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Colony heats up in court

STEVE REID
Editor & Publisher
sreid@lbknews.com

The Colony denouement continued this week with several actions in different courtrooms.

In fact, the once internationally renowned beach-side resort, which over time turned into a collective village of enmity and claims and counterclaims appears to be heading to either a grand or dismal finale depending on which side of the Courtroom one is sitting.

For Colony Lender, which is controlled by Albany Attorney and Longboat Key property owner David Siegal and Longboater Randy Langley, Sarasota County Circuit Court Judge Charles Williams offered a margin of certainty. In fact that margin amounts to more than $14 million plus accruing interest.

That amount represents the loan Langley and Siegal bought from Bank of America several years ago, which former Colony Chairman and founder Murf Klauber, as the controlling partner of the General Partnership, once-Manager of the Colony, had defaulted upon.

Langley and Siegal paid an estimated $4.5 million for the loan, plus additional expenses, costs, interests and hundreds of thousands of dollars in real estate taxes and legal fees. This loan is collateralized by the Colony restaurant, a fraction of the recreation lease, tennis courts and property totaling more than three acres.

Judge Williams awarded Langley and Siegal, as Colony Lender, $14,357,433 as the amount due on the note and simple interest accruing at 4.75 percent annually. The accruing interest amounts to $1,868.43 per day or $684,000 per year.

 

Action and inaction

In 2010, Siegal brought York Capital to the Colony and York Capital offered to settle the Colony claims at that time.

The Colony Association of Unit Owners refused and York withdrew from the scene. Siegal says that at the time he was dismayed at that lost opportunity.

Later, in October 2012, a $25 million judgment was awarded to Klauber’s Limited Partnership against the Association of Unit Owners by Appeals Court Judge Steven Merryday in Tampa.

Following this week’s ruling by Judge Williams, Siegal told Longboat Key News, “We are relieved the judge awarded the amount that is actually due on the notes without a lot of frivolous defenses and arguments. The state court judge treated this like business.”

The very next day, on Thursday, Colony Lender took that judgment to U.S. Bankruptcy Court Judge Rodney May in Tampa.

May, who considered a reorganization plan proffered by Klauber’s entities, lifted the stay on foreclosure and gave Colony Lender permission to finish the foreclosure with a caveat.

The caveat is the sale cannot occur prior to Dec. 5 of this year. Siegal says Colony Lender plans to schedule the sale of the collateralized assets for December 6.

Another facet of the caveat is Klauber’s entities have three weeks from last Thursday, September 5, to produce to the Bankruptcy Judge a settlement that is agreed upon by the Association of Unit Owners and Klauber to avoid the foreclosure. An agreement with Colony Lender would have to be part of that agreement as well.

If such an agreement is submitted, the parties will reconvene on October 5 in Judge May’s courtroom for a review of the settlement.

 

Unsatisfactory agreement

But a Global settlement is exactly what Judge May thought he was going to consider this past Thursday.  And while Judge May considered on September 5 a revised “Global Compromise and settlement” that Klauber and his owned entities filed on August 26, Judge May found the agreement unsatisfactory in that it contained no signatures and no dollar amounts — the foundation of an agreement or settlement and that Colony lender had not been spoken with or was party to the agreement.

May said he wants the agreement to be executed and sent to the Association of Unit Owners for a formal vote. Unit owners must ratify any settlement agreement by a 75% majority vote, which has failed to materialize in any of the redevelopment proposals to date.

Three Klauber-owned entities first filed the reorganization plan April 30 after they filed Chapter 11 bankruptcy on Jan. 11, following Colony Lender’s foreclosure action.

For Colony Lender’s Siegal, he does not think a settlement agreement can be reached and executed in time.

“I believe we are heading to a sale in December,” said Siegal.

Siegal said the The Colony Association attorney told Judge May in June they were 30 days away from a settlement, yet nobody talked with him or Colony lender since. “Not a call or email. There is no agreement. Nothing, and nobody talked all summer,” said Siegal.

Another factor is Andy Adams owns the largest number of units at the Colony — a controlling block of votes.

“I may be naïve, but I believe if a deal is made that is in the economic interest of all the unit owners and if that includes Mr. Adams, they would do that. It would be in their best interest to cut their losses. I believe at some point, if a reasonable proposal is made, they will accept it, but not by December 6, and certainly not in three weeks.” Added Siegal.

Siegal said after the foreclosure sale, “The skies are going to clear a lot. “Once the foreclosure sale is over than I am sure there are developers we can recommend they can talk to,” he added.

For Siegal, he believes most of the developers the Association has courted to date do not have the financing to execute an agreement and that has been the issue.

“No more people who know people with money. They need people with the money. The people who the Association has approved thus far do not appear to be people with checkbooks,” said Siegal.

 

Lack of disclosure

Longboat Key Town Commissioner Terry Gans last May requested the Colony Beach & Tennis Resort’s developer, JHM Financial Group LLC, provide financial information to show that they are capable of completing the Colony renovation. JHM agreed, but as of Friday, September 6,JHM has not yet submitted that information.

Town Manager Dave Bullock sent a letter to Colony Beach & Tennis Resort Association President Jay Yablon dated June 7, urging the Association to reveal JHM Financial’s company history, financial statements, list of current and completed projects, job references and banking references.

Bullock wrote, “To date, this information has not been received by the town of Longboat Key. We ask that this information be provided without delay. The requested information should provide the town with an understanding of the financial viability of the JHM Group as the selected developer for the Colony property.”

 

Colony owners vote, face town

The Colony is bound by condominium law in needing a 75 percent vote of its 230 unit owners in order to make any substantial material change to the property. Part of the redevelopment dilemma is that owner Andy Adams controls more than 50 votes and in the election did not side with the Association and Yablon, nor has reportedly not aligned with JHM Financial Group. In fact, any successful redevelopment proposal will require successfully obtaining Adams’ support.

Last June, Colony founder Murf Klauber said he is supporting the efforts of JHM Financial Group, and said he believed an agreement was near at a June meeting.

John McClutchy, President of JHM Financial, told the commission in June and the audience that his vision is to bring The Colony back in terms of quality, but not with the existing buildings. In other words, he plans to build anew. He said his intent is to work with all the stakeholders – the owners, Klauber’s interests and the neighbors.

Commissioner Jack Duncan said then that although he appreciated the “Kumbaya attitude” there still has not been any 75 percent approval, ever, of anything, by the unit owners.

 

Density dilemma

The Colony is grandfathered with its 232 plus units in that it sits on land zoned at 6 units per acre. The Town Commission has extended the grandfathered right to the additional units until the end of this year when it must decide to either extend that status or attempt to rescind the grandfathered density.

Last Spring, redevelopment task force representative Tom Aposporos suggested the town stop grandfathering the tourism units, take them back, and hold a referendum to reallocate them as the Town Commission sees fit.

Several unit owners have expressed that any move by the Town to take away the tourism units at year’s end would be met with litigation. One owner said that The Colony had operated continuously with the same number of units for 40 years and that because the town failed to reflect this reality in its zoning codes, is the fault of the town and not the owners of the resort.

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6 Responses for “Colony heats up in court”

  1. Georgie McFarland says:

    Alex keep on dreaming. The sale of the Bank America mortgage and note was not an auction. It was an assignment and private transaction between Bank of America and Colony Lender. The Town of Longboat Key will not accept a redevelopment plan for less than the total package of the 17 plus acreage and rightfully so. Murf guaranteed the mortgage and notes on the two entities now owned by Colony Lender and there will be an auction on the two notes totaling over 20 million after December 5th. Should Colony Lender bid in the 20 million in judgments that they now have, there will be a deficiency judgment rendered against Murf personally. He can then file for personal bankruptcy or pay the deficiency. Should he fail to pay the judgments, Colony Lender can attach the asset of the judgment against the Colony Association which of course will trigger an appeal by the Association to wipe out the judgment or reduce it substantially. This scenario will trigger several more years of litigation unless an Andy Adams comes forward and buys out Colony Lender’s position which of course would protect Adams for laying out his share of the 20 million or such reduced amount after all the litigation dust settles.

  2. Alex Freile says:

    It was some kind of a secret deal between BAC and CL. Nobody else had the chance to bid????

    Judgement does not exist yet, it has not been entered, or final.

    $14 million is outrageous for 2 acres, that you can’t build on. It is high way robbery. They will not get it. Only thing they can get 10 years of litigation and a vacant lot.

    They will never collect deficiency judgment, not possible legally. Only thing they can do is cause mischief and delay.

    All the developers have plans to build around their two lousy acres, and they will be left with nothing, if they keep being greedy.

  3. Steve says:

    Alex, “Unjust enrichment”? They legally purchased a risky asset at a deep discount. They took a huge financial risk – and it looks like they might be hugely rewarded. Looks like BAC may have made a bad investment decision (nothing new). If the property isn’t worth it, like you implied, they could still potentially take a loss. Is it “unjust enrichment” if someone buys a stock at $20 a share (from a seller) and it goes to $100? Did the buyer rip-off the seller? No – they just made a better financial decision than the seller. The buyer can’t go back to the seller if the investment goes to zero, either. That’s how capitialism works. Klauber owes $14 M and secured it with 2 acres of real estate. We’ll soon find out what it’s worth. By the way, if the 237 unit holders where smart (although there’s never been any indication of that) – they could have offered BAC $5 or $6 M for the mortgage and they wouldn’t have the problem they have today. Seems like 237 people should be able to go a bit higher than a couple.

  4. Georgie McFarland says:

    The Sarasota Herald Tribune reported today a total of 20 Milllion in judgement’s against Klauber controlled property at the Colony. Once the foreclosure auction takes place a deficiency jugement will be entered against Klauber unless he files for personal bankruptcy as he personally guaranteed the mortgages on these two entities. Should he file personal bankruptcy he will lose controll over the 25 million award that he has against the Homeowner’s Association. Colony Lender will apply for a deficiency judgement and take over the asset of the 3 acres plus eventually the 25 million award rendered to Klauber. It does not matter what Colony Lender paid Bank of America for the assignment of the Note and Mortgage as unjust enrichment does not apply on an assignment of a recorded debt.

  5. Alex Freile says:

    Colony Lender is trying to blackmail everybody. They want $14 million for something they paid $4 million for a couple of years ago. They will get the 2 plus acres, that they have a mortgage on. They cannot forclose on the 15 acres.

    They have no claim on the 15 acres. They do not need to be part of the settlement with Klauber in Judge May’s court. Deficiency judgements, especially when they include unjust enrichment, are difficult to get in Florida.

    The 237 units at the Colony belong to the home owners. It will take a ruling by the US Supreme Court , lasting a dozen years, before these home owners give up their homes, many of which are in excellent condition. If the Town wants to leave this valuable land empty, and spend millions in legal fees, this is the way to go.

    These home owners have suffered the most. The Colony should never have been closed in the first place. If it hadn’t been closed, it would be open today after renovations.

  6. Georgie McFarland says:

    JHM Financial appears to be a bunch of empty suits as they have not replied to the Town’s request for requested information. Once the forclosure auction takes place, Klauber is removed from the equation and any part of the 25 million judgement that is still on the table after all appeals are exhausted will flow to Colony Lenders as partial satisfaction of any deficiency judgement rendered after the pending foreclosure. The end result will be a continuation of a shuttered Colony for a liong time to come.

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