New Jersey Tackles "Refundable Fee" Issues in Pending CCRC Legislation ... and a Lawsuit

The New Jersey Legislature is considering changes to the state's laws governing "refundable" entrance fee agreements used by some Continuing Care Retirement Communities (CCRCs), also known as Life Plan Communities. 

Assembly Bills 2747/880 (and a similar bill in the New Jersey Senate, Senate Bill 1532) would limit the amount of time that CCRCs are permitted to retain "refundable" entrances fees after a resident vacates the facility.  The Assembly's bills are moving first, with significant floor amendments adopted on April 12, 2018.  Refundable entrance fees function, in essence, as a type of interest-free loan by the resident to the community.

The legislative statement accompanying Assembly Bill 2747 explains the original purpose of the proposed changes:

Under current law, a continuing care retirement community may retain an entrance fee for as long as it takes for the unit to be reoccupied by another resident.  Absent a maximum refunding period, there is little incentive for the facility manages to aggressively market any particular unit.  In some instances, a facility has retained the fee for several years after the unit has been vacated, unreasonably delaying the return of the fee.  Further, if the resident has died, an estate may be forced to pay distribution taxes on money representing the fee refund, years before the estate and beneficiaries receive that fee refund.

At the heart of the proposals is a system by which each fully vacated unit would be assigned a "sequential number" that would create an order of priority for payment of refunds, triggered when any refundable fee unit is resold.  Under the changes as originally proposed, the law would take immediate effect once passed.

The April 2018 floor amendments tinker with the language about the timing of the refunds (and my first impression is the language is confusing and could create a potential for manipulation of the order of repayments even after a sequential number has been assigned).  In addition, the floor amendments permit the facility to apply for an "alternate" method of paying refundable entrance fees based on the units' "similarity" of size and other factors; this change favors the facility. The third change delays the law's implementation date for 90 days after enactment, and also provides  that the mandatory sequential numbering system, intended to lead to more timely refunds, would apply only to CCRC agreements entered into on or after the effective date of the newly revised law.  

After catching up on the New Jersey legislature under consideration, it occured to me I should check-in on a New Jersey lawsuit about "refundable" entrance fees. In 2015, in the case of  DeSimone v. Springpoint Senior Living, Inc., the appellate division of the New Jersey Superior Court permitted residents to continue with their case asserting violation of state laws, arising out of the operators' alleged misrepresentation or failure to disclose a practice whereby the outgoing resident's refundable fees could be subject to reduction if the "resale" of that unit to an incoming resident was resold with a lower entrance fee. The appellate division explained in an unpublished opinion:

If Springpoint's staff or brochures distributed to the DeSimone family misrepresented the terms of the contract by the "lesser of" terms, or failing to disclose that the entrance fee was subject to market trends, and that the entrance fees were already being reduced by Springpoint due to market forces, plaintiff may be able to prove its various causes of action, including a violation of the [state's Consumer Fraud Act].  

A clear understanding of this reduction is important because the marketing offices may "discount" entrance fees to attract new residents, hoping to cover operating costs with monthly service fees, including any increases over time.  Refundable entrance fees are typically higher than nonrefundable entrance fees.  In Ms. DeSimone's case, she had paid $159,000, under a 90% refundable fee plan (plus monthly services fees, based on level of care).  She passed away about 16 months later.  The facility allegedly sent her estate a refund check for only $80,136, apparently reflecting, at least in part, the fact that the next resident of her unit paid a discounted entrance fee of $127,000.  

Checking in with Michael Coren, one of the lawyers representing the plaintiffs in the Springpoint case, I learned the parties have been actively pursuing discovery, and are nearing the stage where the plaintiffs' attorneys will soon ask for certification of the plaintiffs' class.  Since the original suit was filed, when there were five Springpoint CCRCs in New Jersey, the nonprofit Springpoint holdings have grown, through acquisition of three existing operations.  

These two developments in New Jersey remind me that the reason I added "Contract Law" to my teaching package (replacing Evidence) was because of how much time I was spending looking at contracts and consumer protection issues in elder law matters.