How Attorneys Saved a Miami Gardens HOA — Before Getting It $11 Million

Article Courtesy of The  Daily Business Review

By Samantha Joseph

Published July 21, 2017


When bankruptcy trustee Barry Mukamal took over administration of Majorca Isles in 2012, the Miami Gardens homeowners' association was in such dire financial straits that its board struggled to fund trash collection. The community had no cash, no system for collecting association fees and attorneys say the developer had misled owners about their accounts receivables.

This month, a 180-degree turnaround: A hard-fought suit against Majorca Isles developer D.R. Horton Inc. yielded an $11 million settlement that will fully repay all creditors, bolster the association's financial reserves and fund repairs.

But the real story of Majorca's path from bankruptcy goes beyond the eight-figure windfall to more modest numbers: $10,000 or $15,000 per month—the surplus Mukamal and his attorneys helped create for the beleaguered community—while maintaining litigation against D.R. Horton.

"As an absolute number, that doesn't mean very much," Mukamal said. "But what it meant was that all the essential services were being supplied."

D.R. Horton is a publicly traded company whose marketing material describes it as the nation's largest homebuilder.

It lost at trial in October against Majorca Isles Master Association Inc. on claims it violated Florida's Deceptive and Unfair Trade Practices Act by padding the association's financial records to deceive new homebuyers into believing the community had enough funds to cover operating expenses. Once it turned over the property to homeowners, the new board of directors claimed it soon learned it had inherited financial statements that inflated the association's assets to make it appear solvent.

"It was funny money," said John Arrastia, the Genovese Joblove & Battista partner who represented Mukamal in his suit against D.R. Horton as part of the bankruptcy proceeding.

After a three-day trial, the group won a $16.3 million judgment, including $3.8 million in compensatory damages and a $12.5 million award meant to punish the homebuilder.

D.R. Horton appealed, and the parties settled for $11 million. Its attorney, Vincent E. Damian Jr., did not respond to requests for comment by deadline.

Mukamal said the association had a roughly $20,000 monthly deficit in the early days of its bankruptcy reorganization. Despite what Mukamal called a "bare-bones budget," Majorca's revenue still couldn't cover repairs, trash pickup or pool maintenance.

It meant a revamp on multiple fronts: dissecting the budget, renegotiating contracts, replacing service providers, keeping contemporaneous books and records, monitoring the property management company to efficiency and implement a legal collection protocol.

By the time U.S. Bankruptcy Judge Jay Cristol approved the settlement with D.R. Horton on July 6, Majorca Isles Master Association had amassed its own small fortune: about $426,460 on reserve in a Wells Fargo Bank N.A. checking account, according to the trustee's financial report for May.

"We pursued parallel paths for litigation and administration," Mukamal said. "We righted the ship on an ongoing basis on a wartime budget."