Facing over $1 million in debt to contractors, Florida condo association Bayou Pointe Villas, Inc. filed for Chapter 11 bankruptcy after allegedly failing to pay for cleanup and repair work stemming from Hurricane Michael in 2018.
With just $408,000 listed as assets, the condo association’s bankruptcy filings are only the latest action in a convoluted three-year dispute.
In 2018, Category 5 Hurricane Michael swept across Florida, making landfall in the Panhandle. With sustained winds of 160+ MPH, the storm left huge amounts of destruction in its wake.
Bayou Pointe Villas (BPV), located in Panama City, Florida, experienced the full force of Hurricane Michael, sustaining significant wind and water damage to its 28 units and having large portions of its roof ripped away.
According to court filings, BPV entered into a Time and Materials Agreement with Texas-based contractor Lincoln Hancock Restoration, LLC (LHR) to handle the cleanup and repair of the then 33-year-old property.
LHR subcontracted much of the work out to Clean Response, Inc., a water and fire damage restoration company based in Minnesota. The contractor specializes in extracting water from flooded areas, venting and drying, removing mold and fungus, and repairing damaged property.
BPV’s insurer hired J.S. Held, LLC as a consultant to evaluate the insurance claim and perform an inspection of the damaged properties. After multiple inspections, the consultant confirmed that “each of the condominium units sustained significant water damage” and that significant repairs were necessary, including “removing all of the interior finishes…in all of the units.”
Following the inspection results and approval by BPV’s insurance company, Clean Response began its work on October 17, 2018. On November 5, however, LHR informed Clean Response that BPV had ordered its contractors to immediately stop all work on the properties. At that point, Clean Response’s work was not complete, and it alerted BPV that leaving the properties exposed to the elements would result in further damage.
Nonetheless, BPV insisted that work stop, and Clean Response “stopped all work and removed its personnel and equipment” on November 8, 2018.
Miscommunication between the condo association and the owners may shed some light on why the work was abruptly halted. Evidently, some residents of the condominium complex were not aware that BPV had decided to move ahead with collective repairs on their behalf.
Jeff Smith, one of the condo owners, said “at the time we showed up it was okay, it was damaged but the unit was probably repairable.”
Planning to handle the repair work himself, Smith was surprised to be confronted by a representative from LHR when visiting his property.
Smith was told he needed to remove his personal belongings from the unit so LHR could move forward with the repairs BPV had agreed to. “The representative told me if it wasn’t taken out by us, it was going to be taken out by a sledgehammer,” said Smith.
Sandra Justice, another owner, was horrified to arrive to find her property stripped, despite sustaining little damage. “It’s just heartless for somebody to come and do what they’ve done here without our permission or our knowledge,” said Justice.
Under Florida law, an association of condominium owners may “institute, maintain, settle, or appeal actions or hearings in its name on behalf of all unit owners concerning matters of common interest to most or all unit owners.”
Despite this, it appears that not all owners were on-board, or even aware of the repair work the association had signed a contract for. Many even seem to dispute the opinion of the inspector, who reported widespread and significant damage to all 28 properties.
Contractors are still seeking payment
What started as a typical cleanup job quickly turned into a complicated dilemma, with all parties involved facing dire consequences. Unfortunately, this is a common tale. According to a 2021 report, just 9% of construction businesses are always paid on time, down 60% from pre-pandemic levels, and only 11% are paid in full on every job.
After withdrawing from the site, Clean Response submitted its invoice on November 12, 2018, to the general contractor, LHR, for the work it had completed. This initial invoice covered equipment, materials, and mobilization costs for the amount of $1,073,255.65, according to court documents.
According to court documents, the president of the condo association signed a sworn proof of loss statement confirming the insurer paid BPV a total of $1,123,652.78 for damage caused by Hurricane Michael.
Yet the condo association allegedly “failed and refused to make any payment to LHR or Clean Response.”
As a result of non-payment, Clean Response filed a mechanics lien against BPV for $1,073,255.66 on February 14, 2019. A month later, Clean Response adjusted its invoice and agreed to a reduced amount of $799,002.
Dive deeper: How to File A Florida Mechanics Lien
To date, there is no record of BPV having paid either of the two contractors — yet Clean Response released the lien later that year on October 20, 2019. Ten days later, Clean Response filed a lawsuit against BPV and LHR seeking the adjusted amount of $799,002.
BPV’s bankruptcy likely comes as a frustration to both LHR and Clean Response. With the condo association owning just $400,000 in assets, it remains unclear how the contractors will recover their losses.
Jason Lambert, a Florida construction attorney, shed some light on why the lien may have been released despite Clean Response’s payment remaining outstanding.
While it’s possible Clean Response may have agreed to release the lien in exchange for something, such as a Promise to Pay, Lambert suggested there may be a simpler reason.
“I think the lien release was probably strategic, rather than the result of any negotiations gone south,” said Lambert. “In Florida, filing a lien with an inflated amount can render the lien fraudulent, which results in a total forfeiture of the lien, plus having to pay the other side’s attorneys’ fees and costs.”
Since Clean Response had adjusted its invoice amount down, the lien it filed was potentially at risk of being declared fraudulent. By releasing the lien and seeking compensation through a lawsuit, Clean Response likely sought to minimize the risk of any penalties.
“The fraudulent lien statute in Florida has real teeth — possible criminal liability and potentially putting one’s contractor’s license in jeopardy,” said attorney Anthony Lehman, confirming Lambert’s opinion.
On top of that, “another factor that might have affected the validity of the lien is the potential need to apportion the lien amongst the unit owners at the condo. If [Clean Response] filed the lien without apportioning the cost to the individual unit owners, that would invalidate the lien as well.”
“Put that all together and any real question about the lien’s validity would possibly be enough to get a party scared enough to drop the lien and proceed on the quantum meruit/unjust enrichment actions instead,” according to Lehman.