Erickson seeks protections to reverse deposit fall
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Naturally people thinking of moving into one of Erickson Retirement's communities have started thinking twice since the the mother, for-profit company -- the one that develops the communities and eventually sells them to a nonprofit corporation -- sought protection under the bankruptcy code. A new filing with the Dallas bankruptcy court documents the plunge in people putting money down for Erickson apartments. It also asks the court for new protections -- beyond the escrow account already approved -- to give customers confidence they can get their money back if they move out of a community. If approved, the request would give new residents greater protections than current residents enjoy -- at least temporarily.
In 2008 Erickson as a whole was taking in more than $30 million a month in entrance fees, which give people the right to move into an Erickson space, according to the filing. (No link. The documents are behind a pay wall on pacer.gov.) Entrance fees run from $100,000 to $600,000 per apartment. This year collections were down to $13.5 million per month up until the bankruptcy filing. That was less than half the usual level as seniors had trouble selling their homes to raise the cash for the entrance cost. This was a big factor in Erickson's financial troubles. Since the Oct. 19 bankruptcy filing Erickson has received only $4.5 million in entrance fees, the filing said.
To try to reverse the drought, first Erickson sought and received the judge's permission to create an escrow account that would wall off new entrance fees from creditors. Now it wants to go further, guaranteeing to new residents they'll get entrance fees back if the community has to close or when they move out or die -- even if the company can't resell the apartments to somebody else. In effect it's a "money-back guarantee" to give prospective residents the choice to move out with a refund if they decide the bankruptcy process has diminished a community's quality.
Under Erickson's current contracts, residents or their heirs get the entrance fee back only if a community can resell the apartment to a new resident. If the new resident pays a lower entrance fee than the previous one, resident No. 1 might not get back the full fee.
Says Erickson's request to the bankruptcy judge:
The Debtors are hopeful the relief sought in this Motion will provide new residents with comfort that during the time periods covered in this motion, the new residents can elect to leave their respective CCRC [continuing care retirement center] and receive a refund of their IED [initial entrance deposit]. The Debtors believe that these modifications are critical to obtaining new IEDs pending confirmation of a plan in these cases.A resident’s ability to elect to leave their respective CCRC is necessary to provide prospective residents with the peace of mind that, during the pendency of the Debtors’ chapter 11 cases, the residents are not held captive by their obligations under the Residence and Care Agreements. The current requirement that a new resident pay an IED prior to the refund of an exiting resident’s IED will necessarily deter prospective residents from entering into Residence and Care Agreements while the Debtors cases are pending. Allowing the residents to have a free look at whether or not the CCRCs are operating effectively while these cases are pending should drastically increase the willingness of potential residents to pay an IED. Because IEDs are critical to the Debtor Landowners’ operations, the provision regarding return of the IEDs should be amended in order not to discourage prospective residents from choosing to reside at one of the Debtors’ CCRCs.
Equally important to a residents’ peace of mind is the knowledge that should their
CCRC close, their IED would be promptly refunded to such resident. Should a Closure Event
happen, it is imperative that the residents have access to the IEDs paid upon their residency of
the CCRC.
Comments
Erickson got in trouble because they took deposits from residents to move into communities and then rather than using that money to pay off the construction of that particular community they were securing the deposit for, they used those deposits to finance another new community. And they kept doing this over and over - a giant pass the buck scheme that eventually caught up to them. What a shady business that probably deserves to FAIL.
Posted by: Smart Guy | November 11, 2009 12:51 PM
I agree with smart guys comment and truely beleive the ericksons are playing the odds at our seniors expense. Lets see they declare bankruptcy but the very next day on cable i see John Erikson hawking his new "senior living" weekley television show thats getting ready to start soon!! So they do not have money for their retirement communities to the point of bankruptcy but they have(major) money to start a tv series?? dosen't add up!! somebody needs to check this out!!
Posted by: woodstock | November 12, 2009 11:20 AM
If they would of focused on a smarter and more loyal upper management team. That wasn't always out trying to cut throats to save their jobs when seriousness came down. How many times is upper management left too easily to throw the dirt on lower employees. Upper management sweeps it under the carpet until one day "many" days, months and maybe years way to late it would be uncovered. Erickson set ethical standard and never stood behind them. Erickson is in no way ETHICAL. If they can't stand behind their ethic's how can they stand behind their Missions. They should of looked to the people with common sense then always to those with Bachelor degrees, or in upper management. Maybe they would of survived. Loyalty and Ethical is the key to all successful companies. The day I walked through the doors at Erickson’s Corporate office. I could see the failure coming no one wanted to listen to me. I was a trouble maker and got fired. I told you so.....
Posted by: Me | November 15, 2009 7:01 AM