development

 

Court Battle Wages
Over Lighthouse Condominiums
By Selena Chavis
While there are many positives associated with condominium ownership, managing an investment of this scale can also bring unexpected headaches, risks and expenses. Such has been the experience of the homeowners at Lighthouse Condominiums in Gulf Shores.

Currently ensnared in a complicated, multifaceted legal battle that involves developers, contractors, a title company and a bank, homeowners of the 252-unit tower are bracing for a long legal process since Attorney David Daniell announced that a trial is not expected until December 2008. “We’re moving through discovery and making depositions now,” he said.

Daniell, founding partner of Daniell, Upton, Perry and Morris P.C., in Daphne, Ala., and one of the attorneys representing the homeowners’ association, said that claims have been made on a number of fronts, with the primary issue resting with bills amounting to $1.3 million that contractors say they are owed for construction work. Documented in five separate cases, liens placed against the property by contractors impact the validity of titles and the ability of owners to sell their units.

According to Daniell, the homeowners’ association made a claim this past April against developer East Beach Development, title company Ono Professional Partners, and primary contractor Mobile-based Coastal Builders for “representing that they had clear title on the property when they didn’t.” A claim was also made against Regions Bank for allowing the closings to go forward without evidence of a lien waiver.

Additional claims state that assessments were not paid on unsold units as required under Alabama law and that the principals of the selling agency along with the developer and contractor had a “fiduciary duty” to members of the association to ensure proper administration of property operations.

The final claim states that significant construction deficiencies existed when the tower was completed—especially when compared to the standards promised by the developer and contractor early on.

“They advertised six high-speed elevators, but only four were installed,” Daniell said, adding that two empty shafts remain on the property as a result. Daniell also contends that the granite countertops promised were never installed and that thresholds on exterior doors don’t seal tightly enough to keep sand and water out. “They call this value engineering,” he said. In light of all these pending claims, Daniell has advised homeowners not to speak with the media until the matter is settled.

Also unavailable for comment was the developer, East Beach Development LLC. Recent news reports in the Press-Register stated that the development company had denied all of the claims.

A Storm In The Making
According to Daniell, the Lighthouse project was conceived during a period when the market “was hot.” In 2004, East Beach Development borrowed $60 million from Regions Bank to begin the transformation of the Lighthouse Motel into the Lighthouse Condominium tower.

It was a time when redevelopment on the beach was being energized by what has become known as the flipping phenomenon where speculative investors obtained controlling rights to condos with little money and resold them at higher prices. In fact, according to Daniell, when all was said and done, there were 537 initial closings finalized on 251 units when construction was completed on Lighthouse Condominiums, representing a typical “flipping” scenario.

After the initial money was borrowed, the unthinkable happened—Hurricane Ivan. Following the storm, market conditions in the area changed dramatically, and the developers faced two struggles, Daniell said. One, they couldn’t complete the project for $60 million; and, two, they couldn’t complete it in the timeframe outlined in initial agreements, which resulted in the developers borrowing an additional $10.2 million from Regions Bank. “Regions exercised a lot of control over the projects,” Daniell said. “They could pull the string anytime and say ‘we’re going to take over the project.’”

In spring 2006, with the construction period reaching two years, Regions declared the development in default. Records indicate that the developers began the closing process in June 2006 with most of the deals completed by the end of the year. “Regions was pushing everyone to close transactions quickly,” Daniell said, adding that contractors started filing liens in January 2007. “It was later discovered that many contractors had not been paid. They continued to close transactions saying units were clear of any debt.”

The Press Register recently reported that Julian “Buddy” Brackin, attorney for East Beach Development, said that the explanation for the late-arriving liens is simple: Alabama law allows subcontractors to file claims for unpaid work up to six months after the job. Brackin also said in an interview that he “has reason to believe” the payment-demanding subcontractors may have missed that deadline.

The Press Register also reported Brackin as saying that East Beach Development paid its contractor, Coastal Builders, making the bonding company that ensured subcontractors responsible for clearing the liens. A cross-claim was later filed in May 2007 against Travelers Casualty and Surety Company of America, the company that issued payment and performance bonds on about $9.1 million of Coastal Builders’ agreements with subcontractors.

Repeated calls to Brackin by Condo Owner were not returned, and no comment had been made as of press time.

A Resolution To Sell
While parties wrangle in court over the allegations, Daniell said it’s the owners who have been left hanging in limbo, especially if they want to finalize sales of their units or refinance them. “At the end of the day, Regions got all of their money, and Ono Professional Partners drew commissions of about $10 million…and some of the partners at East Beach Development cut themselves checks,” he said.

Daniell said an order was recently initiated by the courts allowing owners the opportunity to post a cash settlement equivalent to the lien. “The money is held by the court,” he said. “That’s the only way they can close or refinance.”

For most owners, the total amount that must be posted equates to less than $10,000 per owner.