The Sentinel Case I

Condo Owners Sue Builder, Ask for Sales Cancellations

Reprinted from The Washington Post

By Ann Mariano
Washington Post Staff Writer
Copyright The Washington Post, February 5, 1983

Fourteen homeowners in an Alexandria condominium project are suing the developer, his attorneys and a real estate sales company, charging fraud and violations of the Virginia Condominium Act.

The buyers want their sales contracts canceled and payments of $350,000 each in damages, according to documents filed in Alexandria Circuit Court. The homeowners’ attorney, James C. Brincefield Jr. of Alexandria, said several suits are being prepared on behalf of other purchasers and will be filed soon.

When the homeowners bought their units in the Sentinel of Landmark, built by Northern Virginia developer John F. DeLuca, they say they were told 80 percent of the 27Z apartments would be owner occupied. Instead of selling to individuals, however, DeLuca sold more than 200 of the units to a Boston syndicate that operates them as rental apartments. “This change will alter the project from a predominantly owner occupied residential condominium to a predominantly absentee, investor owned rental project,” say the court documents.

DeLuca said he “didn’t deceive anyone. t don’t operate that way. I did everything I was supposed to do” in sales and operations of the Sentinel buildings

Condominium homeowners typically fear that tenants, who have nothing invested in the buildings, will not pull their weight in keeping up the condominium complex. As the number of condominium units in the Washington area has grown from 1,672 in 1970 to more than 100,000 now, conflict has often erupted between buyers who plan to live in their homes and investors who rent out the units for tax advantages and eventual profits from sales.

The Sentinal buyers say they were not told that DeLuca had changed his mind and planned to sell more than 200 units to a syndicate nor about changes in the documents that set out rules for operating the condominium building, as is required by the Virginia Condominium Act.

DeLuca said, “altering the condominium documents was my attorney’s responsibility.” A real estate firm handled the settlement of the unit purchases, and “apparently they forgot” to tell buyers about the changes that had been made in the documents, he added.

Spokesmen for Burr, Norris and Pardoe Inc. of Chevy Chase, the real estate company, and for Bettius, Rosenberger and Carter of Fairfax, the law firm, would not comment on the suits.

Russell S. Rosenberger Jr., who handled settlement of several of the sales and who, a spokesman said, is no longer with the law firm, could not be reached for comment. The two firms are named as defendants in the suits, and Rosenberger and another attorney, Ronald Proffitt, are named in several of the cases. Several salesmen for the Chevy Chase real estate firm also are named in some of the suits. DeLuca’s companies, DeLuca Construction Corp. and Sentinel of Landmark Associates, also are being sued.

Virginia Real Estate Commission Condominium Administrator William L. Thompson, said his review of documents concerning the project indicated that “condominium instruments as recorded and those distributed to purchasers are materially different.” Thompson, whose statements are contained in a letter written in December, concluded that “it would appear that no person who purchased at the Sentinel had received current documents.” Thompson wrote that “normally, “these facts would warrant an immediate cease and desist order from this office.” At that point, however, Deluca had sold the remaining units to the syndicate, the March Co. of Boston, removing him from the jurisdiction of the commission.

Under Virginia law, owners must give buyers a “public offering statement” disclosing “all unusual and material circumstances affecting the condominium,” terms of financing and title, a projected budget and provision for reserve funds and “such other information as may be necessary to assure full and fair disclosure to prospective purchasers.” All of this information must be provided to buyers before sales are completed.

Rosenberger, DeLuca’s attorney for several of the Sentinel sales, told the buyers “no changes had been made in the public offering statement,” according to the court documents. In addition, “DeLuca stated that everything was going according to plan and did not inform “the buyers of the material changes and actions …,” the documents say.

The changes purchasers say were kept from them include alterations in condominium documents that reduced the voting rights of residential apartment owners and transferred some of those rights to commercial units that were not a part of the original plan for the building.

In addition, the purchasers charge DeLuca deleted from the Unit Owners Association budget a provision for $20,000 in a “reserve for replacements” fund to pay for repairs and equipment replacement in common areas of the building. DeLuca also improperly commingled funds of the owners’ association with the general funds of his company, and failed to pay at least $64,000 in unit assessments for the unsold condominiums he held in the building, the court documents say.

DeLuca said the charge that he failed to pay $64,000 he owed was “totally untrue.” He said he made all payments he owed before he sold the remaining units to the March Co. He added that “all the bills were paid when I turned over the association [to the new owners of the condominiums] and there was $13,000 for reserve for replacement in the bank.”

The court documents for several of the suits say that, in addition to assuring purchasers that no more than 20 percent of the units would be sold to investors, the real estate firm and the two sales agents incorrectly told some of the individual buyers that:

* Their loans “would be assumable at the original interest rate.”

* The condominiums met the loan requirements of two government chartered agencies, the Federal National Mortgage Association, known as Fannie Mae, and the Federal Home Loan Mortgage Corp., or Freddie Mac. This status makes mortgage loans on units easier to obtain.

* DeLuca and Sentinel of Landmark Associates would provide, at their expense, certain furniture and furnishings for the pool area and community rooms at the condominium.”

Sales of the nearly 70 units to individual buyers were finalized in late 1981, despite assurances from real estate salesmen that the settlements would not take place until more than half the apartments had been sold, Brincefield said.

DeLuca said that, in the depressed real estate market of ’81 and ’82, few individuals were buying the units, which he said were priced in the “low 70s.” He said, “My only choice was to give [the unsold units back to the bank and let them have a forced sale” or conclude the deal with the March Co.

March Executive Vice President and General Counsel Jerome Heller is president of the Sentinel’s homeowners association. A March employee holds another seat and the remaining three are occupied by homeowners. The syndicate, as owner of the majority of the units, has “majority voting rights,” Heller said.

Correction

In today’s Real Estate section, which was printed in advance, a phrase was omitted from an article involving lawsuits against the Sentinel of Landmark condominiums. The paragraph should read: Sales of the nearly 70 units to individual buyers were finalized in late 1981, despite assurances from real estate salesmen to many purchasers that the settlements would not take place until more than half the apartments had been sold, attorney James C. Brincefield, Jr. quoted several of his tenant clients as saying.

New Allegations in Sentinel Suits

Reprinted from The Washington Post

By Ann Mariano
Washington Post Staff Writer
Copyright The Washington Post, March 24, 1984

Alexandria Circuit Court Judge Donald H. Kent has approved the filing of new allegations in 27 lawsuits involving the trouble plagued Sentinel of Landmark condominium and ordered the trial to begin May 7.

Russell S. Rosenberger Jr., the attorney who represented the Sentinel developer, said he knew at the time they took place that about one-third of the sales of Sentinel units were made in violation of the Virginia Condominium Act, according to court documents filed this week.

The contracts were issued and some of the sales were finalized before the Sentinel was registered with the Virginia Real Estate Commission, as is required by state law, Rosenberger said. He made the statements in response to pre-trial questioning by attorney James C. Brincefield, Jr., who represents the 27 unit owners who have filed the lawsuits.

A major complaint of the condominium owners, they say, is that when they bought their Sentinel homes they were told that 80 percent of the 272 units in the building would be owner occupied. Instead, 203 of the units were sold to the March Co., a Boston based syndicate, which operates them as rental units. Because they hold the majority of the apartments, the Boston investors control the owners’ association, which governs maintenance and other affairs of the building.

The first of the suits was filed nearly 18 months ago. All charge the developer, John F. DeLuca; Rosenberger and his former law firm, now known as Bettius, Fox and Carter; and Peter Burr, head of Burr, Norris and Pardoe, Inc., whose real estate sales agents sold the condominium units, with fraud and violations of the state condominium act. Several individual sales agents are also named in the suits.

DeLuca did not return a reporter’s telephone calls and his attorney, Griffin T. Garnett III, would not comment because the case is in litigation, he said.

Joseph F. Cunningham, an attorney for the real estate sales companies and agents, said his clients had “a duty to disclose all material facts, and they did.” But, he said, they did not “have the duty” to determine whether the developer and his attorney were complying with Virginia condominium law.

The condominium owners are asking that their sales contracts be canceled and seeking $350,000 each in damages, according to the court documents.

After the unit buyers signed purchase contracts, but before settlement of the sales, developer DeLuca changed condominium rules to reduce the voting rights of the residential units and to add commercial units, and failed to tell the buyers about these changes, the lawsuit says. In addition, DeLuca “improperly” mingled funds of the condo owners’ association with the general funds of his company.

In the latest documents filed, the condo owners say further investigation of their charges has turned up evidence of additional instances of violations of state law.

Many of the complaints in the original lawsuits and in the recently filed allegations center on the public offering statement, the major protection Virginia law provides condominium purchasers. This statement requires developers and sales agents to “disclose fully and accurately the characteristics of the condominium and the units therein offered” and to “make known to prospective purchasers all unusual and material circumstances or features regarding the condominium.”

In fact, the public offering statement given to tile owners was never submitted to the Virginia Real Estate Commission, as is required by law, said Brincefield. Several versions of a public offering statement were registered with the commission, but the purchasers were never given these versions, he said.

Attorney Rosenberger said he knew that under state law a condominium had to be registered with the real estate commission before a public offering statement could be distributed to prospective buyers, according to the court papers. Nevertheless, he did not advise his client, DeLuca, that provisions of the condominium act were being violated, Rosenberger said.

Even in the versions of the public offering statement that were given to the real estate commission, at least one change was never noted, court documents show. The provision for a $20,000 reserve fund to pay for replacement of common area items was deleted from the owners’ association budget while DeLuca controlled it, before a majority of the units were sold, Rosenberger said in his statements to Brincefield. Rosenberger said, however, that “it was my opinion that it was not a material change” to the public offering statement.

The new allegations recently filed in the case say that Rosenberger knew “material facts were being … misrepresented and not disclosed to purchasers at the Sentinel.” In addition, according to the allegations, Rosenberger filed an affidavit that he knew contained false information when he applied for registration of tile Sentinel in July 1981. Rosenberger also “consciously and deliberately engaged in a continuing course of fraudulent misconduct … all with the intent of misleading and deceiving purchasers” at the Sentinel, said the document.

Rosenberger “had good reason to believe the proper documents had been handed out” to purchasers before the sales were completed, said his attorney, said Paul F. Sheridan of Fairfax. Whether it was Rosenberger’s responsibility to assure that proper documents were distributed is “one of the hearts of the case,” said Sheridan. Another, he added, is “whether the purchasers of Sentinel units were really damaged.

The recently filed allegations say that the developer, DeLuca, “failed to Keep detailed records of the receipts and administrative expenses of the condominium and specifying the maintenance and repair expenses of the common elements,” according to the court document.

He did not disclose the management and service contract between the condo owners’ association, which he controlled, and himself, and then collected $100,000 from the association. The contract “breached” DeLuca’s “fiduciary obligation to the association, was not properly performed and was not properly disclosed” to the unit owners, according to the court documents.

Burr, Jeannie B. Honeycutt, the company’s sales manager at the Sentinel, and several sales agents “failed to disclose various material facts to purchasers before and after contracts were signed as well as after settlements on their units,” court documents allege.

The real estate agents put deposits they collected from prospective buyers in a District of Columbia bank, rather than in a Virginia bank, as the Virginia Real Estate Commission requires, according to the documents.

Burr said he did not “think it appropriate to comment.”

Cunningham, the attorney for the real estate firms and the agents, said that although one of the companies did not have a Virginia license, the other, Burr, Norris and Pardoe, Inc., was authorized to work in the state.

The “essence” of the case, however, is whether the real estate sales agents “had the duty to monitor whether the developer and his lawyer were in compliance” with Virginia law.

Sentinel Suit Reflects Conflict Over Sale of Units to Investors

Reprinted from The Washington Post

By Ann Mariano
Washington Post Staff Writer
Copyright The Washington Post, June 2, 1984

When Brenda Dobbs, 29, bought her first home, a condominium apartment in the Sentinel of Landmark in Alexandria, “I thought I was buying into a building that would be managed collectively by resident owners,” she said.

But after her purchase, Dobbs said, 203 of the building’s 273 apartments were sold to a Boston based real estate syndicate that now operates them as rental properties and controls the unit owners’ association, the condominium governing body.

“I realized I would be no part of the decision making of the building. It would be just like renting again,” Dobbs testified last week in Alexandria circuit court, where Judge Donald H. Kent is hearing the case filed by Dobbs and 26 other Sentinel owners against the developer of the project, his attorney and real estate agents who sold the units.

Sales of units to investors are a frequent cause of friction between condominium owners, who fear they will not pull their weight in upkeep of the property, and the developers or converters of a project, who may see investors as a way to make quick sales.

The trial is scheduled to resume on Tuesday after a week’s recess, and is expected to continue into the autumn.

The unit owners say the developer, John F. DeLuca; his attorney, Russell S. Rosenberger Jr., and Rosenberger’s law firm, Bettius, Rosenberger & Carter; the real estate companies, Burr, Norris and Pardoe Inc. and Burr Norris and Pardoe Project Sales Inc.; Peter Burr, the head of the companies; and sales agents Jeannie B. Honeycutt and Kevin Cameron Wade are guilty of fraud and violations of the Virginia Condominium Act. The real estate companies also are charged with negligence for failure to comply with Virginia real estate licensing requirements. The homeowners are seeking $350,000 each in damages and cancellation of their sales contracts.

The defendants will reply to these charges at the conclusion of the plaintiffs’ case, which is expected to go on at least several more weeks.

Dobbs, who works for the Internal Revenue Service, said in court that when looking for a condominium four years ago she liked what she saw at the Sentinel because the building was in a good location, in the right price range and was newly constructed. Dobbs said she dealt most frequently with Honeycutt while deciding whether to buy at the Sentinel, and signed a contract in November 1980. She was not given a public offering statement – a POS – until the “spring or summer of 1981, several months after I signed the contract,” Dobbs said.

Virginia law requires that condominium projects be registered with the state Real Estate Commission and a public offering statement approved before any units are sold. The POS is supposed to describe the property in detail, define the rights and responsibilities of unit owners, and set forth the rules for governing the condominium by the unit owners association. The law also says the owners must be notified if any changes are made at the condominium.

According to testimony and court documents, the 27 owners who filed the lawsuit were never given a copy of any of several versions of the P05. After most had signed sales contracts, the owners were given a copy of a public offering statement that was never submitted to the Virginia Real Estate Commission for registration as a condominium.

Dobbs testified that she first learned of the sale of about three-quarters of the Sentinel units to the March Co., which formed the Boston syndicate, in “spring or summer of 1982.” She said DeLuca called a meeting on June 3 that year “to explain what had happened regarding the sale to the March Co. and plans for the 203” units that were sold to the Boston firm.

Dobbs said that when she signed the sales contract for her apartment, she was told that no sales would become final until at least half the apartments had been sold. But “when 1 was called to come in and settle, I asked if 50 percent had been sold” and was told no, she said. Riggs Bank, which had made the construction loan to DeLuca, waived the requirement, Dobbs said she was told.

The unit owners also allege that DeLuca took out of the Sentinel budget $20,000 in the “reserve for replacement” fund, money that was supposed to be held until equipment needed to be replaced. He also allegedly failed to follow through on a promise to buy furniture for common areas of the development and signed an agreement that would allow Saturday afternoon use of Sentinel tennis courts by residents of a neighboring apartment project. The owners say they were not told about the agreement until after it was signed.

DeLuca testified he did “not really” take part in preparing a P0S for the Sentinel.

“I don’t normally review legal documents,” he said. “I depend on my attorney” for this. “My understanding was that the document the P0S was drawn up by Mr. Rosenberger and Mr. Burr” Peter Burr, head of the real estate sales firm.

DeLuca said Rosenberger also told him in mid-1981 that the $20,000 for a reserve for replacement could be removed from the budget and “replaced by a two-year warranty” from the developer, to cover any replacements needed.

When DeLuca sold the 203 units to the Boston investors, he kept one apartment that he subdivided into commercial units, for rental as professional offices. The developer said that “through my attorney” he reduced the unit owners’ rights by a small percentage and reserved seven votes for tenants of the offices. Resident owners were not notified at the time office space was created in the Sentinel or that the $20,000 replacement fund had been deleted from the budget, DeLuca acknowledged. He said Rosenberger advised him there were “no material changes” that would require a change in the POS.

Renting out commercial space “was always part of the plan” for the Sentinel, and “it was just an error” that information was left off the POS given to the unit owners, DeLuca said.

The developer testified that he “understood some purchasers wanted their contracts rescinded” after the sale of units to Investors. He said he told his attorney that he could not, and did not intend to, repurchase these owners’ apartments.

DeLuca acknowledged during questioning by James C. Brincefield Jr., the unit owners’ attorney, that he did not make payments on his construction loan from Riggs Bank from the spring of 1981 until the fall of 1982.

“I had an agreement with Mr. Robert Pickerell of Riggs Bank that he was not going to … call foreclose on the loans,” DeLuca testified. He said the bank agreed to cancel its requirement that half the units be sold before any sales were completed. The agreement was called the Golden Ox plan, for the restaurant where it was made, and allowed the developer to settle the nearly 70 contracts signed by potential buyers, the developer said. He then delivered the net proceeds to Riggs to be applied against the construction loan that was in default, DeLuca said.

The developer said he relied on his accountant and another employee to set up the proper bank accounts and pay bills at the Sentinel during the time that the developer controlled the condominium owners’ association. “that’s the way business is done in my office,” the developer said. He added that he knows that funds from the unit owners’ assessments and his own company’s funds were “commingled” in his company’s bank account, but at the time “I just assumed” that the money was going into a unit owners’ account.

If his employees “didn’t do what they were supposed to do, it was their responsibility,” DeLuca said. “It was mine if they did what they were supposed to do.”

When he was shown a handwritten document from Rosenberger with “O.k.” written on the first of several pages, DeLuca testified that he saw only the page with his notation. Asked about a four page, typewritten report from Rosenberger, DeLuca said he saw the first two pages that contained his handwritten notes, but never saw the other two pages.

When Brincefield asked whether unpaid interest was accruing at a rate of $2,000 a month in late 1981, after sales to individual owners were settled, DeLuca answered, “yes.” When he was asked by Brincefield whether he had “thousands” of dollars in unpaid bills, he again replied “yes.”

DeLuca said the condominium market was “strongly depressed” in late 1981 and 1982, and “no one was selling any units.” He replied “yes” when asked by Paul F. Sheridan, Rosenberger’s attorney, whether he was “contemplating bankruptcy in the summer of 1982.”

Sentinel Condo Owners’ Meeting To Discuss Lawsuit Is Bugged

Reprinted from The Washington Post

By Ann Mariano
Washington Post Staff Writer
Copyright The Washington Post, June 9, 1984

Alexandria condominium owners meeting with their attorney last Sunday to discuss a lawsuit against developer John F. DeLuca, his attorney and real estate sales agents discovered a microphone hidden in a ceiling vent and recording equipment in a nearby room, according to the attorney and police.

The equipment was taken into custody by Alexandria police, who were called to the apartment building, the Sentinel of Landmark, and an investigation is under way, said a police spokeswoman.

The condominium owners’ lawyer, James C. Brincefield Jr., called the apparent electronic snooping “utterly outrageous conduct.” Paul Sheridan, attorney for defendant Russell S. Rosenberger Jr., said he fears negotiations for an out of court settlement may be “irretrievably thrown in reverse.” Owners of 27 apartments in the building charge DeLuca with fraud, negligence and violations of the Virginia Condominium Act, and Rosenberger and real estate brokers Peter Burr and Jeannie B. Honeycutt with fraud. Burr is head of Burr, Norris and Pardoe inc., also named in the suit.

The owners say that when they bought their units they were told they would be living in an owner managed building and that no more than 20 percent of the apartments would be sold to investors as rental property. Instead, DeLuca sold 203 of the building’s 273 units to a Boston based syndicate, which rents them out and now controls the unit owners’ association. A number of other violations of Virginia law are alleged, combining to make the trial lengthy and complex.

Three weeks of trial have been held in Alexandria circuit court. Attorneys on both sides had said earlier that the trial of the complex case would continue into the fall, and lawyers said this week they could not speculate on the effect the discovery of recording equipment would have on the case. Presiding Judge Donald H. Kent has urged the two sides to work toward an out of court settlement to avoid a long, costly trial, but negotiations have been unsuccessful. The trial, delayed because of an illness in the Judge’s family, is scheduled to resume June 18.

“The worst aspect [of the bugging] is that whoever was listening in … has access to our case strategy … and what we would be willing to settle for,” said Brincefield. The unit owners “received a new settlement offer last week. We were discussing it” at the meeting in the community room of the Sentinel when the recording equipment was discovered, he added. “In almost 20 years of practicing law, this is the first time anything like this has happened to me or to anyone I know,” Brincefield said.

Unit owners decided to check the community room after noticing that a man not associated with the owners or management had appeared at the Sentinel several times when the owners were meeting, Brincefield said.

Linda J. Desell, who called police after the discovery, said, “Some folks decided to check the overhead vents …” They unscrewed the covers of several and found the microphone behind one. “I was in shock. I thought, I can’t believe this is happening,” Desell added.

When police arrived, they traced the wiring from the microphone in the ceiling, down a hallway and into an electrical equipment room, where they found the recording equipment, Brincefield said. “I heard the police play back” part of the tape, and heard “my voice speaking to my clients. I could hear myself say, ‘Call the police,’ ” after the microphone was found.

“Illegal interception” of a private communication is a felony under Virginia law, and is grounds for civil action, providing for punitive damages, Brincefield said.

Defense attorney Sheridan said he is convinced that his client, Rosenberger, is free of involvement in the electronic eavesdropping, which he called the “most preposterous thing I’ve ever seen in litigation.”

“I cannot comprehend why people do things like this,” Sheridan added. If the bugging triggers a mistrial ruling, the mounting legal fees could become “exorbitant” and an increasing barrier to negotiated settlement, he said. Griffin T. Garnett III, DeLuca’s attorney, said, “I can’t make any comment [about the discovery of the recording equipment] because the case is still in litigation.”

Joseph F. Cunningham, attorney for the real estate firm and its employees, said, “I can tell you who did not” put the recording equipment in the Sentinel. “My clients have not been back to the project since their services terminated in April 1982.” He added, “I don’t think it will have any effect” on the outcome of the trial of the real estate agents. “There is not a suggestion of any wrongdoing on the part of Burr, Norris and Pardoe.”

Peter Burr, head of the real estate firm, said, “I had nothing to do with it whatsoever,” adding that he would make no other comment.

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