Palm Greens Recreation Association - Chapter 11 Case Summary

Business Description

Headquartered in Delray Beach, FL, Palm Greens at Villa Del Ray Recreation Condominium Association, Inc. (the "Debtor") is a Florida not-for-profit corporation that serves as the operational hub for a large residential community comprised of elderly residents. For several decades, the Debtor has continuously owned, operated, and maintained extensive recreational amenities essential to the community.

• The Debtor’s campus features a clubhouse of approximately 20,000 square feet, a large swimming pool, tennis courts, bocce ball courts, shuffleboard courts, a café, and related common-area improvements (collectively, the "Recreation Facilities").
• As a not-for-profit condominium association, the Debtor bears an ongoing duty to protect the safety of thousands of elderly residents who rely daily on the functionality of these common facilities and infrastructure.

The Debtor’s primary purpose in filing for Chapter 11 protection is to preserve its business as a viable going concern, prevent value-destructive dismemberment of its assets, and address its obligations through an orderly, Court-supervised process.

---

Corporate History

Since its inception, the Debtor’s sole stockholders have been Number 1 Condominium Association-Palm Greens at Villa Delray, Inc. ("Condo 1") and Number 2 Condominium Association-Palm Greens at Villa Delray, Inc. ("Condo 2"). The Debtor has historically operated in good standing pursuant to Florida statutes.

Strategic Development Initiatives

In 2019, the Debtor, along with Condo 1 and Condo 2, entered into a comprehensive "Development Agreement" with outside developers—specifically 13th Floor Investments, LLC and Lennar Homes, LLC (collectively, the "Developers").

• Under this agreement, the Developers acquired land situated near and between Condo 1 and Condo 2, previously used as a golf course, to construct a new residential community of more than 400 homes.
• The agreement mandated that the Developers construct replacements for the Debtor’s aging Recreation Facilities.
• Crucially, the Development Agreement contained concurrent construction provisions expressly prohibiting the Developers from commencing residential construction until construction of the Debtor’s replacement Recreation Facilities had begun.

---

Operations Overview

The Debtor operates as a central management entity for the community's shared amenities. Its financial model relies entirely on the collection of monthly assessments from its two stockholders, Condo 1 and Condo 2.

• These monthly assessment collections constitute the Debtor's only material source of income and are designated for the operation, maintenance, and repair of the Recreation Facilities.
• The Debtor is responsible for essential life-safety maintenance, repairs, and capital needs required to keep the campus safe for its elderly population.

Transition of Management

The Development Agreement outlines a specific turnover process for the new facilities. Once the replacement clubhouse is completed and a certificate of occupancy is received, the Developers are required to assist the Debtor with short-term management.

• Full transfer of rights and obligations to the Debtor is scheduled to occur 90 days after 90% of the newly constructed homes are conveyed (the "turnover point").
• At this turnover point, the Developers are obligated to deed the replacement clubhouse to the Debtor.

---

Prepetition Obligations

The Debtor describes its financial condition as insolvent on an income/going-concern basis. While the specific funded debt amounts were not detailed in the declaration, the Debtor faces significant financial strain due to litigation costs, operational pressures, and the diversion of revenue.

• Operational Insolvency: The Debtor’s monthly assessment income is finite, and recent disruptions have created an immediate threat to the continuity of operations.
• Liabilities: The Debtor’s reorganization plan is intended to provide for the treatment of all legitimate obligations, including potential attorneys' fees awarded to other parties such as Condo 2 or Lennar.

---

Events Leading to Bankruptcy

Conflict with Condo 2 and Financial Irregularities

A primary driver of the Debtor's distress is a breakdown in its relationship with Condo 2. After decades of compliance, Condo 2 failed to make monthly assessment payments for seven months in 2024, requiring state court intervention to force compliance. The Debtor alleges that Condo 2 has suffered severe financial distress since 2019, including a nearly $500,000 loss in a single fiscal period.

• Alleged Fraud and Interference: The Debtor avers that Condo 2 attempted to fraudulently divert more than $800,000 in reserves and violated the Florida Condominium Act through improper expenditures totaling millions of dollars.
• Safety Risks: Condo 2 allegedly interfered with critical life-safety repairs, including actively opposing the repair of a two-story fire escape at risk of collapse. This necessitated the Debtor obtaining injunctive relief in Florida State court.
• Litigation Campaign: The conflict escalated into a "war of attrition" involving multiple lawsuits, including a class action regarding diverted funds, a satellite suit regarding board seating, and a derivative suit challenging the Debtor's legal fees.
• Injunction Suit and Court Findings: Condo 2 filed an additional suit seeking to seat members on the Debtor’s board, which was ultimately unsuccessful. State court rulings in connection with this litigation included prima facie findings that Condo 2 and its counsel (i) engaged in election fraud, (ii) unlawfully stripped its reserves, and (iii) intentionally interfered with the Debtor’s life/safety repair work. The court also found that Condo 2 developed severe financial problems requiring unobstructed forensic audits to unravel.

Disputes with Developers and Construction Delays

The Debtor is also engaged in significant litigation with the Developers regarding breaches of the Development Agreement. Despite "time of the essence" clauses, the replacement clubhouse is scheduled to open in January 2026, approximately four years later than required.

• Breach of Concurrent Construction: The Debtor alleges that the Developers, assisted by Condo 2, began constructing hundreds of homes before starting the replacement Recreation Facilities, violating the concurrent construction requirements.
• Operational Malfeasance: The Debtor claims the Developers have engaged in bad faith actions, including inflating operating expense projections by 300-400%, using expensive municipal water instead of canal water, installing inferior products, and failing to maintain access trails for residents.
• Turnover Disputes: As the turnover point approaches, the Developers have allegedly demanded all of the Debtor's monthly income without submitting invoices and have expressed an intention to retain collected funds.

Chapter 11 Filing

Facing a threat to its day-to-day solvency and the safety of its residents, the Debtor filed for Chapter 11 protection on January 28, 2026, in the U.S. Bankruptcy Court. The filing aims to centralize the various disputes, protect the Debtor’s limited revenue from diversion, and prevent a "race to seize assets" that would impair the Debtor's ability to perform essential maintenance.

• The Debtor intends to initiate targeted adversary proceedings against Condo 2 and the Developers to prevent unilateral self-help measures that would destabilize operations.
• The Debtor will continue to manage its affairs as a debtor-in-possession, ensuring the Recreation Facilities remain operational for the benefit of the community.