When a retirement community goes bankrupt

When Bob and Sandy Curtis moved to an exclusive continuing care retirement facility in Port Washington, Fresh York, three years ago, he thought they had found the best senior care solution possible.

In exchange for a hefty entry fee – about $840,000, funded by the sale of the Long Island home they had owned for almost 50 years – they would be cared for for the rest of their lives at Harborside. They chose a deal from several options that set fixed monthly fees at about $6,000 for both of them and refunded half of the entry fee to their estate upon their deaths.

“This was the final chapter,” Curtis, 88, said. “That’s the deal I made.”

CCRCs, or life planning communities, provide increasing levels of care on one campus, from independent living and assisted living to nursing homes and memory care. Unlike most senior living facilities, these are mostly nonprofits.

According to LeadingAge, an organization representing nonprofit senior living services, approximately 900,000 Americans live in more than 1,900 CCRC facilities. Some communities offer lower and lower returns, many avoid entry fees altogether and operate on a rental basis, and others are hybrid communities.

For the Curtises, Harborside was an assurance. Mr Curtis, an industrial engineer working as a consultant, rented a comfortable one-bedroom apartment in the self-contained living wing. “It was a dynamic community,” he said. “Meals. Amenities. Gym.”

He spends time every day with 84-year-old Sandy, who lives in the memory care unit at a facility one elevator away. Staff there “treat Sandy with love and care,” Mr. Curtis said. “It would be great if this could continue.”

However, in 2023, Harborside filed for bankruptcy for the third time since opening in 2010. Residents and families say the center’s services and activities have declined. A group of about 65 residents, most of them in their 90s, have hired a lawyer, but it is unclear whether they will ever receive the refunds their contracts claim to guarantee.

“Everyone was panicking,” said Ellen Zlotnick, whose parents also live separately at Harborside’s independent assisted living and memory care facilities. Their contract specifies a 75 percent refund. “A group of people are moving and others don’t want to move.”

Data on bankruptcies and foreclosures in senior living facilities is scant. Dee Pekruhn, who heads life plan public policy at LeadingAge, said there have been “very, very few examples of actual bankruptcies,” although there have been close calls recently.

But Lori Smetanka, executive director of the National Consumer Voice for Quality Long-Term Care, said state and local long-term care ombudsmen are increasingly reporting “problems with facilities struggling financially.”

Recent crises include the closure of Unisen Senior Living, a CCRC in Tampa, Florida declared bankruptcy for the second time last spring, more than 100 residents had to move out.

In 2023, in Charlotte, North Carolina, state officials stepped in to oversee a long-standing CCRC called Aldersgate that had been struggling financially for years. Condition approved the “corrective action plan”, and Aldergate avoided bankruptcy. However, it remains months behind on its refund payments and state surveillance continues.

Last summer in Steamboat Springs, Colorado, a CCRC called Casey’s Pond entered bankruptcy. Because it was sold to a nonprofit health care system, it will continue operating — but only after two municipalities and one local government foundation and hundreds of community members raised $30 million for the rescue.

Other types of senior living facilities may also be closed. About 1,550 nursing homes closed in 2015 AND mid 2024– reports the American Health Care Association.

But when CCRCs fail, residents and families face more than just physical and mental problems the hardship of movingbut also the possible loss of life savings.

In bankruptcy, residents eligible for refunds “are at the very bottom of the list” of creditors demanding payment, said Nathalie Martin, a law professor at the University of Fresh Mexico who has written about insolvent CCRCs

Secured lenders with collateral are the first to have their debts recovered, followed by lawyers, accountants and employees.

Because the people living at the CCRC, which promised refunds, are unsecured lenders, “residents are in a very vulnerable position and don’t realize it,” Ms. Martin said. Without reimbursement, they may be unable to pay for care elsewhere if they are forced to move.

In the case of Harborside, the previously proposed sale of the national chain would allow the facility to remain open and refund fees to residents who moved away or died. That deal fell through last fall when state regulators refused to approve it.

“It’s astonishing that the Department of Health would allow something like this to happen,” said Elizabeth Aboulafia, an attorney representing some Harborside residents.

Now Chicago investment firm Focus Healthcare Partners wants to buy Harborside and shut down all but the independent living units, which would become rentals. (Focus has said it next intends to apply for state licenses for assisted living and memory care services. Approvals could take several years to obtain.)

Last month, a skeptical federal bankruptcy judge questioned that offer and instead insisted that the parties reach an agreement that would protect residents.

“We deeply sympathize with the residents,” Curt Schaller, co-founder of Focus, said in a statement. He added that “we cannot undo the money others lost that led to this bankruptcy.”

Harborside’s lawyer said she could not comment on the case while the court proceedings are pending. The next bankruptcy hearing is scheduled for February 12.

While the federal government regulates nursing homes under CCRCs, other housing arrangements and contracts are subject to a hodgepodge of state regulations. Many require various disclosures to potential residents or oversee contract terms.

But few are implementing something Ms. Martin says is crucial to protecting refunds: reserves. If they were mandatory, “if you pay such high fees, the facility would be required to set aside a certain amount for your future care,” she explained.

Several states, including California, Florida, Fresh Mexico and, notably, Fresh York, do require reserves, “but as we have seen, this does not preclude communities from not committing such funds and filing for bankruptcy anyway,” she added. Martin added in an email.

“We need our oversight agencies to pay more attention,” said Ms. Smetanka of The National Consumer Voice, referring to state regulators and the federal Centers for Medicare and Medicaid Services.

“Licensing agencies should employ chartered accountants to check the books. There needs to be better control.”

Additional regulations do not suit the senior housing industry. “The more we regulate and augment costs, the less we will be able to house people,” said Robert Kramer, co-founder of the National Investment Center for Senior Housing and Care.

Requiring reserves, he said, would mean “building many fewer CCRCs, and the people who move into them will have assets in the millions.”

One solution for people purchasing senior care services: choosing a CCRC that operates on a rental basis, without pricey buyouts and refunds. This makes potential financial failure less threatening, although it also means that monthly costs augment as the level of care increases.

Industry sources urge potential residents to carefully examine the facility’s financial stability and applicable state laws, and to have lawyers or financial advisors review the contracts.

“Harborside had been in the news for years – it wasn’t a secret,” Kramer said.

To aid, the National Association of Continuing Care Residents publishes: consumer manual. International CARF AND MyLife website they also provide guidance for consumers.

But Bob Curtis and his sons, both in finance, consulted with accountants and even the chief financial officer of Harborside’s parent company. And yet here they are.

Mr. Curtis attends each bankruptcy proceeding via Zoom. If she loses her refund, “Where will Sandy go?” – he wonders. “How will she cope? How do I pay for this?”