A class action lawsuit filed recently in California is raising questions about the way continuing care retirement communities handle entrance fees in cases where residents or their estates are eventually repaid a portion of the upfront fee.
Residents of Vi at Palo Alto allege in a complaint that Vi (formerly Classic Residences by Hyatt) transferred $190 million of entrance fees to corporate parent CC-Development Group Inc., leaving those residents with no assurance they’ll get their money back. The California community is now running a $300 million deficit as a result, says the lawsuit, led by current resident Dr. Burton Richter, a 1976 Nobel Laureate in Physics.
While in recent years some CCRCs have encountered difficulty meeting current refund obligations, the Palo Alto plaintiffs are preemptively suing over fears Vi won’t be able to meet future obligations, even though the community has to date repaid all its obligations to residents, according to one of the company’s lawyers.
“Everyone who has made a claim for a refund [at Vi at Palo Alto] has been paid in a timely manner,” says Paul Gordon, partner at HansonBridgett and part of Vi’s counsel. “The reserve requirements under the law have been met or exceeded. The implication of failure to fund [entrance fee] reserves are wrong.”
Vi’s policy is to repay entrance fee obligations upon reselling a unit to a new resident. In other words, departing residents aren’t given a portion of the same entrance fee they originally paid; rather, they are repaid through funds Vi receives in the form of an incoming resident’s entrance fee—a standard practice throughout the CCRC industry, Gordon notes.
However, the contract all residents sign says that all costs of operating the community will be paid by monthly fees, rather than entrance fees, including property taxes and marketing expenses, according to Gordon. Still, he says Vi has made some temporary concessions pending a property tax appeal in an effort to satisfy residents.
“Vi is able to meet its obligations, and those obligations for entrance fee repayments are conditioned on a third party re-occupying the unit,” Gordon says. “Vi has proven itself ready, willing, and able to make that happen, and it does make that happen, as it has since the day it opened. There’s no reason to believe it isn’t going to do that going forward.”
Vi has not returned a request for comment as of press time.
Written by Alyssa Gerace