It’s all about the money. It always has been.
When the Garden Oaks Maintenance Organization (GOMO) filed for bankruptcy last April, it did so because it expected many of the neighborhood’s homeowners to ask for their money back. And hundreds of them did, filing claims to recoup the transfer fees they paid upon purchasing their homes.
Those transfer fees – 0.75 percent of every sale – were the primary revenue source for GOMO, which has enforced deed restrictions in the affluent northwest Houston subdivision since the early 2000s. But a 2016 state district court ruling in favor of resident Peter Chang, who was sued by GOMO, revealed the homeowners association had no authority to collect transfer fees because it violated the Texas Property Code while petitioning residents to include them in the deed restrictions.
Chang is one of 395 current and former homeowners who filed claims totaling more than $1.45 million, according to GOMO office manager Pam Parks. She also said that as of the end of January, the organization had less than half that much in assets.
Since mid-February, every claimant and all 1,142 homeowners in Sections 1, 2, 3 and 5 have had the opportunity to vote for or against a Chapter 11 restructuring plan devised by GOMO. The deadline to submit a vote is noon Monday, so if you received a thick information packet from an attorney’s office and haven’t done anything with it yet, now would be the time.
Guess what a key difference is between GOMO’s bankruptcy plan and the one submitted by the court-appointed committee of unsecured creditors, which will distribute its plan for a vote if GOMO’s plan does not pass.
That’s right, money.
GOMO wants to set aside a total of $50,000 for the claimants, while the creditors committee wants them to receive all of GOMO’s remaining assets after administrative costs and attorney’s fees.
But no matter which plan passes – if either of them does – there’s a decent chance the amount awarded to the creditors will ultimately be the same. It might even be less than $50,000.
Because no matter how you vote, Garden Oaks, the real winners will be the lawyers. They’re going to get paid regardless.
A one-time Garden Oaks homebuilder who attended last week’s town hall meeting hosted by GOMO, and expects to receive only a fraction of the near-$8,000 transfer fee he paid in 2015, summarized the situation for the other 30 or so attendees.
“That money’s gone,” he said. “It’s been spent to pay the lawyers.”
There’s no way to know exactly how much money the lawyers – Johnnie Patterson and Sipra Boyd for GOMO, along with Charles Rubio and Hoover Slovacek LP for the creditors committee – will have raked in when the bankruptcy proceeding finally ends. It could be $200,000, it could be $500,000, it could clean GOMO out.
The only lawyer in the case who has submitted a compensation allowance to the court – Rubio – sought about $100,000 for nearly four months of work. Federal bankruptcy court judge David Jones ruled last week that GOMO doesn’t have to pay Rubio anything now, and his pay rate may or may not stand.
Either way, attorney fees will continue to accrue until the bankruptcy case is over. If GOMO’s plan fails – a hearing regarding the voting results is scheduled for April 9 – the case will continue at least as long as it takes for the creditors committee plan to be voted upon by the neighborhood.
“The longer this goes on, the less money there is,” Parks said. “That’s a certainty.”
That’s not to say you should vote for GOMO’s plan only because you want the bankruptcy case to end and the lawyers’ coffers to stop filling up. There are other key differences between the two plans, namely the scope of proposed changes to Garden Oaks’ deed restrictions.
GOMO’s plan includes more widespread amendments, whereas the creditors committee wants to focus on a few important changes and worry about the rest later. Both plans call for replacing the transfer fee with an $80 annual mandatory fee, doling out deed-restriction enforcement to a third-party management company and removing an outdated and illegal-to-enforce restriction pertaining to race.
If you live in Garden Oaks and care about the future of your subdivision, I’d suggest you do your homework and turn it in quickly. And if you filed a claim and are worried about how much money you’re going to get back, try not to care quite as much.
Much of it has been, and will be, gobbled up by the guys and gals who go to court for a living.
“The lawyers got the money. That’s the way it is in the world,” said the homebuilder, who asked to remain anonymous. “You know, move on. Let the guys run their neighborhood the way they want to run it.”