, the Club will be investing approximately $300,000 in future Club improvements” and “we wholeheartedly support the Somersett Owners’ Association in their mission to provide a sense of community and provide amenities to the community to make us all believe the “Its’ Good to be Home!””.

Let’s cut through the rhetoric and put this in its proper perspective:

  1. Over the initial three year term of the agreement, $15/mo of every Somersett homeowner’s (2415 at the beginning of 2012) assessment will go to the SGCC.  This amounts to approximately $1.4M assuming a modest growth rate.
  2. The no dues increase only applies to 2012 as there were sufficient surplus funds to support the $445K being paid to the SGCC in 2012.  No such guarantee will apply to 2013 and 2014.
  3. The $300K of improvements touted by the SGCC is in reality being paid for by the SOA via the $1.4M in homeowner assessments (i.e., no monetary investment on the part of the SGCC required).
  4. The $300K from the SOA will be used by the SGCC to enlarge their dining facility, expand the driving range and add an additional nine hole putting course, for which residents will pay a fee to use.
  5. If the SGCC decides to build a permanent clubhouse, the Lease Agreement contains a provision wherein the SOA Board can request a design that includes resident amenities, accompanied by an appropriate fee structure (i.e., increase in homeowner assessments).
  6. The Lease Agreement contains provisions for three and four year renewal periods, representing a potential Lease Agreement liability of $4M-$5M to the SOA depending on resident growth rate.

So let’s see here, the SGCC gets expanded dining facilities, expanded driving range, a new nine hole putting course, a bocce ball court and millions of dollars in cash, all paid for by the SOA.  Not to mention the potential subsidy to the SGCC for construction of a permanent clubhouse.  In return for our investment, aside from limited usage rights for a fee, the SOA receives no payback. That is, no revenue sharing or rights to any of the improvements paid for by the SOA upon termination of the agreement.  Who is the real beneficiary here?  It is not hard to conclude that there are additional factors at play other than to “provide a sense of community”.

Town Center Lot Purchase

Town Center

Posted by Pat Brooks

The purchase of the Town Center Lot, adjacent to the Town Center Club, is once again being considered for purchase by the SOA Board.  As far as I know, there is no plan for what will go on that lot.  Shouldn’t there be a feasibility study, to see what is possible?  There is a drainage easement traversing the property, near the center, which needs to be assessed with consideration as to what could be built there.  We certainly don’t need more office buildings, with many vacancies available in the other buildings.  Financially, I do not think it is wise to deplete our cash reserves, with no plan for how the property would be used.

D’Andrea Golf Club Status

Posted by Joe Bower

The following article written by Dan Hixman – Reno Gazette-Journal – May 30, 2012

D’Andrea Golf Club could have a new owner by the end of June.

Nick Oddo, a retired real estate developer and D’Andrea homeowner, started D’Andrea Golf Partners LLC after the course was closed in March.

He said Wednesday there are two options for a possible sale. D’Andrea Golf Partners LLC is in escrow, but Oddo (pronounced OWE-doe) said another company has shown interest in the property.

“We’re talking seriously to a potential buyer,” Oddo said. “And we’re also working on our own program to acquire it ourselves. We’re not sure which way it will go.”

D’Andrea closed in March after D’Andrea homeowners voted down a $28 monthly increase in homeowner’s fees to cover losses. The course, which is still owned by D’Andrea Golf Holdings LLC, had consistently lost about $300,000 annually over the last five years. The City of Sparks shut off water after D’Andrea failed to pay a $150,000 bill.

D’Andrea Golf Holdings LLC also owes $39,809.23 in taxes and penalties on six parcels, according to the Washoe County Treasurer’s Office 2011-12 Delinquent Tax List published May 22.

Oddo said the potential buyer has until the end of June to finalize a deal. He would not identify the other buyer, but said it is not a local company but that the company is already in the golf management business.

Oddo said he expects to have things finalized next week.

“I really wish I could tell you more,” Oddo said. “We need to see how serious they are.”

If a sale is made, Oddo said it would take six weeks of prep time to get the course in shape, and a reopening would likely occur in late July or early August.

Oddo’s group convinced the City of Sparks to supply water in good faith, and Mark Stutsman, D’Andrea’s superintendent when it closed, has continued to keep the course in good enough shape to minimize the prep time should a sale be completed.

“It’s still green,” Oddo said. “It looks better than a lot of other (courses) in town.”

Will Gustafson, a partner in D’Andrea Golf Holdings, said in an email he is optimistic a deal can be reached.

“Nick is in escrow and … is maintaining the course in the interim,” he said. “We live in hope.”