New Bankruptcies Show Dire Toll of Litigation for Associations

The firm’s latest Miami Herald “Real Estate Counselor” column was authored by Awilda Esteras. The article, which is titled “New Bankruptcies Show Dire Toll of Litigation for Associations,” focuses on two South Florida condominium association bankruptcy filings from the last several months that reaffirm how litigation costs and losses can lead to financial ruin for associations. Her article reads:

. . . The most recent of these was filed on Jan. 28 in the U.S. Bankruptcy Court for the Southern District of Florida by the Palm Greens at Villa Del Ray Recreation Condominium Association, which oversees a Delray Beach community for residents aged 55 and older. According to the filing, one of the community’s two condominium towers failed to pay its assessments for seven months in 2024, leading a state court to ultimately compel payment.

The association alleges that the condominium attempted to fraudulently divert more than $800,000 in reserve funds and violated state law through improper expenditures totaling millions of dollars. The condo tower also opposed repairs to a fire escape deemed at risk of collapse, forcing the association to seek and obtain a court injunction to ensure the necessary repairs were completed.

The filings state that the conflict escalated into a “war of attrition” involving multiple lawsuits, including a class action over diverted funds, a satellite suit regarding board seats, and a derivative action challenging the association’s legal fees. Court rulings in the lawsuit over board seats included findings that the tower and its legal counsel engaged in election fraud, unlawfully depleted reserve accounts, and intentionally interfered with the association’s life/safety repair efforts. The court further determined that the tower had developed severe financial problems, necessitating detailed forensic audits to unravel the extent of the misconduct.

The filings also reveal that the association entered into an agreement in 2019 with two real estate developers to build more than 400 homes on its former golf course. Under the agreement, the developers were required to build replacements for the community’s aging recreational amenities, which include a 20,000-square-foot clubhouse, a café, and tennis, shuffleboard and bocce ball courts. The accord further prohibited the developers from beginning construction on the new residences before commencing work on these improvements.

Significant litigation with the developers ensued alleging that the companies violated the agreement by beginning construction on hundreds of homes before starting work on the replacement recreational facilities. The association further claims the developers engaged in bad faith actions, including inflating operating expense projections by 300-400%, using costly municipal water instead of canal water, installing substandard materials, and failing to maintain access trails.

As the date for the turnover of the newly built amenities from the developers to the association approaches, the developers have allegedly demanded all of the association’s monthly income and expressed an intention to retain the collected funds.

The Chapter 11 restructuring bankruptcy filing seeks to consolidate the various legal disputes, protect the association’s revenue from diversion, and prevent a “race to seize assets” that would impair its ability to carry out essential maintenance.

The other Chapter 11 filing was made in Nov. 2025 by the Castillo Grand Hotel Condominium Residences Association, which governs the condo-hotel units at the Ritz-Carlton Fort Lauderdale oceanfront resort. The bankruptcy follows years of litigation between the association and New York-based Brookfield Properties and Chicago-based Watermark Capital Partners, the owners of the hotel.

The dispute began in 2019 when the association sued Brookfield and Watermark alleging the condo-hotel unit owners were being charged an unfair share of the property’s expenses. The hotel owners responded with a counter claim, and the court ruled in their favor in 2022.

In May 2025, the Broward County Circuit Court ruled that the association owed the hotel owners $7.9 million in financial damages for attorney fees and other legal expenses related to the suit. This award constitutes the largest liability listed in the association’s bankruptcy filing, and it is followed by a $1.5 million claim asserted by the Ritz-Carlton Hotel Company.

These cases echo those discussed in last June’s Real Estate Counselor column addressing Chapter 11 bankruptcies by the Green Terrace Condominium Association and the Ocean 5 Condominium Association. Those South Florida condominium filings were likewise driven by significant civil litigation, including a $583,000 judgment awarded to an Ocean 5 Condominium Association unit owner who prevailed in a dispute that was initiated via a lawsuit filed by the association.

As all of these bankruptcy cases illustrate, litigation is one of the most common drivers for association bankruptcies, and much like foreclosures, it should only be considered when all other reasonable options have been exhausted.

Bankruptcy filings are by no means a “get out of jail free” card for associations, as they inevitably involve attorneys’ fees and court costs, and potentially trustee fees if one is appointed. Communities typically are not permitted to fully discharge debts or judgments, and their actions and reorganization plans will be closely scrutinized by their creditors and the bankruptcy court, which may even dismiss the case if it is deemed that the association has not presented a viable restructuring strategy. . .

Awilda concludes her article by noting that associations embroiled in contentious disputes should seek guidance from qualified attorneys and other professionals to help find negotiated resolutions. She writes that only when all reasonable remedies have been exhausted should litigation be considered.

Our firm salutes Awilda for sharing her insights into the potential consequences of community association litigation with the readers of the Miami Herald. Click here to read the complete article in the newspaper’s website.

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