The Real Deal Miami

Sonoma Bay suit claims fraud

By Sally Apgar | August 12, 2009 04:54PM

When Pamela Hart, a county employee, slapped down $275,000 in December 2006 for a new townhouse in Riviera Beach’s Sonoma Bay, she expected a guarded community in which she and fellow homeowners had a voice in the homeowner’s association. She got a legal nightmare that encompasses the worst aspects of the region’s housing collapse — alleged fraud, foreclosures and plunging property values.

Hart, 59, had worked hard and didn’t want to abandon Riviera Beach, an urban beachside community just a few miles north of posh Palm Beach. She thought she was buying into a safe pocket of Riviera Beach in a community of other homeowners.

Instead, she found herself in homeowner hell complete with rats, crime, drug dealers, renters reliant on government assistance, abandoned or foreclosed units and no voice in the association.

In a lawsuit filed last month claiming fraud, Hart claims that Coral Gables-based Cornerstone Group, the developer of Sonoma Bay, induced her to buy with a $10,000 discount and the promise of a “private, residential owner-occupied community” with a 24-hour security guard. She was also told that once Sonoma sold enough units, the developer would relinquish its control over the HOA and the property to the homeowners.

“She lives in a war zone,” said Hart’s attorney, Bruce Loren, who took the case pro bono out of sympathy. “She can’t sell and she can’t get control of the (homeowners association) away from the developer.”

Once Hart moved in, she learned that most of her neighbors were renters, some on government section 8 housing assistance. Loren estimates there are about 20 homeowners and that Sonoma owns at least 61 units in the 302-unit complex. Loren said the rest of the units are rented, abandoned, in foreclosure or owned by banks.

Jorge Lopez, a partner at Cornerstone, did not respond to repeated phone calls from The Real Deal today.

Hart alleges in her lawsuit that Cornerstone is retaining control of Sonoma Bay as a rental community through a series of straw man transactions.

The suit alleges that Sonoma has engaged in more than 70 transactions with a company called Smacview Inc. She claims there is a pattern in these sales where Sonoma gets full price from Smacview. A few days later, Smacview sells the same property, often for about $100,000 more than it bought it for, to a straw man. At this point, both Sonoma and Smacview have profited.

Hart’s suit claims that the straw man owner defaults. Then Sonoma buys the property at a deep discount from the bank and then manages it as a rental property. The suit said that Sonoma profited from the sale of each unit and from being able to buy it back at a bargain price and then leasing it.

“The banks really got the shaft,” said Loren.

Hart accused Sonoma Bay of retaining ownership of units to avoid turning the development over to the homeowners.