Mike-Sweeney

How Bill Masters Saved Lake Holiday $120,000

August 7, 2008 By LakeHolidayNews 2 Comments

At the April board meeting, LHCC directors discussed a serious problem: they pledged the clubhouse (LHCC common area) as collateral for a loan from Wachovia without first obtaining owner consent. Several board members referred to this as a breach of their fiduciary duty, since common area can’t be mortgaged without first obtaining more than two-thirds consent of Lake Holiday’s owners and that consent was never obtained. GM Ray Sohl introduced the solution to this problem: “the board of directors has expressed an interest in re-collateralizing the existing clubhouse loan.”

The board’s solution: ask owners to retroactively approve mortgaging common area, and if approval were not obtained, to refinance the Wachovia loan at a great expense. Doing so would require paying about $18,000 in refinancing costs, paying approximately $20,000 more in annual debt service over 5 years, pledging 91 LHCC-owned lots, and allowing Wachovia to put a bank hold on $150,000 to $200,000 of LHCC’s cash. Add that up and you get a cash savings of $120,000.

That initial discussion of the problem was lengthy. Our nine video clips cover over an hour and ten minutes in Clubhouse Loan Pts 1-9:

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By July, preparations were underway to put the re-financing to an owner vote. LHCC announced the upcoming vote on July 21st. At the July 28th board meeting VP Dave Buermeyer, guided by Wayne Poyer, proposed the specific language to describe the issue to owners. Right away he met with resistance from 2 board members, John Martel and Jo-anne Barnard. Martel claimed that the language gave the refinancing proposal an “air of legitimacy that it probably never really achieved.” Then, Martel did an abrupt about-face and retreated from that position when Poyer seemed to be bothered by his remark. Jo-anne Barnard called the referendum “meaningless” because despite the high cost, the board had already decided to do the refinancing even if owners didn’t approve it. Nevertheless, every other director was satisfied with the decision to proceed with the refinancing. Many felt no further discussion was necessary.

Barnard and Martel felt the significant cost of the refinancing did merit further discussion. Barnard corrected the cost estimate served up by Poyer and Buermeyer. She observed:

It doesn’t cost $20,000. It costs $20,000 and $18,000 in the near term every year at the same time that we have to do the dam.

Here’s the July discussion in clips Oct 08 Referenda Pts 1-5:

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So what’s the biggest problem in refinancing the clubhouse balloon note to fix pledging the clubhouse without first obtaining owner approval? The clubhouse isn’t even pledged as collateral on that note. Either Poyer and Buermeyer weren’t being candid about their reasons for proposing the refinancing or they never even bothered to check the documents. If they had taken just a moment to read the collateral exhibit, they would have seen that it clearly contains a description of real estate that is not the clubhouse.

A cautionary word to the non-lawyers that try to comprehend an important legal document like the loan collateral exhibit: it’s a whopping 2 pages, and the description of the property used as collateral involves potentially hard-to-understand legal terms, such as “231 Redland Road.” Proceed carefully!

After watching the video of the July meeting, property owner Bill Masters did bother to check the documents, and the exhibit showing the collateral for the loan very clearly listed the collateral as 231 Redland Road, the location of Lake Holiday’s management office. Masters contacted GM Ray Sohl, and directors Barnard and Martel to understand how they missed this.

Sohl initially disputed Masters’ assessment and insisted the clubhouse was used as loan collateral. Masters had to show Sohl that the loan for which the clubhouse had been used as collateral was paid off and closed months ago. Keep in mind that Masters was making his argument to Sohl and several board members using documents he originally obtained from the Lake Holiday office in the first place.

Barnard and Martel were surprised by his claim but promised to investigate. To further support his contention, Masters supplied loan documents to Barnard and Martel and Frederick County tax maps, one of which appears nearby. In a few days, Sohl, Barnard, and Martel came to the same conclusion that Masters had: the clubhouse wasn’t pledged on the loan in the first place, so there’s no reason to spend all that money on the expensive refinancing supported by Poyer and Buermeyer.

The cash savings, as Barnard herself pointed out at the board meeting, is about $120,000 over 5 years. When Masters discussed with Barnard the significant cash savings, Barnard disputed her own number. Evidently, dollars that Masters saves don’t count as much as dollars that the board very nearly wasted. Beyond the cash savings, Lake Holiday retains clear title to its 91 lots and has unrestricted use of the $200,000 that it would have had to pledge to do the refinancing. Masters managed to accomplish all of this while holding down a full time job and not serving on the board.

Barnard’s attempt to discount the savings is just evidence of the board’s spin machine revving up. More evidence of that is Sohl’s email to Masters, thanking him for catching the “error,” but pointing the finger at Wachovia for not securing the loan with the right collateral. Maybe Wachovia’s Mike Wilkerson has a different opinion of who owns the “error.”

Much can be learned from this episode to improve Lake Holiday. LHCC directors voted to spend over $120,000 of the organization’s cash based on the erroneous belief that the clubhouse was pledged as collateral, a belief that reading the loan documents would have quickly corrected. While Barnard and Martel were against spending money on refinancing, at a minimum they and every other director are guilty of approving a significant expenditure without bothering to read the underlying documents. That’s wrong. If any director did read the collateral documents and recommended the refinancing based on a claim that he knew to be false, that would be far more troubling.

When Masters first called Ray Sohl, he encountered far too much resistance. Sohl spent too much time defending the position that the clubhouse was pledged as collateral, perhaps because the board had already invested so much time to approve the refinancing. If the clubhouse were not pledged, it would make all the resources devoted to the refinancing an embarrassing waste. Fortunately, Masters took the time to make the phone calls and send the emails to overcome Sohl’s resistance. Masters was in an exceptional position because he had previously requested the relevant documents and closely followed the board videos, two things for which he is often unjustly criticized. But it shouldn’t be that hard for owners to get the management office to reach an obvious conclusion. While this went from start to finish in about 3 days, that was too long because the loan collateral exhibit was so clear and unambiguous. The initial response involved too much defensive posturing. If Masters had not persisted after receiving Sohl’s initial response, the savings may have been lost.

Fortunately, Masters saved $120,000 of Lake Holiday’s cash. What the community learns from this affair may be even more valuable.

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Bye, Bye, Bleckster

April 9, 2008 By LakeHolidayNews 6 Comments

Rick Bleck, who did not meet the 1 year ownership requirement for nomination set forth in LHCC’s bylaws and was invisible on the campaign trail but was elected anyway, resigned from LHCC’s board on January 30th. Bleck, aka the “Bleckster” (see his own email address), sent a resignation email to Wayne Poyer. He resigned essentially the day after attending the January board meeting which included an Executive Session focused on LHCC’s litigation issues. He wished the remaining board members “Good Luck to all with this one” and with that, he was gone. He may not have left a lasting impression, since GM Ray Sohl mistakenly identified him as “Bill Bleck” when forwarding his resignation email. Maybe the community that allegedly elected Bleck to the board didn’t leave a lasting impression on him either. In 2 instances he referred to Lake Holiday simply as “Holiday.”

We suspect Bleck was duped to keep his name on the 2007 ballot even though he didn’t meet the nomination requirement to block the election of Bill Masters. Masters has been critical of the board, and the board is intolerant of criticism, however justified. Caught in a place where he would not be able to make a meaningful contribution or independently become familiar with the challenges facing Lake Holiday, Bleck would have little more than a marginalized role on LHCC’s board. However, Bleck himself opted to take on this marginalized role by allowing his name to remain on the 2007 ballot after he learned of a legitimate challenge to his nomination. Although he put himself in a difficult position, he should have stuck it out.

At the March 27th board meeting, LHCC’s board decided to appoint Bleck’s successor. The deadline for expressing an interest to serve was March 18th, and only 2 prospective candidates responded by that date: Bill Masters and Mike Sweeney. Just as with Bleck’s nomination, there’s a big problem here. Mike Sweeney is the husband of Robin Pedlar, one of LHCC’s current directors. LHCC’s Articles of Incorporation contain this simple sentence:

A Lot shall not have more than one membership, but the single membership shall be shared by all owners of the lot.

Since Robin Pedlar and Mike Sweeney jointly own only 1 property at Lake Holiday, there’s only 1 possible membership in LHCC to go around. But to serve on LHCC’s board, one must be a member. Robin Pedlar is already serving on the board, so she must be a member. That leaves no membership for Mike Sweeney. Case closed. Not so fast. Wayne Poyer said he reviewed this issue “quite thoroughly” and that usually translates to getting a legal opinion to trick trusting owners that this is somehow, someway legitimate. Here’s that legal opinion from Juan Cardenas of Rees Broome as read by Wayne Poyer:

Assuming Mr. Sweeney is a member of LHCC and in good standing, he is eligible to serve on the board of directors per the Bylaws. The fact that he is a co-owner of a lot with Ms. Pedlar does not invalidate his eligibility to serve, nor would it affect his right to vote on matters as a member of the board on matters before the board of directors as the Bylaws do not regulate, much less prohibit, the possibility of two or more co-owners of one lot serving on the board at the same time. The Bylaws make clear that Mr. Sweeney and Ms. Pedlar share voting rights with respect to their lot as members of LHCC on matters before the membership, as only one vote is assigned to each lot regardless of the number of co-owners. But again, this point does not affect the issue of eligibility to serve on the board. I hope this further explanation is helpful. (emphasis added)

Bill Masters challenged whether Mike Sweeney is a member of LHCC, and he specifically referred to that statement under LHCC’s Articles of Incorporation. Cardenas avoided all mention of the Articles and instead tried to focus attention on LHCC’s Bylaws because there’s no way around the unambiguous statement in the Articles. His opinion has a more fundamental flaw. He assumed the very result he should have been asked to evaluate, whether Mike Sweeney is a member of LHCC. Given that Robin Pedlar is an existing director and thus a member, LHCC’s Articles make clear that Mike Sweeney is not a member of LHCC. Therefore, as long as Robin Pedlar is using that membership by holding office, Mike Sweeney is ineligible to serve on the board. We suspect that Mike Sweeney himself knows that this arrangement doesn’t pass the laugh test. That’s why he put the onus back on the board and expressed the hope that the board “reviewed all the documents” and would act in “good conscience.”

We also wonder why Cardenas filled his opinion with arguably true statements that are totally irrelevant to the real issue of whether Mike Sweeney is a member of LHCC. Did he do this as a slight-of-hand trick to draw attention away from his circular logic? Did Wayne Poyer accurately frame the question to Cardenas or read Cardenas’ entire response to the board? We may never know. What we do know is that the LHCC board will blatantly violate its own governing documents without blinking an eye.

During the vote to appoint Bleck’s successor (the first part of which is covered in the above video and the second part here in Breaking the Rules Pt 2, Robin Pedlar abstained and gave no reason for her abstention. We doubt that she needed to explain to other directors that Mike Sweeney was her husband. However, given that Robin Pedlar and Mike Sweeney have different surnames, that fact may not be obvious to the rest of the community. She had a tough choice: be silent or make it crystal clear that she is Mike Sweeney’s wife and explain her abstention, which would have only drawn attention to the illegitimacy of Sweeney’s appointment – attention that clearly LHCC’s directors did not want. Given a tough choice, a Silent Sitter will usually choose to keep silent. Congratulations, Robin Pedlar! You’re our Silent Sitter award winner for the March 27th board meeting.

Robin Pedlar is our 6th Silent Sitter award winner, and the 2007 board is about half-way through its tenure. We thought it was time to create a Silent Sitter page honoring all the winners, with a little background on the award itself.

If your own wife can’t openly vote in favor of whatever you’re trying to do, there’s a problem with it. And she knows it.

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Quick Takes on the March 27th Board Meeting

March 30, 2008 By LakeHolidayNews Leave a Comment

Wayne Poyer, Pat Shields, and Dave Buermeyer

Here’s our quick take on the March 27th board meeting. We now include video thumbnails directly in posts. If you click on the thumbnail, a video player will pop up and begin playing the video. Look for this feature in future posts. If you have problems using this feature, make a comment on our Help page.

We’ve uploaded 15 videos from the March 27th meeting, representing over 1 1/2 hours of about a 2 hour meeting.

One of the first orders of business: fill the board seat vacated by Rick Bleck, who did not meet the 1 year ownership requirement for nomination set forth in LHCC’s bylaws and was invisible on the campaign trail but was elected anyway. There were 2 candidates: Bill Masters and Mike Sweeney, who is the husband of board member Robin Pedlar.

LHCC’s own Articles include the requirement that “A Lot shall not have more than one membership, but the single membership shall be shared by all owners of the lot.” Since Robin Pedlar is a director, she must be a member. If there’s only 1 membership for a lot, there’s no membership opportunity left for Mike Sweeney. LHCC’s directors get around that major roadblock by obtaining a legal opinion from Juan Cardenas of Rees Broome. That opinion starts out “Assuming Mike Sweeney is a member of LHCC….” As far back as Aristotle in 350 B. C., this con job has been understood to be a logical fallacy, often referred to as “circular reasoning.” Check it out: Assuming pigs can fly, then pigs can fly. Use it, like Wayne Poyer did, to impress passive directors and gullible neighbors. Just don’t actually try to fly, because that will expose the fallacy pretty quickly. Buermeyer gave a speech intended for the camera that encouraged diversity on the board yet offered Masters the hope of joining the board only if he became a clone of Buermeyer himself. Buermeyer and Pedlar abstained; Murphy and Marcus avoided controversy by skipping the meeting. Task #1: pass a resolution to make the vote on this charade an open vote. Watch LHCC’s rules trampled on and tossed away in these 2 clips, Breaking The Rules Pt 1 and Breaking The Rules Pt 2. This action shows the board will recklessly violate LHCC’s own governing documents to keep its grip on power.

GM Ray Sohl gave the management report, Mar 08 GM Rpt Pt 1 and Mar 08 GM Rpt Pt 2, in which the topic of the effectiveness of the Roving Patrol was raised. Is it effective? The board moved that question to Executive Session, so members will never know just what the roving patrol led by Zeb Brevard, the roving patrol supervisor, actually does all day. Treasurer John Martel, who sometimes struggles with accounting issues, offered a friendly health tip in his Treasurer’s Report. Wayne Poyer raised a concern that an owner/builder was possibly blocked from using white garage doors, which should automatically be approved, in our clip Garage Doors and asked Judy Platt about stocking the lake with non-native fish.

There have been 2 serious accidents on West Masters Drive, so the topic of guard rails (Guard Rails Again Pt 1 and Guard Rails Again Pt 2) came up again. We’ve heard reports that a driver was very seriously injured, perhaps paralyzed, in a recent accident on West Masters. If guard rails had been installed, the seriousness of these accidents may have been reduced. Steve Locke did offer a suggestion: put up caution tape. Action on the guard rail issue was “tabled” because of LHCC’s “serious financial headaches.” Estimates for dam culvert work (just 1 part of a much bigger project) came in at approximately $175,000 compared to a budget of $45,000. This $130,000 surprise didn’t find its way into Wayne Poyer’s April 2008 President’s Report, which discussed dam costs.

Changes were made to construction guidelines, apparently requiring a member to be in good standing for all properties owned, rather than the property for which construction approval is applied, before approving new construction permits. If allowed to stand, this will just about kill any new construction at Lake Holiday. The board also discussed taking more aggressive action against serious compliance violations. That could mean spending more money on lawyers at a time when money is in short supply. With her husband’s help, Robin Pedlar outlined the plans for 2008 social activities and suggested that LHCC in effect have a second set of books to get around the troubles created by accrual accounting. Directors seemed comfortable they could find a way to shift expenses from one time period to another to make everything work.

Dave Buermeyer led a discussion of changing LHCC’s water conservation rules, but most of that discussion focused on eliminating the single word “services” from a motion actually made by Jo-anne Barnard. Barnard was concerned about expressing positive comments about Aqua Virginia’s services when there have been so many complaints from Lake Holiday homeowners that Aqua Virginia’s service is “not at an acceptable level.” Buermeyer lost control of his own topic, and in the end, voted against the resolution he presented. John Martel seemed to have no idea what he just voted on, since he voted against Buermeyer’s resolution but said that he wanted the resolution to pass. Maybe that one word “services” was the glue that held everything together. Maybe some would pout and block their own ideas if they couldn’t have it their own way.

The Middleton story that we previously covered has recorded a new chapter, after he put “No Trespassing” signs on his property. Wayne Poyer vowed to “do it much more crisply than we did the last one.”

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We’ve also added a link on our sidebar to SchoolMatters, a Standard & Poors website with test scores, demographics, district finances, parent reviews, and other information on schools nationwide. It’s easy to compare schools. Our link is for Frederick County, VA schools. Check it out.

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