23 June 2009

Economy makes roommates of elders and their adult children

Economy makes roommates of elders and their adult children
acreamer@sacbee.com / JUN. 23, 2009

At 105, Eddith Moehr is on the cutting edge of a trend.

When she moved in with her daughter, 76-year-old Doris Beresford of North Natomas, at the end of 2007, Moehr became one of the 3.6 million older parents sharing living quarters with their adult children – a number that U.S. census figures indicate has increased 55 percent since 2000.

"I got a new roommate for my birthday in 2007," said Kathy Mullen, 60, who married Beresford last year.

"What a present!" said Beresford.

"Doris' mom is a treasure," said Mullen. "I'd like to be as gracious as she is about being old."

Sitting in her wheelchair at the kitchen table with them, Moehr sips chocolate Ensure and basks in their attention.

"Thank you," she said. "That's nice. Thank you, thank you."

California trails only Hawaii in its percentage of multigenerational family households, according to AARP statistics. Beyond cultural norms, tough economic conditions often play a part in families' decisions to house or move in with their elders.

At the same time, retirement communities and upscale assisted living centers that once had long waiting lists find themselves slammed with vacancies, says the National Investment Center for the Seniors Housing & Care Industry.

The problem? Plummeting home prices have discouraged seniors from cashing out of their existing homes.

Given a choice, most seniors would prefer to continue living independently. But among health issues, economic pressures and diminishing public resources, that's not always possible.

Census figures show that California's elderly population is exploding twice as fast as the rest of the state's population – and it's expected to grow even faster as the baby boom generation continues aging. Yet proposed state budget cuts could slash services that help the elderly stay in their own homes.

"There will be more families put in a caregiving situation if we see cuts to home and community-based services," said AARP California's Christina Clem. "Families can help each other."

They may have to.

"People assume that older people in adult day care will end up in nursing homes one day," said Will Tipton, planner for the Area 4 Agency on Aging in Sacramento. "That's probably not an accurate expectation. There aren't a lot of Medi-Cal beds available in nursing homes.

"What's most likely is that Grandma or Grandpa will end up on your doorstep."

The challenges of multigenerational living can range from loss of privacy and financial independence to concerns about the stresses of caregiving.

"An active and able older person can be quite an asset in interacting with older children," said Area 4 Agency on Aging's Pat McVicar. "But that's not always the case. Sometimes, it's an added stress to the family."

For Beresford, the addition of her mother to the household is a pleasure rather than a burden.

"Having Mom here has really enriched our lives," said Beresford, a retired psychotherapist. "It feels like we're this family – more of a family than before. It's been quite an experience watching Kathy take care of my mother and seeing how loving she is."

An Ohio native, Moehr moved to Vallejo in 1951 with her husband. After he retired from the real estate business, the couple moved to Vacaville, where they volunteered as CPR instructors for 15 years. He died in 1997.

She lived alone in her own house – which she still owns – until she was 103, when Beresford grew concerned about her health.

"Up until that time, Doris would go over every week, and they'd go to Raley's together," said Mullen, a retired Sacramento water superintendent. "Mother would tootle around hanging onto the grocery cart."

Because of Moehr's declining health, she sleeps much of the day and can't be left home alone. She receives services from a local hospice organization as well as respite care from Home Instead Senior Care, a private agency that helps family caregivers.

"She started out here using her walker and being up all day," said Beresford. "We'd have breakfast together. I'd ask if she wanted coffee, and she'd say, 'That would be lovely.'

"These things are precious gifts. I'm so glad I have them."

17 June 2009

BEWARE: This is what happens when your "community" is privately owned -- it can be traded like a baseball card to the highest bidder

What next for Four Seasons?
Published: June 17, 2009

Last month, a development group based in Northern Virginia paid $5 million to take Four Seasons, the upscale 204-acre active adult community in Ruckersville, off the hands of New York’s Manufacturers and Traders Trust Company (M&T).

The bank bought the subdivision at auction on the steps of the County’s courthouse January 22.

The sale of Four Seasons by M&T to Charlottesville Land Development Group, LLC of Vienna went through at the end of May. But ownership of its plush multi-million dollar clubhouse—and other common areas—is yet to be resolved.

Four Seasons’ homeowners association says those areas belong to it. The bank says they go with the sale.

The situation leaves homeowners in a potential financial mess, according to documents obtained by The Record. In an e-mail, the finances of Four Seasons at Charlottesville Community Association Inc. are described by the sender as “in shambles,“ with no funds in its reserve account and payments being delayed to “several vendors.“

The association filed a lawsuit on January 14, just eight days before the bank purchased the subdivision. The lawsuit alleges, among other things, that contradictory statements were published in the notice of sale of Four Seasons. By February 10, Judge Daniel R. Bouton had signed a joint motion for a stay on the lawsuit, so “all parties” could settle their differences.

The documents obtained from the association member last week show that since then, talks between the parties have been ongoing.

The subdivision was proffered in 2004 as a residential development with expectations of up to 650 single-family homes. According to the documents turned over to the Record last week, only 83 homes are currently occupied.

The documents show that if only residents contribute to the current maintenance costs, each would have to pay roughly $650 per month to maintain the common areas.

“The fact is,“ say those documents, “in the coming days we may well face some major decisions. If so, then we will either make them consciously, or they will be made for us.“

Two of those decisions, according to the documents, are whether or not to drop the continuing legal stay, and whether or not to temporarily close the clubhouse.

The 16,000 square foot clubhouse, which includes an indoor pool, is an integral part of the development. Just last month, it was the site for a gathering to celebrate local businesses by the county’s economic development department.

K. Hovnanian Homes first started building in the development in mid-2006. That company’s website describes its active adult communities such as Four Seasons as “private world(s) where … recreation abounds … quality is second to none” and activities are planned year round.

That was the vision many of the current residents are hanging onto.

In the meantime, as part of the lawsuit, the association and the bank disagree as to whether the association’s declaration has been dissolved.

According to the Code of Virginia, a declaration is the instrument that imposes the responsibility for maintenance of the common areas on homeowners associations, and gives those associations the power to impose mandatory payment toward those responsibilities on lot-owners.

According to documents filed in Greene’s Circuit Court, the Four Seasons homeowners association is charged with “owning, operating and maintaining the common area within the property.“ The declaration also states that the association’s ownership of the common area shall be free of liens. At the time the suit was filed, that common area included the clubhouse.

The declaration was part of the proffers offered the county when its Board of Supervisors voted unanimously to approve the developer’s rezoning request on July 13, 2004. Proffers have the force of zoning law under the Code of Virginia, according to documents filed in the Greene County Circuit Court.

15 June 2009

How Phoenix 55+ Communities are Faring

Real Estate: What happened in Phoenix

Prices in the Arizona desert got hit harder than anywhere else. So can you get your dream retirement home for a song? It depends where you look.

By David Whitford, editor-at-large
June 12, 2009

PHOENIX (Fortune) -- Did you happen to see the latest home-price stats from S&P/Case-Shiller, or did you avert your eyes? Here's what struck me: As of March 2009, every metro area in Case-Shiller's 20-city index, without exception, has fallen double digits from its peak. Ten are down more than 30%. Eight have dropped more than 40%. Las Vegas is down 50%. Phoenix? It doesn't get any worse than Phoenix. According to Case-Shiller, between June 2006 and March 2009 the average house in Phoenix lost a staggering 53% of its value. Possibly during the Great Depression, but almost certainly at no time since then, have house prices in a major metropolitan area fallen by more than half. It's almost unbelievable. Brother, tell me you didn't buy a house during the boom in Phoenix!

I've been to Phoenix twice in the past six months to look at real estate. The first time, in November, I squeezed into a crowded white stretch limo and rode around town all day looking at foreclosures on a tour led by an energetic realtor who wore Chanel sunglasses. Time to buy, she assured us, and who could argue? Prices had come way down. When I went back in May, however, prices were still going down. And while the pace of home sales had picked up, nobody I talked to was ready to call a bottom - not with any conviction anyway. "I think if we reach our toe down, we can kind of feel the bottom," real estate investment adviser Robin Reed, president of ProEquity Management in Scottsdale, told me over lunch at a strip-mall bistro on my first day in town, "but we can't rest solidly on it yet."

My focus on this trip was a little different. I was looking at places where retired people live. I wondered about the specific impact of the bust in those places: How have homeowners fared during the downturn? What are the prospects for newcomers who might want to buy now? To be blunt, are there screaming bargains to be had?

Here are the short answers: Retirement communities in and around Phoenix got smacked ("same as other places," says Reed; "it's real estate") but, in a surprising twist, not as violently as the broader market; the price drops were less dramatic and there haven't been nearly as many foreclosures. Is it a good time to buy? Yes. Will you find a screaming bargain? You might, if you're patient and alert to the peculiar inefficiencies of the retirement market (more on that later), but not as easily as you could elsewhere in Phoenix. That's okay, by the way. Too many bargains implies a market defined, historically, by too much volatility and pain. You don't need that when you retire.

Phoenix is where the seemingly oxymoronic concept of an active retirement was born nearly half a century ago. Today it's famous for its many acres of planned, age-restricted communities built around golf courses, swimming pools, and artificial lakes, where property taxes are low because there aren't any schools (there aren't any kids), yard work is a breeze (yards are all gravel), and street-legal golf carts serve as second cars.

The granddaddy of Arizona retirement meccas and the first development of its kind anywhere in the country, Sun City, turns 50 next year. It was built by the legendary Del Webb, a hard-drinking, nonsmoking former owner of the New York Yankees who made his fortune building military bases (and a Japanese internment camp) in the Southwest during World War II, and later Minutemen missile silos in Kansas and Montana, a 30,000-acre housing development for NASA workers in Houston, the Beverly Hilton, and several Las Vegas casinos. Bob Hope, Bing Crosby, and Howard Hughes were among his pals.

Sun City was a big hit from the day it opened, Friday, Jan. 1, 1960. In its first weekend, according to an account in Time, Webb sold 272 of the "neat and gay pastel houses" at prices ranging from $8,750 for two bedrooms to $11,600 for three bedrooms and two baths. Phase one was completed in the '60s, phase two in the '70s, phase three in the '80s, block after block of new construction displacing irrigated fields of grapes and cotton, gaily marching north up the valley. In the '90s came Sun City West, Sun City Grand, Corte Bella (that one's gated), and just in the past couple of years, Sun City Festival, which sits 10 miles beyond the western limits of developed greater Phoenix in a dusty, whistling wasteland at the base of the White Tank Mountains.

Today more than 100,000 people live in the combined Sun Cities, on curvy, desert-landscaped streets, interlaced with close-cropped fairways and dotted with lakes and bustling rec centers (supported by a modest annual assessment) where residents, when they're not golfing, can swim, bowl, play shuffleboard, and make pottery and stained-glass trinkets. You (or your roommate) must be at least 55 years old to live here. Children under 19 can visit, but they can't stay longer than three months. The newer the development, the nicer the homes, the classier the amenities, the more you'll pay. (Every house gets garbage pickup twice a week; not all come with fancy granite countertops.) If you're prepared to spend nearly $1 million, you can have two bedrooms, a patio suitable for a presidential fundraiser, and a stunning fairway vista in Sun City Grand. Farther south in phase one, meanwhile, just over $100,000 buys a cozy cottage on 107th Avenue that's walking distance from the Sun Bowl amphitheater, which hosts free outdoor concerts in the spring and fall.

Reed had warned me at lunch that given the economic downturn, the mood in Sun City might be grim. "It's one thing to be 40 or 50 and know that you've got 10 years for the thing to turn back around, and that in the meantime you can go out into the job market, you can do something," he said. "People in their sixties and seventies really can't do that. They're feeling a despair right on the heels of what previously had been kind of a wisdom - 'We've been here before, we know how to batten down the hatches.' For them it was never about consumption. But they did expect their savings to be savings and their investments to be investments and their pensions to be pensions. It went from wisdom to concern and then, in some cases, outright fear."

That may be true for retirees in general, but inside the walls that surround places like Sun City the impact of the downturn is muted. At the Sun City Visitors Center on the corner of 99th and Bell, I meet volunteer greeter Bill Burt, 76. He isn't grim at all. Red-faced and barrel-chested, with a shock of salt-white hair sprinkled with pepper, Burt grew up driving a cotton picker in fields not far from where he now lives. He was a "blood banker" when he still worked, he says, building and managing blood donation centers all around the country. Ten years ago he came home. Burt and his wife bought a duplex condominium in an older section of Sun City. Two years later, in 2001, they sold at a small loss and traded up to a nearby duplex on a lake for $161,000. Then came the boom.

By 2005, if we can believe Zillow.com, the Burts' house was worth more than $300,000. And today? Zillow says $173,000, or 40% below its peak. Burt just grins and shrugs. It was only a paper gain; now it's a paper loss from that high. Meaningless, in other words, unless he decides to sell, which he has no intention of doing. He's happy, his wife's happy. His only regret is that he didn't move to Sun City 10 years earlier. "When people leave here, they usually go out in a box," Burt says. "Or they've been cremated, you know. They go out in a bottle."

According to the latest MLS data, Sun City, while definitely hurting, is a lot better off than its neighbors. The median sales price in April for a single-family dwelling in surrounding Maricopa County (Arizona's populous region that includes Phoenix, Mesa, and Scottsdale) was $125,000, down from $230,000 a year ago. That's 46% in 12 months. Ouch. In Sun City during the same period, home prices fell just 24%. What's killing Maricopa County is foreclosures. Even as home sales rise, cheap, bank-owned properties are flooding the market: 1,042 in April alone, plus 8,396 new pre-foreclosures, where the borrower has stopped paying and the eviction process is underway. Foreclosures during the same month in Sun City? Six, representing an infinitesimal one-hundredth of 1% of Sun City's single-family homes. Fewer foreclosures equals greater stability.

It's a pattern that seems to play out nationally. While there's been little research on how retirement markets have fared specifically, experts say that the same profile - minimal foreclosures, less severe price drops - is true of retirement communities across the country (for more examples, see our gallery of deals across the nation). Says Bill Ness, founder of the retirement website 55places.com: "It is a common understanding among most agents that real estate values have held up better in active adult communities than in other non-age-restricted communities."

There could be a simple explanation for this: Old people aren't as stupid and greedy as young people are. Or maybe they're just not as stupid and greedy as they were when they themselves were younger. "By the time you're retired," says Phil Andrews, 85, a Vietnam vet and 10-year resident of Sun City West, "you've got a little bit of sense about buying a house. You're not going to buy one you can't pay for."

It's true. Ask the local realtors about the exotic variable-rate mortgages that suckered so many younger homebuyers into borrowing more than they could ever hope to repay, and they just shake their heads; not in Sun City. In fact an astonishing 61% of Sun City residents have no mortgage at all. Bob Bleasdell, for example. He's a 73-year-old retired obstetrician who lives in Sun City Grand. The night before the full moon in May, Bleasdell and I sit talking for an hour on his patio at dusk while he smokes a $5 cigar. "I retired in 1995 at 61," Bleasdell says. "If you're going to retire early, you can't have a lot of wives you're paying, you sure as hell can't have kids in college, and you can't have a lot of debt. You gotta get your debt down, get your bills paid, pay for your car. And then when hard times come, you don't participate. My IRA's down 40%; I don't sell it."

Bleasdell and his wife paid $220,000 for their house in 2003. Two years later they might have been able to sell it for $400,000, but why would they do that? Bleasdell likes it here, enjoys sitting outside in sandals and shorts under a soft blue blanket of sky by a blooming palo verde tree, listening to the quail and the doves, calling out to neighbors as they pass. He plays golf three days a week, with three different foursomes, rotating among four different courses, none of which takes more than five minutes to get to in a golf cart he parks in its own little garage. Bleasdell says he has no idea what his house is worth today, and furthermore, he doesn't care. His kids might care someday, he allows, but that's neither here nor there. "We don't owe 'em anything," he says. "I helped buy a house for my daughter. I take my son on fishing trips up to British Columbia. I've done enough for them. If they get anything out of us, it's just a bonus. Don't count on it."

Next day I'm driving around the nicest parts of Sun City with realtor Renee Chipules, trying to get a feel for what's out there. First-quarter sales were down slightly this year, Chipules says, in stark contrast with the rest of Maricopa County, where sales were up 79%. One reason for that we already know: Sun City doesn't have nearly as many foreclosures, which tempt investors and first-time homebuyers with irresistible discounts and are fueling a sharp rebound in sales in some parts of the country. But there's also the ripple effect. No one has to move to a retirement community; when people can't sell their houses back home, they tend to stay put. "It used to be the case that people would come in, buy the house they liked, and feel confident that when they went home their house would sell within 60 or 90 days," Chipules says. Now they're waiting for their homes to sell before plunking down for another. Chipules and other realtors I spoke to think there's a huge, pent-up demand for retirement homes. Once the market recovers nationally, the argument goes, Sun City and other places like it will get a big bump, especially as the coming wave of baby boomers starts to retire.

Chipules shows me three houses - similar sizes (about 3,000 square feet), similar layouts (two or three bedrooms, all on one floor), similar amenities (marble everywhere, hot tubs, curved-glass showers), all of them situated directly on or within sight of a golf course. But the asking prices are all over the map: $425,000 in Sun City West, $699,000 in Corte Bella, and $949,000 in Sun City Grand. Why the disparity?

Well, for the one in Grand, it could be the fairway view; it truly is spectacular. "What's going to happen with that particular piece of property," says Sun City realtor Norm Brenna, who knows the house, "it's going to be somebody who pays cash, and it's going to be somebody who walks in and says, 'This is me, here's my money.' That's where that's going to sell." Still, if this one sells for anything close to what the current owners are asking, it would be shocking; they paid $895,000 near the peak in April 2007.

The one in Corte Bella? Possibly it's overpriced, even fully furnished. Its owners paid $491,000 in June 2006, so they'd be making money too. Not likely, says Brenna: "Everybody I've been involved with over there wants to list way more than they can currently get." That's why things are slow, he says. "If you watch the listings over there, when they sell, they definitely come down in price." And Sun City West for $425,000? A bargain, Chipules believes. Priced to sell at two-thirds of its peak value in late 2007. But the current owner was there long before the big run-up in prices; she's got other houses, and she just wants her equity. Sure enough, after 12 days on the market, she gets an offer at asking price, sale pending.

All of this, says Chipules, is evidence of a turbulent and inefficient market. No one really knows what anything is worth anymore. Some sellers appear to be kidding themselves, even now, though a patient, sober buyer will indeed find bargains, even screamers. (Here's a tip: Heirs are motivated sellers. Says resident Tom Mays: "The kids, they'll probably accept the first offer that comes, just to get out.")

But don't get too excited. Excitement is over in real estate. On the other hand, if you're thinking about moving soon to Sun City or someplace like it, you're in luck. You won't have any trouble finding a terrific house, and it shouldn't cost you nearly as much as it would have just a couple of years ago. Congratulations.

01 June 2009

The BIG OUCH! -- Explained by Lauren Ritchie



'What ifs' for The Villages in IRS fight

Lauren Ritchie


May 31, 2009

Don't even ask, Villagers.

Of course you want to know how your pocketbook will fare in the latest exchanges in the IRS dispute with the government that runs your community. The answer is it's too early to tell.

However, a recent series of letters from the Internal Revenue Service did reveal how the agency wants to solve its problems with the tax-exempt bonds that built much of The Villages and made its developer fabulously rich.

The IRS thinks $448 million borrowed through tax-exempt bonds since 1993 should be taxable. That's because, the agency contends, the community-development districts, which run operations at the retirement community and sold the bonds, don't qualify as "real" governments and shouldn't get tax-free loans as cities and counties do.

District officials say the governments are being operated according to state law, but the IRS contends that the districts are controlled by the developer and the bonds benefited him, not residents. In addition, the transactions were far too cozy and fail to meet federal tests of an "arm's length" transaction.

"If I was a resident of The Villages, I would be outraged," agent Dominick Servadio Jr. wrote to the chairman of the Village Center Community Development District on May 4.

Dramatic and costly step

Finally, someone has just out and said it. The agent is right. Developer Gary Morse's use of the districts over the years could end up crippling the community and tormenting decent people who just want to retire quietly and play golf.

A spokesman for the developer did not return calls for comment.

In the revenue agent's May 18 letter, he urged the districts to take a dramatic and enormously costly step: recall and pay off $355 million worth of outstanding tax-free bonds that paid Morse for everything from golf courses to swimming pools, utility plants to guard houses.

The agency also wants back taxes from one bond issue amounting to

$2.8 million, chump change for the company that posted 2008 revenues of

$696 million, up 9 percent from last year.

And the IRS wants the districts to promise never again to issue tax-free bonds, which would suddenly and drastically turn off the cash tap for Morse and his family, who own The Villages and are still developing it.


Things could be worse

Servadio's suggestion is staggering. But his alternative is even more chilling.

If the two districts — Village Center and Sumter Landing — decide to appeal, the agency will begin officially examining eight more bonds, deepening the districts' possible tax liability to

$16.5 million.

While you're calming the heart rate and sucking down the Valium, here are a few things to consider:

First, this IRS examination is in the negotiation stage. Shortly, however, the agency likely will put its conclusions firmly in writing, starting a 90-day clock for the districts.

District officials then will have to decide whether to appeal the ruling, risking even more extensive IRS scrutiny, or negotiate a settlement that will be expensive.

At the moment, the official word from Village Center District Administrator Janet Tutt is that the district (politely, of course) thinks that the agent is all bluster. It's way too early to even talk about what the district might do, Tutt said.

"The District continues to believe there will be a positive resolution to this issue and at this time there are no further developments to change that belief," Tutt wrote in an e-mail.

OK, now the fantasy portion of the program is concluded.

Incredulous agent

Servadio's recent letters show a degree of disgust with The Villages and its lawyers that is more than warranted.

In the May 4 letter, he accused the district of making a "misleading and incomplete disclosure" in bond documents for a $64 million issue in 2003. He remarked at one point that Villages residents "let the district and the developer off easy" when last year they settled a lawsuit over amenity fees for

$40 million.

And he poked fun at the district's high-paid tax-controversy lawyer who he said submitted to the IRS "a sort of sophisticated version of the I-did-the-homework-but-my-dog-ate- it excuse" when he was forced to admit that appraisers who valued the properties for the sales could not provide backup documents. The California lawyer then asked the appraisers to "recreate" their calculations.

"Issuers of tax-exempt bonds don't get 'do-overs,'" Servadio fired back.

At one point, the agent suggested The Villages engage in a "reality check" when trying to determine whether the Village Center District is a valid issuer of tax-exempt bonds.

"What is the "district?" ... It's really nothing more than a five-member governing board populated with developer employees or related parties that have a history of approving an unlimited amount of tax-exempt bonds to purchase assets from the developer in transactions that in the real world would never pass scrutiny as arm's length transactions.

"This doesn't sound like an entity that the Service wants to be considered as a valid issuer of tax-exempt bonds."

Servadio is no renegade revenuer out to get the Big Republican Money of the Morse family. IRS officials have said publicly and in published documents that one of the agency's goals this year is to closely examine tax-exempt bonds from governments such as the community-development districts of The Villages. So, the orders are coming from the top down, not vice versa. If they weren't, this touchy investigation would have vanished months ago.

Exploring what-ifs

So what might happen if the district takes the IRS suggestion and decides to recall the $355 million that the agency wants out of the bond market?

Bond experts asked earlier this week about the situation were flabbergasted by the amount of money involved. Expect repercussion in the bond markets, they said, if the IRS stands firm. The availability of money to such districts likely would drop and the interest rate that such districts would have to pay would rise, they speculated.

Typically, when the IRS deems tax-exempt bonds as taxable, it demands that bonds be taken off the market. The usual process is that the issuer would go back into the bond market and borrow enough to pay off the first set of bonds. So, theoretically, The Villages could sell, say, $355 million worth of taxable bonds and use the proceeds to pay off the tax-exempt ones.

Two catches: First, is the money available? Bond markets are very tight at the moment, experts said. So maybe, maybe not. Second, do the Village Center and Sumter Landing districts have enough bucks to back the second loan?

The district has two main ways of getting money. First, it receives the amenity fees that residents pay, which totaled $33 million last year.

Second, it has the authority to levy property taxes inside its geographic boundaries. But considering that Morse controls 88 percent of the property in the Village Center District, and the board of supervisors is made up of his employees and business associates, a vote to levy property taxes seems a tad unlikely.

Tricky math

Could the district back a new bond issue using just the $33 million in annual fee collections? Apparently. Consider that roughly half of the amenity fees, about $16 million, go to repay current loans. The other $17 million operates The Villages. The math works only if the new bonds are sold and the old bonds are repaid simultaneously.

Afterward, The Villages likely would have to operate on less money because taxable bonds would cost the district more than tax-free ones.

The other option is that the district decides to get arrogant and fight the IRS. Bond experts didn't even want to speculate what might happen then. Typically, it's just not done for the simple reason that the IRS seldom loses.

God save the golf courses.

What is conspicuously absent from the revenue agent's scenarios is what role Morse might have in this, if any. The agent spent considerable time and energy building a case that the developer is the district, and the district is the developer. If so, shouldn't the developer — the biggest beneficiary in this arrangement by far — bear some responsibility? Or is he absolved by declaring his profits from the bonds as taxable? Morse declared

$53 million as profit in the one issue the IRS examined closely.

No one is saying, especially Morse himself. The developer has kept silent since the examination began in January 2007. Perhaps all will be revealed in time.

Or perhaps this will be settled with a friendly handshake, and we can all just go merrily to our next tee time.

Lauren Ritchie can be reached at Lritchie@orlandosentinel.com or 352-742-5918. Her blog is at OrlandoSentinel.com/

Copyright © 2009, Orlando Sentinel

The Villages in a HEAP OF TAX TROUBLE



Pay off $355 million, IRS tells The Villages

By Stephen Hudak

Sentinel Staff Writer

7:28 AM EDT, May 30, 2009


The Internal Revenue Service wants the governments that run this massive retirement community to pay off $355 million in loans after an investigator concluded they improperly issued tax-free bonds to buy recreational facilities such as golf courses and swimming pools.

In addition, the IRS wants the two Villages governments to pay $2.8 million in back taxes and to cease issuing tax-exempt bonds. The demands resulted from a 20-month IRS investigation into tax-exempt bonds transactions involving the playground for 77,000 retirees about 60 miles northwest of Orlando.

Much of The Villages, including 24 executive golf courses, swimming pools, community centers and utility plants -- in fact, virtually everything but the 38,000 houses in "America's Friendliest Hometown" -- have been financed by various tax-free bonds.

As part of the potential deal, the IRS has offered to forgive another $14 million in taxes the agency says could be owed to the federal government. If a deal isn't reached, the IRS has threatened to look into eight similar loans obtained through bond sales. That could expose the governments to millions more in tax liability.

The settlement offer is outlined in public documents provided to the Orlando Sentinel after a public-records request to the Village Center Community Development District. They chronicle a bitter disagreement between the IRS and the Villages' governing bodies, called community development districts.

Created by Florida law, such districts are designed to help developers defray the cost of pricey infrastructure. The districts are considered governments and have the authority to issue bonds. In this case, the district bought recreational amenities from the developer in a transaction disputed by the IRS.

"If I was a resident of The Villages, I would be outraged by the transaction," IRS Agent Dominick Servadio Jr. wrote in a letter to the Village Center. Servadio, a certified public accountant and a revenue agent for 22 years, could not be reached for comment.

The district, however, contends that it followed state law and all the transactions are legal.

Villages residents are watching the investigation unfold, mostly with bewilderment. "First of all, this is a very serious matter," said Joe Gorman, president of the 5,500-member Property Owners' Association of The Villages, an independent group that has often clashed with the developer. Gorman would not comment on the IRS correspondence because he hadn't yet read it.

In total, The Villages' governments owe about $700ƒ|million to bond buyers.

The IRS insists the Village Center and Sumter Landing community development districts are not "valid issuers" of tax-exempt bonds, which are most commonly used by cities and counties to finance public projects.

Servadio contended that the districts that issued the bonds don't meet the test of a genuine "political subdivision." Its governing board isn't chosen by residents, it has no authority to exercise police power and its power to take private property for public projects is very limited.

The agent contends that the districts' governing boards are controlled by The Villages developer, Gary Morse, and their bond sales have benefited him, not residents.

The agent's letters represent preliminary conclusions. However, the IRS is expected within weeks to make those conclusions formal. Afterward, the districts will have 90 days to decide whether to negotiate a settlement such as the one proposed May 18 by the agent or to appeal the decisions.

For now, district representatives are challenging the IRS conclusions. They contend that Florida statutes view them as a lawful "political subdivision," giving them the right to issue tax-exempt bonds like any other government.

In an e-mail, Village Center District Manager, Janet Tutt, who also oversees the Sumter Landing district, said Servadio's opinion isn't the final word. She stated she understood that the IRS was asking its experts in other areas to examine the agent's conclusions.

"Discussion of a settlement offer ... is premature," Tutt wrote. "The District continues to believe there will be a positive resolution to this issue. ..."

Perry Israel, a California bond lawyer handling the matter for the districts, said he could not comment. Morse and Charles Smith, chairman of the Village Center district board, as well as Michael Williams, the district's Orlando bond attorney, couldn't be reached.

Servadio's probe focused on a 2003 tax-free bond issue that raised about $64ƒ|million to buy golf courses, swimming pools and other recreational facilities from the developer.

According to the IRS report, the proceeds should be taxed because only $7.5 million went to buy physical assets. Another $53.1 million bought the rights to collect residents' amenity fees. The sale prices were set by two appraisers using a complicated method that the IRS contends was incorrectly calculated.

Homeowners in The Villages pay up to $135 a month in amenity fees, which generated about $33 million in revenue last year. Servadio pointed out that about $16 million a year -- roughly half of the fees -- are used to repay a variety of bonds that the districts have issued.

"It (is) obvious that the residents' amenity fees could be much lower, or there would be a lot more of the fees available for maintenance of the facilities if these were arm's length transactions... " he wrote.

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