The Post-Hurricane, HOA Fight From Hell

     HOUSTON (CN) – An HOA’s attorney sabotaged FEMA’s and Galveston’s buyout offer of five hurricane-damaged homes because HOA board members thought it would hurt their property values, the five homeowners claim in court.
     The Sands of Kahala Beach HOA and the owners of five homes in the subdivision sued the association’s former attorneys, Bruce I. Schimmel and Stephen R. Lewis Jr., in Harris County Court.
     “The Sands of Kahala Beach (‘SOKB’) is a small subdivision consisting of (16) sixteen lots in an upscale beachfront subdivision in Galveston, Texas,” the complaint states.
     “Twelve (12) of the lots have homes constructed and four (4) lots are vacant. On September 13, 2008 Hurricane Ike hit Galveston and caused unprecedented damage. The hurricane damaged the landscape of the SOKB, wiped out a GeoTube, as its only dune protection, and brought the homes dangerously close to the water.
     “Before the hurricane, there were dune walkovers extended out to the beach, allowing a large grassy yard between the homes and the ocean. After Hurricane Ike, it wiped out over six feet of sand under the houses, leaving pilings exposed and leaving more than half the homes with tides coming underneath the structures.
     “Home values immediately plummeted.”
     The plaintiff homeowners say the damage led to a dispute with the HOA’s board of directors.
     “The main dispute was that the BOD opposed a government buyout of properties within SOKB, in spite of the majority of owners supporting it. Defendant Schimmel acted on behalf of the BOD to stop the buyouts, and vigorously fought against the majority,” the complaint states.
     “The buyouts were part of a FEMA Hazard Mitigation Grant Program (‘HMGP’) offered to beachfront owners after Hurricane Ike hit Galveston in September 2008. The HGMP was established to mitigate future damage by purchasing properties that had been damaged more than 50 percent and were likely to incur damage again.
     “The City of Galveston (‘COG’) was to purchase the properties, acting as a subgrantee of FEMA funds. Five SOKB homeowners (‘Buy Out owners’) applied and qualified for the program because they were deemed by the COG to be more than 50 percent damaged and were located on the beachfront.”
     The city offered to buy out the owners for prices ranging from $789,000 to $886,000, according to the plaintiffs’ attorney Wayne Paris.
     “The BOD vehemently opposed the buyout because of their perceived loss of value of their properties after the buyout, the public use of the land, and the loss of homeowner dues. The properties to be purchased by the COG were to be kept as open space in perpetuity, which was a great concern for the BOD,” the complaint states.
     “The BOD also erroneously claimed the homes that qualified for the program were not 50 percent damaged and used that claim as a tool to stop the buyouts. Defendant Schimmel knew the claims were bogus but encouraged the BOD to pursue them anyway.
     “The HGMP program was designed for a situation like this, where it could purchase the damaged homes and avoid repetitive claims. Five of the SOKB homeowners accepted the opportunity to avoid heightened risk.
     “However, the board of directors (‘BOD’) of the HOA encouraged homeowners to stay, touting an impending major Beach Renourishment Project coming from the General Land Office, which could restore the beach. Unfortunately, that project was canceled in November 2010.”
     The plaintiffs say that as a condition of the buyout, Galveston required a release from homeowners’ dues.
     Schimmel and the board exploited this request to block the sale, the plaintiffs say.
     “Schimmel, purportedly acting on behalf of the HOA, immediately objected to signing the releases, stating that the BOD had no authority to sign releases. Other subdivisions had already signed releases and demolition had started,” the complaint states. “When the buyout owners requested the BOD sign the releases in February 2010, the BOD refused.”
     The plaintiffs say they called a special meeting for Feb. 13, 2010 to vote on a resolution directing the board to sign the releases.
     “However, just three (3) days before the meeting, on February 10, 2010, the BOD amended the by-laws to change the necessary vote to remove the directors from a 50 percent vote to a 75 percent vote,” the complaint states. “Defendant Schimmel had prepared the amendment and had the amendment recorded. Immediately, a written objection to the amendment was signed by nine (9) homeowners and delivered to the BOD.”
     At the meeting, plaintiffs say, new directors were elected and plaintiff Kris Hall was appointed as the new president.
     “Hall signed the necessary corporate paperwork, signed the releases and delivered them to the COG,” the complaint states.
     “On February 22, 2010, defendant Schimmel, acting on behalf of the superseded HOA, filed for a temporary restraining order against homeowners who signed a written objection to the By-Law Amendment of February 10, 2010 and sought to nullify the releases delivered to the COG,” the complaint states.
     Though the order was denied Schimmel persisted, the plaintiffs say.
     “Schimmel sided with the old BOD, which consisted of 5 homeowners and 2 non-homeowners, throughout the controversy even though the members majority, 9 out of 16, was opposed to the BOD’s agenda,” the complaint states.
     “Defendant Schimmel opined that the release could not be signed by the BOD to block the sales of the five properties. As a result, defendant Schimmel caused financial harm to the buyout owners, the HOA and every member in the HOA, including the BOD.
     “Prior to defendant Schimmel’s actions, the HOA had a balance of $27,980.00 in reserves and the day Schimmel was fired, the HOA had less than $200 in the bank and a debt of $125,000.”
     The plaintiffs claim that before Schimmel was fired he created a joint venture with the former board members “to loan money to the HOA to pay their legal fees with a line of credit that allowed the joint venture to claim future income to the HOA and that forced all members of the HOA, including the individual plaintiffs, to pay the legal fees to the HOA, adverse to their positions.”
     Schimmel spoke to Courthouse News about the allegations.
     “All of the claims are baseless,” he said. “These people have actually filed grievances with the state bar and the state bar told them there was no lawyer misconduct. Then they appealed that and their appeal was dismissed.”
     Plaintiffs’ attorney Wayne Paris also spoke with Courthouse News.
     “Our position is that a lawyer who represents an HOA represents the entire membership of that association and the entity, as opposed to a couple of minority owners who happen to be on that board of directors at the time he represents them,” Paris told Courthouse News.
     Paris said he thinks Galveston’s buyout offer is no longer available to the homeowners.
     “We take issue with both of these lawyers, and in particular Mr. Schimmel as a moving force not representing the majority interest of the entity throughout these problematic buyouts that should have occurred, all of which would have been in the 6-,7-, $800,000 range,” Paris said.
     “I understand that the properties are way less than that now. … Obviously, it’s something [for which] we need to develop the differential in the case for damages.”
     The plaintiffs seek damages for breach of fiduciary duties. They also want the attorneys ordered to forfeit all fees the HOA paid them.

%d bloggers like this: