Referring to the loss of millions of dollars in resident entrance fee deposits as a “shonda,” Sen. Al Franken (D-Minn.) listened and responded to the testimony of Charles Prine as he recounted the failure of Covenant at South Hills, the B’nai B’rith-sponsored senior living facility in Mt. Lebanon.
Prine, who represented the Covenant’s residents as the chair of the Official Committee of Unsecured Creditors in the Covenant’s bankruptcy proceeding last year, was asked to testify before the U.S. Senate Special Committee on Aging July 21. The hearing was entitled “Continuing Care Retirement Communities (CCRC): Secure Retirement or Risky Investment?”
Prine testified along with four other panelists on the financial risks inherent in CCRCs, and the adequacy of state safeguards in protecting the interests of the residents of these communities.
“I got a personal letter from Sen. Kohl (D-Wis.), [chairman of the committee], about two or three weeks ago, inviting me to testify,” Prine said.
Prine is still a resident at the former Covenant, which was purchased for $15 million late last year by Concordia Lutheran Ministries. The facility is now known as Concordia of the South Hills.
Prine recounted the details of the failure of the facility, B’nai B’rith’s refusal to be accountable for that failure, and the subsequent cumulative loss of some $26 million in entrance fee deposits, representing entire life savings for some residents.
“Like most of the residents, my wife and I selected this community primarily because of the reputation of its sponsor, B’nai B’rith, which promoted itself as a leading operator of senior-living facilities throughout the United States,” Prine told the committee. “It later became apparent that B’nai B’rith’s actual experience was primarily in government financed low-income rental facilities and that it had no experience whatsoever in building and operating life-care communities.”
“Furthermore, B’nai B’rith did not invest a penny of its own money in this venture, but rather set up a fully controlled nonprofit affiliate, which financed the construction and operation of the multipurpose building through a bond issue and bank loans,” Prine continued. “Although they had invested no money, B’nai B’rith’s stated plan was to draw out of the financing and operation substantial fees and a share of the profits.”
The Covenant experienced financial problems almost from its inception, Prine explained, and noted that B’nai B’rith, and its shell corporation, “refused to provide an audience for a meeting with the Residents’ Council,” and allowed the residents’ deposits to be used to “make up for lack of other income to pay various bills.”
In 2009, the bondholders commenced a mortgage foreclosure action in state court, Prine told the committee. “That action could have resulted in the loss of our homes, our long-term care insurance and our deposits. Eventually, we landed in Federal Bankruptcy Court where the bond holders and bank lenders refused to consider any kind of resolution in which the residents would receive a single penny.”
While Concordia, the buyer of the facility, agreed to honor the residents’ existing residency agreements and life care contracts, Prine testified, the residents lost the entirety of their deposits, the bulk of which were supposed to be refunded once the resident left the facility.
Prine concluded his remarks with recommendations to the committee, including requirements that refundable deposits be placed funds in “true escrow accounts held by a trustee with the proviso that the principal could not be utilized for operating expenses or other purposes,” and that the boards of directors of CCRCs “should include at least 33 percent residents. In effect, these residents should be players, not just pawns in the game.”
But, according to a Wall Street Journal report published last week, many CCRC industry insiders say that the Covenant situation is unique, and that it is the only example nationwide where residents have lost their entrance fee deposits as a result of a facility’s bankruptcy.
Steve Johnson, deputy commissioner of the Pennsylvania Insurance Department, which regulates CCRCs, believes no new regulations are required in the state, and that the laws already in place to protect resident interests are doing their job.
“No resident has ever been displaced in Pennsylvania,” Johnson told The Chronicle. “And the Covenant is the only facility where residents had to give back some of their economic interests. I would say that the law has done very well.”
“I’ve had many of these discussions with Chuck Prine,” Johnson continued. “They [the Covenant residents] weren’t kicked out of the facility. Losing their entrance fees was a better outcome.”
Johnson said the Covenant situation was unique, blaming it on the economic “meltdown” of the past few years. He is not in favor of imposing stricter escrow laws on CCRCs.
“If you take away the financing [provided by the resident deposits], the facilities will have to borrow more money from lenders. That will raise the cost of the facilities, and fewer seniors will be able to move into these facilities. And I don’t think that’s good public policy.”
Sharing financial information about the facilities with residents — and between various facilities — in a timely manner can go a long way in preventing problems with CCRCs, believes Katherine Pearson, professor of law and director of the Elder Law and Consumer Protection Clinic at Pennsylvania State University. Pearson also testified at the Senate hearing last week.
“How many facilities [in bankruptcy] does it take before the state begins sharing better information with the residents? Let’s not let it go all the way to failure,” she said. “Let’s catch it [financial problems] early enough, when more alternatives are available. Steve Johnson likes to say the Covenant is a unique case. But I don’t think we’re out of the woods yet.”
Prine hopes that the hearing will help spawn action to protect residents of CCRCs in the future.
“I am hopeful that out of these hearings, there will become a consensus that there should be a bill of rights for residents to protect them from the losses that occurred at the Covenant,” Prine said, “and that would provide a more stable future for all the residents of the lifetime care communities throughout the United States.”
At the conclusion of the hearing, Kohl reiterated Franken’s sentiment that what happened at the Covenant was a “shonda,” and defined the word for those present not familiar with Yiddish.
“It’s a shame,” he said.
(Toby Tabachnick can be reached at email@example.com.)