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D.R. Horton settles case that accused execs of “immoral, unethical, oppressive, and unscrupulous” tactics

Settlement shaves $5M off $16.3M in damages judge awarded homeowners association last fall
By Francisco Alvarado | July 12, 2017 02:15PM

Majorca Isles, with Barry Mukamal, left and John Arrastia

UPDATED July 12, 11:30 p.m.: Ten months after a Miami federal bankruptcy judge ruled that D.R. Horton engaged in deceptive practices that forced the bankruptcy of the homeowners association for Majorca Isles in Miami Gardens, the nation’s largest home builder is ending its appeal.

Last week, U.S. Bankruptcy Court Judge A. Jay Cristol approved a settlement agreement negotiated between bankruptcy trustee Barry Mukamal and his attorneys with Fort Worth, Texas-based D.R. Horton that shaves off $5 million from the $16.3 million in damages the judge awarded the homeowners association last fall.

Mukamal, co-managing partner of the accounting firm KapilaMukamal, said the $11 million settlement provides the Majorca Isles Master Association with the resources to physically restore the planned 681-unit community and establish the necessary reserves to ensure the association’s future viability.

“The Majorca Isles community has been suffering since 2011,” Mukamal said. “Despite the operational improvements made by myself and my team with limited resources, deep scars remain. The settlement completely rights the ship.”

Attorneys and spokespersons for D.R. Horton did not immediately return phone messages and emails seeking comment.

Following a three-day trial in October 2016, Cristol ruled that D.R. Horton and its employees engaged in “immoral, unethical, oppressive, and unscrupulous” trade practices “that offend established public policy for its financial benefit, conspiracy, and breaches of fiduciary duty.”

In 2005, D.R. Horton began construction on Majorca Isles, intending to build a community consisting of 681 condos and single-family homes with two swimming pools, two clubhouses, as well as security. However, D.R. Horton halted construction during the recession as sales slowed and withdrew the remaining portion of the project. The development company only built 355 units that sold for an average of about $300,000.

Seven years later, the homeowners’ association was forced into bankruptcy shortly after the community was turned over by the developer. At the October trial, testimony revealed that D.R. Horton employees appointed to the homeowners association before it was turned over made no meaningful effort to collect assessments from the unit owners. The company was also unable to identify which homeowners had and had not paid their dues.  

Moreover, D.R. Horton diverted collections from Majorca Isles to other condominium associations and unilaterally cut out promised amenities in the community to reduce the overhead of sustaining the Majorca Isles association, according to court testimony. Bankruptcy trustee lawyer John Arrastia also presented evidence showing D.R. Horton deceived existing and prospective homeowners by publishing association budgets that materially understated the uncollectible assessments and amount necessary to run the association. The homebuilder’s employees created false financial statements that inflated the assets to make the Master Association look solvent, even though it did not have enough money to pay its bills, according to the evidence.

In his 52-page opinion, Cristol described the bankruptcy case as a classic “David v. Goliath” tale and that “These actions by D.R. Horton can only be classified somewhere between not nice and evil.” Despite the evidence, D.R. Horton appealed Cristol’s ruling in December of last year.

Arrastia, a partner at Miami-based law firm Genovese Joblove & Battista, said the end result should be a “wake-up call” for all developers. “They have an obligation of fairness and transparency to the citizens of Florida and they will be held accountable to that standard,” Arrastia said. “In this case, corporate greed overshadowed D.R. Horton’s obligations to serve the best interests of the homeowners’ association, the homeowners, and the community.”