Wednesday, June 20, 2007

Desert Sun Article on Legacy Villas


The Desert Sun
June 20, 2007
A group of investors who've poured their money into the upscale Legacy Villas at La Quinta development are suing Centex Homes alleging securities violations and fraud.
The homeowners are asking for a cancellation of their purchase agreements to recoup $20 million to $25 million.
The lawsuit was filed June 14 at Riverside County Superior Court in Indio by Orange-based law firm Wildish & Nialis on behalf of about 44 investors who purchased townhomes and villas over the past few years.
The suit alleges Centex marketed homes with promises that investors would reap profits under a rental agreement managed by La Quinta Resort & Club.
But because of construction delays and a long list of other "misrepresentations" and problems, investors claim they were stuck with charming Spanish-style villas that they weren't able to rent out.
Eric Bruner, a spokesman for Dallas-based Centex Corp., said "we are not going to discuss any matter under litigation."
Centex was founded in 1950 and is among the nation's top homebuilders, with operations in 25 states. Through its Centex Destination Properties division, it offers similar villas in places such as Beach Villas at Ko Olina in Hawaii and in Nevada, New Hampshire, North Carolina and Texas.
The Legacy Villas at La Quinta is a gated, guarded, private community - with some 280 luxury villas, 19 cascading fountains, nine community pools, saltwater spas and winding trails - that is being built next to the 81-year-old La Quinta Resort & Club, now part of the Waldorf-Astoria Collection of Hilton Hotels.
Investors allege that Centex marketed the villas from about January 2004 through May 2006 as rental properties that would create income for them through a rental and management agreement set up through La Quinta Resort.
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But completion of a 11,000-square-foot clubhouse with high-end grille, fitness facilities, spa, pool, gardens and other amenities was delayed until February 2007, leaving investors with properties they couldn't rent to vacationers, according to a 17-page complaint alleging a wide range of problems.
Neither the La Quinta Resort & Club nor KSL, the company that managed the resort at the time of the villas' sale, is named as a defendant in the lawsuit.
"Centex closed the sales on the investors' units knowing that the clubhouse was not complete and would not be completed for an extended period of time," the lawsuit alleges.
Investors who were relying on rental income to cover all or part of their mortgage expenses and debt service were left holding the bag, the lawsuit contends.
Other problems laid out in the lawsuit included construction delays due to excessive mud and dust, "incomplete, unsafe and unsightly" common areas and incomplete interior work.
The lawsuit alleges homeowners had to pay mortgages, property taxes, utilities and rising homeowners association dues despite the fact that they couldn't rent the vacation villas until construction was done.
Some investors paid $15,000 for furniture upgrades, but the lawsuit alleges the furniture "is not of the quality consistent with a five-star resort as represented by the seller."
Investors allege Centex gave false completion dates for the clubhouse and common areas, telling prospective buyers portions of the development would be finished in May 2005 or summer and fall 2006, when the bonded completion date was July 2009.
Investors claim there were a number of misrepresentations or omissions regarding contracts, such as being told long-term rental opportunities would generate consistent income when rentals more than 30 days were prohibited, the lawsuit alleges.
Investors allege Centex was out to maximize its revenue and profit by closing on sales of the villas even as the company knew clubhouse and common area construction faced delays.
Hilton Hotels has a contract to manage La Quinta Resort & Club as one of its "Waldorf-Astoria Collection" of properties.
Investors also said they weren't told the villas would not be rented until the hotel was fully booked, nor that a 50 percent fee would be assessed to rent units, considerably more than 15 to 30 percent charged by most other rental programs.
Some three-bedroom, four-bath, 2,200-square-foot luxury villas originally sold for more than $940,000, while others have sold for $800,000 to more than $1 million. To the chagrin of investors, however, prices have since plummeted despite guarantees from Centex that such price-slashing wouldn't occur, the lawsuit alleges.
Some investors who purchased in the first phases claim they can't refinance now because property values have plummeted. Villas that once sold for $775,000 have recently been selling for about $555,000.
Hundreds of prospective buyers have been showing up in recent months to check out the discounted villa prices, and many have sold.

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