Six residents at Vi at Palo Alto are still waiting to see if the lawsuit they filed, claiming lost peace of mind regarding the financial stability of community, will be certified as a class action.
They’re suing over concerns their continuing care retirement community entrance fees won’t get refunded, writes the New York Times’ The New Old Age blog, despite Vi at Palo Alto never defaulting on a repayment. But it could be a long road ahead.
“After a mediation attempt failed, the residents filed suit last month,” the article says. “If the court certifies Vi residents as a class, it could take two years for the case to reach conclusion, said Niall McCarthy, the plaintiffs’ lawyer.”
The plaintiffs allege that Vi at Palo Alto “upstreamed” $190 million in entrance fee-generated revenue to its parent company in Chicago, along with other complaints related to monthly fees. Because corporate parent CC-Development Group Inc. hasn’t assumed the debt owed for future refunds, McCarthy says, residents have “lost al the security and peace of mind they had paid for.”
“We were owed all this money, and all of a sudden we find out that the provider doesn’t have it,” Dr. Burton Richter, a Vi at Palo Alto resident and one of the plaintiffs, told the New York Times. “After the meltdown with the banks, we’re supposed to trust you?”
However, most CCRCs don’t have full reserve funds for entrance fees, as refunds (or rebates, as they’re called in California) typically come from incoming entrance fees once a unit has been resold.
“Most contracts don’t create any right to any specific pot of money or any reserve,” Steve Maag, director of residential communities for CCRC trade group LeadingAge, says in the article.
CCRC units typically don’t turn over each year, he added, making it unnecessary for a CCRC to have 100% of the reserves needed for refund obligations. Vi at Palo Alto has implemented a partial reserve fund for contracts signed in the second half of 2012.
Still, after some troubled financial performances among CCRCs in the past couple years, entrance fee contracts aren’t without risk, notes the New York Times.
Maag also pointed out that “many retirement communities have decades-long histories of paying refunds, new complexes involve ‘some small assumption of risk by the residents.’”
Read more at the New York Times.
Written by Alyssa Gerace