More than a month after one of Illinois’ largest retirement communities filed for bankruptcy, families are coming to terms with the fear that they may not receive the full contractual return they were once promised.
Friendship Village of Schaumburg, the largest nonprofit retirement community in Illinois, filed for bankruptcy last month, saying it could not recover the losses caused by the pandemic.
FVS court filings show that among the debts on the list are dozens of families owed school fees and security deposits, ranging from more than $100,000 to $500,000 each.
As NBC 5 Responds previously reported, Friendship Village is one of many on the list of retirement communities struggling to meet their refund obligations after COVID-19 disrupted a common business model that supposedly worked for years.
Questions surrounding this business model have led Illinois legislators to propose legislation mandating a system for communities to follow when paying these types of refunds, in an effort to increase the transparency and timeliness of the process.
Families like the Fultons in Carpentersville feel the need for new rules given what’s happening at Friendship Village.
“This is a terrible situation,” said Tim Fulton, whose mother Jean was a former Friendship Village resident. “We need some laws to protect us from this stuff.”
When it came time for Fulton’s mother to move into a continuous care retirement community in 2015, Tim and his brothers chose what they thought was the best option: Friendship Village in Schaumburg.
“Friendship Village was the best facility for providing her with ongoing care,” Fulton said, adding, “The apartment was absolutely amazing.” Great views, amenities, and staff who took care of her mother for the 5 years she lived there.
Fulton said moving into Friendship Village comes with other benefits and promises. The contract stated that if the mother moved or passed away, the family would be refunded 90% of the original deposit or entry fee.
That amounted to about $145,000 for the Fulton family, which the village said would be refunded “only if a replacement resident takes over the residence.”
According to the Fultons, the sales staff was adamant that “it won’t take long.”
“They kept telling us they would refund the deposit in full within 18 months,” Fulton said.
Retiree communities like Friendship Village say the system has been in place for decades and is like insurance in that it benefits not only the residents paying the bond, but everyone else living in the community.
If the residents run out of money while still under the care of the community, the enrollment deposit will be used to cover the costs of passing.
But these communities say that all changed after the pandemic, with a total seesaw in the number of new residents moving in and current residents moving out.
As the COVID-19 pandemic spread, Fulton and her siblings decided, given the uncertainties surrounding the pandemic, to bring her mother back home and spend her final days close to her family.
The family officially moved out on July 20, 2020, handing over the keys to their Friendship Village apartment.
Nearly three years have passed since then, and no one has moved in yet. This means that the family has not yet received their contractually obligated refund.
And now they fear they can never be.
“[Friendship Village] To be honest, I filed for bankruptcy and I don’t know when I’ll get my money back,” Fulton said.
The Fultons are one of 87 creditors listed in Friendship Village’s bankruptcy filing, which together owes more than $15 million if the vacant rooms are occupied, a Friendship Village spokeswoman confirmed.
An additional 29 households are already awaiting refunds, totaling more than $5 million.
Friendship Village president and CEO Michael Flynn said through a spokesperson that the nonprofit has filed for bankruptcy as it seeks a new buyer, and that these refunds are “at the forefront of discussions with stakeholders as we seek to achieve a more financially sound future.”
In addition to the return of admission fees, Friendship Village has $130 million in secured debt, or unsecured debt such as the return of admission fees, that it must settle before it can be distributed, according to court filings.
That’s an important point, says Northwestern Law School professor Bruce Markel, a former bankruptcy court judge.
After reviewing some of Friendship Village’s court filings for NBC Chicago, Markel said what’s happening at the nonprofit was not an exception and that the family’s fears of not receiving a full refund were justified.
“There are a lot of nursing homes and nursing homes that are on the brink of bankruptcy over the last few years,” Markell said, adding: [retirement community’s] If the value of the asset is less than the value of the secured debt, the share for unsecured creditors, such as repossessors, is zero. ”
Markell said creditors will have to file claims in court for families that owe money from Friendship Village or from organizations that have filed for bankruptcy.
To learn more about that process and track the Friendship Village bankruptcy proceedings, click here.
A spokeswoman for Friendship Village said it was unclear what would happen to these refund claims, but “the court is well aware that the admission fees are likely to represent significant savings for individuals and will find a way to be paid.”
A spokeswoman for Friendship Village said, “There are dozens of other communities across the country in situations similar to Friendship Village, and residents are receiving refunds pursuant to settlement agreements reached through courts.”
Despite the nonprofit’s COVID-19 financial hardships, Friendship Village’s 990 tax returns show that the former CEO received a 17% pay increase in the first year of the pandemic.
Former CEO and President Steven Jenczyk’s salary increased from more than $346,000 in 2020 to more than $405,000 when he retired in July 2021.
“This raise included bonuses,” said Mr. Flynn, who succeeded Mr. Jentzek. [Yenchek] And during the pandemic, the nonprofit said it cut costs in a number of ways, including reducing the number of direct care staff to match the resident population and reducing corporate staff positions.
Flynn’s salary declined from 2020 to 2021, according to tax returns.
Based in part on how the admission fee model works when deposits are paid upfront, Markell said the issue of retiree communities owing admission refunds that they don’t is not new to bankruptcy courts.
“If you pay money upfront and run into problems along the way, as COVID-19 has hit many retiree communities, the problem is that the money is usually not held, not placed in a trust, but held and paid only for care,” Markell said.
Friendship Village told NBC 5 that it will secure new admission deposits in an escrow account starting in April “for residents who want to share medical risks with the community through admission fees, but who don’t want to wait for a refund due to COVID-19.”
The escrow account program will only be in place during bankruptcy proceedings, a spokeswoman said.
The Fultons wish their deposits had such a system.
Tim Fulton’s mother, Jean, has since passed away, leaving her family with only one outstanding account on her estate, a refund from Friendship Village.
“It’s terrible,” said Fulton. “It doesn’t end with the death of a loved one.”
