Disputes over retirement apartment resales could result in new California law
By Tracy Seipel | San Jose Mercury News
SACRAMENTO — After his wife died, Leon Stutzman moved to the Forest Hill Manor retirement community in Pacific Grove. The contract for his apartment required a hefty entrance fee, with the written provision that if he died or moved away, most of the deposit would be returned to his heirs within 90 days of the unit’s resale.
Stutzman passed away in August 2011, but it took Forest Hill more than three years to find a buyer.
“I kept calling the marketing man, and he said he would put me on a list of people to get back to, but I would never hear from him,” recalled his eldest daughter, Randi, a Menlo Park resident. “I felt like we were getting the run-around.”
The unit was finally sold and the family was repaid this spring, about $570,000 — with no interest. During the intervening years, the daughter knew, the stock market soared, and if Forest Hill invested it there, she said, “they made a lot of money.
An attorney representing Forest Hill denies any allegation that her client intentionally delays selling units.
But state lawmakers will have some say in the matter this week as they decide dozens of bills during their final regular legislative session of the year.
Senate Bill 475, introduced by Sen. Bill Monning, D-Monterey, would impose stricter measures in contracts with these so-called “continuing care retirement communities.”
The bill may be voted on as early as Tuesday by the full Assembly and within days of that by the Senate. If it passes both chambers and is ultimately signed into law by Gov. Jerry Brown, these retirement facilities would have to repay the resident or estate a portion of the deposit in the event the unit remains unsold after four months. After six months, the unpaid balance would accrue a fixed interest of 4 percent annually, jumping to 6 percent after 8 months.
And if it is still unsold after one year, the resident or their estate could file a complaint with the California Department of Social Services, which oversees compliance with licensing laws and monitors finances related to these facilities.
The department would be required to investigate whether the retirement community made a good-faith effort to resell the unit. If it determined that had not happened, the facility would have to repay the balance of what is owed to the resident within 20 business days.
The rules would apply only to contracts signed after Jan. 1, 2016.
“This is an effort to provide some control and regulation to what happens to those deposits that were basically open-ended,” Monning said.
“The fact of the matter is, at the end, when somebody moves out or dies, there has been no timetable by which that deposit has to be returned,” beyond the sale of the unit. This bill, he said, will “protect the interests of the residents.”
But critics — including industry lobbyists — say current law already protects residents, making SB 475 unnecessary. In order to keep the facilities solvent, existing law allows them to keep the former residents’ money until 14 days after resale.
If the bill becomes law, they say, residents could well be charged higher monthly fees as a result. They may also lose the opportunity of selecting a repayable entrance fee.
And, they insist, the issue of delayed repayments was not common until the recession hit.
“It’s not accurate to say there are a bunch of bad actors out there,” said Pamela Kaufmann, a veteran senior care and housing attorney who represents Forest Hill in a dispute with Carmel Valley resident R. Lynn Davis, who said his mother’s unit has not been sold since she moved out of it five years ago.
“Delays in making repayments were rare until the recession in 2008,” said Kaufmann. “I can’t say the effects of the recession are completely over — in some cases, providers are just emerging from it.”
Kaufmann and others say there is no incentive for providers to delay selling the units, because the retirement communities rely on attracting new occupants and their entrance fees fund their on-going business. In Davis’ case, she said, Forrest Hill remodeled the unit and reduced the fees to attract a buyer.
But Margaret Griffin, president of the California Continuing Care Residents Association, which is sponsoring the bill, believes facilities have a “perverse interest” in delaying sales and wouldn’t be in this position if they were required by law to set aside reserves for the contingency that they might not sell the units in a timely way.
“The fact that this is an acceptable practice does not mean this is a good practice,” said Griffin. “They just haven’t gotten caught — until now.”
There are just over 100 continuing care retirement facilities in the state, including more than a dozen in the Bay Area, such as Vi at Palo Alto, Stoneridge Creek in Pleasanton, and the Masonic Home in Union City.
An estimated 20,000 to 25,000 people live in the facilities, experts say.
According to AARP, continuing care retirement centers are the most expensive of all long-term-care options, requiring a substantial entrance fee, as well as monthly charges. They offer a tiered approach to older adults, including independent living, assisted living and skilled nursing home.
Entrance fees can range from $100,000 to $1 million — an upfront sum to prepay for care, as well as to provide the facility money to operate. Monthly fees can range from $3,000 to $5,000, but may increase as needs change.
Most, like Forest Hill, which is owned by the California-Nevada Methodist Homes, are run by nonprofit organizations. About 25 percent, like Vi, part of a corporation once known as Classic Residence by Hyatt, are run by for-profit businesses.
California Department of Social Services spokesman Michael Weston could not say how many people have filed complaints about continuing care retirement homes over the last few years.
Davis is undeterred.
“They have unlimited power to keep your money and pay no interest until it’s been re-sold,” said the retired former executive director of legal services for seniors in Monterey County, and the person who first alerted Monning about the alleged abuses.
“It’s a really interesting model they have (of making money), and they will fail in the future if they don’t change.”
Two leading industry groups that represent most of the continuing care retirement communities in California say the bill they originally opposed has been amended enough that they have now taken a neutral position on it.
Griffin, who represents the residents association, said she doesn’t mind that the bill has been “watered down” a little bit.
“Anything is better than waiting five years (for a sale),” she said. “And anything less than a year is a win for the residents and their families.'”