"Hagberg Confusion"

The following letter was sent as a follow-up to the previously posted one, by an owner. It is long but please hang in there, there is lots of good information and numerous pertinent questions are asked. Please consider writing your own letter and keep records of all your experiences.

If it seems like this is too complicated and you don't have time for it, please realize this sheds a great deal of light on what is happening at Sandcastle that is upsetting so many owners. Someone felt it was important enough to do the research and take the time to compose this. It outlines, in many respects, how we might lose what we have in Provincetown. It also gives us a lot of information we might follow up on ourselves if we care to stop what is going on, protect our interests, or at least demand full disclosure which I believe is our right as owners.
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Our new Manager, Developer, and Trustee, Cliff Hagberg

I have read many angry statements in on-line blogs concerning Mr. Hagberg, but I believe he deserves the benefit of doubt. My impression is that he is very personable, and he has stated that he has our (and Sandcastle’s) best interests at heart. That said, at the Owner’s Meeting this past April a number of factual questions were asked that he claimed not to be able to answer. Although he has been a successful business man in the timeshare business for decades, it is possible that he doesn’t know the answers to many of the questions raised, and it is also possible that the confusion that resulted was because of a communication issue. In fact, I suspect that many of the problems other owners have raised with Mr. Hagberg’s management of Sandcastle to date may come down to a matter of communication style.

AVAILABILITY
Mr. Hagberg has repeatedly stated that he will answer all owner questions by email. Yet, he is probably too busy to answer everyone. I suppose it is more likely a time issue for Mr. Hagberg than a purposeful avoidance of certain issues, as suggested by many owners whose emails have been ignored. Admittedly, our correspondence went unacknowledged for months as well.

We sent Mr. Hagberg a letter with a number of what seemed like pretty straightforward questions (by both email and certified, return receipt snail mail on Feb 12, 2009, attachment # 3), but he never responded. When pointedly asked at the Owners’ Meeting in April whether or not he had received the letter, he stated that he had, but did not answer it, because it contained “only legal questions” which he was not equipped to answer. I found this repeated answer confusing and a little frustrating since these seemed to be almost all factual questions that someone who was the property Manager, Developer, Trustee, and Owner should be able to answer, and if he wasn’t able to answer them, it seemed to me that these were questions of sufficient importance that all Sandcastle owners (including Mr. Hagberg himself) would want and need to know the answers to. I remain particularly surprised that Mr. Hagberg, an otherwise successful businessman, seems to have purchased a large stake in Sandcastle without knowing the answers to what seemed to me to be critical questions.

Curiously, the items requested in the list at the end of the letter to Mr. Hagberg are required by Massachusetts law to be made available to any requesting owner by both the property Manager and the Trustees (he is both). Although he never responded to our letter, at the Owners’ Meeting, Mr. Hagberg did extend an open invitation to anyone to come to his office and “sift through mountains of papers” to obtain these answers. I plan to visit Mr. Hagberg’s office this summer and request in person a concise presentation of those items he is required by law to produce, and I would encourage all of you to do the same.

CONFUSING COMMUNICATION REGARDING ORGANIZATION TRANSPARENCY AND CONFLICT OF INTEREST
Mr. Hagberg wrote in an email “There is no relationship between IVS Realty, Outfield Marketing, and Festiva. All are completely independent companies under separate ownership. NEVMS is the management company that manages the resort for all of the owners.”

According to a number of on-line blogs, Mr. Hagberg has made this point repeatedly. And at the Owners’ Meeting he stated “The Trustees are all part of NEVS. None of them are affiliated with Festiva.” “NEVS, NEVMS, Outfield Marketing share absolutely no relationship or interest and have no interest in Festiva.”

Mr. Hagberg seems to be legally correct. The entities appear to be legally independent. However, it is interesting to note the following information based upon what we were told at the Owners’ Meeting:

IVS Realty: Mr. Hagberg is CEO of this realty company.

NEVS: the company that purchased “unsold inventory at Sandcastle” is comprised of Mr. Hagberg and the three owners of Outfield Marketing, Tom Franks, Steve Lamantia, and Mark Monroe (incidentally, these are also now the four Trustees for Sandcastle).

NEVMS: the management company hired by the four current Trustees and is comprised of Mr. Hagberg, and the three owners of Outfield Marketing Tom Franks, Steve Lamantia, and Mark Monroe.

Outfield Marketing: a company based in Texas owned by Tom Franks, Steve Lamantia, and Mark Monroe. Based on on-line sources, this company seems to have a long-standing relationship with Festiva as their sales and Marketing company.

A number of other owners have expressed anger at what they see as a misleading description of the relationships between these entities; however, technically, Mr. Hagberg’s description seems to be correct. There is probably no legal connection between these entities, but clearly they are all owned by the same individuals.

When Mr. Hagberg was asked at the Owners’ Meeting whether or not he might have a “conflict of interest” with him being a Trustee, Developer, Manager, unit owner, and partnered with the owners of Outfield Marketing, etc., Mr. Hagberg responded, “No, the lawyers tell me there is not [a conflict of interest].” I don’t know whether his lawyers are giving him correct advice or not, since not only are Trustees required to act in a manner that is not self-serving, but they are also required to act in a way that does not even appear to be self-serving. And without a clear and available budget or accounting, we must hope and assume that when Mr. Hagberg and the other three Trustees hired themselves as Sandcastle’s management company and then hired Mr. Hagberg as the Property Manager that this was all done at reasonable and customary wage rates and without a conflict of interest.

STAND ON OUTFIELD MARKETING AND THEIR BULLYING SALES TACTICS
Mr. Hagberg has expressed justifiable outrage over Outfield Marketing representatives’ “illegal and false” sales practices to Sandcastle owners that resulted in “two” representatives “being fired” and others being “retrained.”

Although Mr. Hagberg is partnered with the Outfield owners in at least two companies, it is his position that it is not his responsibility to make sure that the Sandcastle owners visited by the malfeasant Outfield Marketing representatives who made false claims were identified, apologized to, and offered to back out of their Festiva commitments.

I can also understand why many owners have raised questions about Mr. Hagberg’s association with Outfield Marketing, because Sandcastle’s whole relationship with Outfield Marketing seems to be a bit mysterious. Mr. Hagberg has explained that Outfield Marketing was “hired” by NEVMS to sell NEVS properties to existing owners. Yet, I have not heard of a single owner visited by Outfield Marketing where NEVS inventory was discussed; whereas in every case that I have heard about, the financial advantages of Festiva and their points system was brought up. In fact, when he was asked at the Owners’ Meeting how much Sandcastle was paying Outfield Marketing to try to sell NEVS owned units, Mr. Hagberg said, “Nothing. They make their money selling Festiva.” So, I remain very confused. Aside from the fact that Mr. Hagberg has business associations with the owners of Outfield Marketing, I still don’t understand why Outfield Marketing has gotten involved and why they have been given the list of Sandcastle owners, when I understand that Mr. Hagberg says such a list cannot be given to other owners as it would violate owner privacy.

CONFUSION OVER SANDCASTLE’S FINANCES
Mr. Hagberg stated that the budget prior to him taking over “was never balanced.” Each year, the prior Trustees took out a loan to meet Sandcastle expenses, which they paid back with maintenance fees from the next year, but they never fell short and apparently were not getting farther and farther behind. I suppose this is a matter of semantics. To me this was not an unbalanced budget, but a budget that was balanced out of synch with the calendar year. Thus, if there was a $350,000 “shortfall” from the previous year, it was made up for during the following year. This is not necessarily a problem for the continued functioning of Sandcastle, but it certainly would be a problem for someone who wishes to turn around and sell their controlling stake in Sandcastle. What I don’t understand is how Mr. Hagberg when doing his diligence prior to purchasing his large stake in Sandcastle missed the fact that the Sandcastle was $350,000 behind in its budget every year.

The “budget” provided by Mr. Hagberg for 2009 during the Owners’ Meeting is not itemized, and the “Salaries, Wages, General, and Administrative” costs add up to $817,894 (54% of the budget). This does not include “laundry, supplies, repairs and maintenance.” I’m sure Mr. Hagberg has not intended the finances to be obscure, but it is both our legal right and of considerable interest to know how much of the $800,000+ is going to management salary and the management company. Recall that the management company was hired by the Trustees (and ARE the Trustees who have a legal fiduciary responsibility to all owners). This budget proposed by Mr. Hagberg seems to have a $40,000 profit with an already assessed 26% increase in maintenance fees before any special assessments. Where does the $40,000 profit go?

Further, Mr. Hagberg has suggested a $700 “hopefully onetime” assessment fee from each owner-week. But when asked at the Owners’ Meeting how many paying owners he expected to receive this from and what total amount is he trying to raise and for what purpose, he responded “It’s just an estimate… I don’t have any numbers to give you!”

I was sadly surprised to hear Mr. Hagberg assert that he had no knowledge when he acquired the unsold inventory at Sandcastle and became Developer, Manager, and Trustee that a.) there was a $350,000 shortfall, b.) the state-required Reserve Account did not exist, and c.) he was blind-sided by the financial extent of the repairs necessary at Sandcastle. Mr. Hagberg who paid 1.2 million dollars for the unsold inventory at Sandcastle apparently failed to obtain a careful inspection of the property and its books and has been “able to find no records of anything.”

I remain hopeful that Mr. Hagberg’s long success in the timeshare business will pay off in the end, and that he will be a more careful steward of our assets than he claims to have been of his own.

Mr Hagberg also asserted at the Owner’s Meeting that the unit-weeks he purchased have never paid maintenance fees (or special assessments) and he, as their new owner, doesn’t have to pay these fees either. I have not been able to get a satisfactory answer as to why. My understanding was that once the developers sold a week for a unit, from then on, the developer was required to pay the fees related to all the other weeks for that unit until the developer sold those other weeks. Since I have been told that at least one week has been sold for each unit at Sandcastle, I don’t understand how Mr. Hagberg can maintain developer status for his units. I don’t know whether it’s that my information is incorrect or if sometime along the way an error in the billing developed. Further, since Mr. Hagberg asserts that there is “no record of anything,” I am uncertain how they know which units have been sold and which have not.

CONFUSION OVER WHAT NEVS BOUGHT AND WHY
Mr. Hagberg states that NEVS purchased “between 350 and 400 unit-weeks.” (He doesn’t know exactly what they bought, but knows they paid 1.2 million). That means NEVS paid $3,000-$3,428 for each week. Why? He says that “most” of these unit weeks held by NEVS are when Sandcastle is closed between December and May, and that these are “developer” units that have never been sold, and so don’t pay maintenance fees.

Although most of these weeks are “legal” weeks, they have no sale value, because Sandcastle is closed. Yet, Mr. Hagberg asserts that “the whole purpose” NEVS bought the unsold weeks and then hired Outfield Marketing was to change the Trustees, improve the quality of the units, and then sell the previously unsold units to owners who will pay maintenance fees. I am so confused. Who is buying units at Sandcastle when Sandcastle is closed? And Mr. Hagberg was pleased to announce that he had graciously signed an agreement that any monies obtained from rental of the NEVS owned units (recall most (all?) of these are when Sandcastle is closed) will go into the Trust to reduce maintenance fees. Since Mr. Hagberg generally speaks to the letter of the law, there must be a legal reason for this, because I can see NO financial benefit to the Sandcastle owners.

LACK OF CLARITY OF SANDCASTLE CONTROL
Mr. Hagberg said at the Owners’ Meeting “until such time as I sell the (NEVS) weeks, I’m going to have complete control over the resort, King of the Castle.” On the other hand, he says that NEVS does “NOT own 51% of anything” and although he declined to discuss the concept of “Beneficial Ownership” in the Master Deed and the Deed’s Amendment which gives essentially all voting power to Red Week (Summer time owners) because that was a “legal question”, he does admit that he is not sure whether his weeks give him any voting power at all.

To try to summarize what I think is the current situation: Mr. Hagberg states there are some 4,500 unit-weeks. NEVS bought 350-400 (off season). There are some 600 owners delinquent in their maintenance fees, and thus their voting power may be questionable. So, if there are 4,500 weeks and maintenance fees are not being paid on 400 developer + 600 delinquent weeks, that leaves 3,500 being paid for. An assessment of $700 for each of the 3,500 weeks yields a total of $2.45 million – for what?

In fact, as I understand the Master Deed and Massachusetts law sections 183A and B, Mr. Hagberg’s control over Sandcastle remains as long as he and his business partners remain Trustees. This is NOT related to his (or NEVS’) ownership of usable weeks. In distinction, new Trustees are generally appointed by existing Trustees and such appointment is often linked to the sale of “developer weeks.”

CONFUSING REPRESENTATIONS
When discussing his qualifications at the owners meeting, Mr. Hagberg made two claims:
MR. HAGBERG: “I am THE guy who wrote the resale ethical guidelines – the national code of ethics for resale companies.”
WHAT WE’VE BEEN TOLD: The National Code of Ethics For Resale Companies was written and published by The American Resort Development Association (ARDA). When asked whether Mr. Clifford Hagberg was the sole, primary, or a prominent author of this document, Mr. Howard C. Nusbaum, CEO of ARDA, wrote “Mr. Clifford Hagberg was one of many who worked on our official resale guidelines.”
MR. HAGBERG: “I’m the ONLY one that’s qualified in the country as an expert witness in timeshare fraud.”
WHAT WE’VE BEEN TOLD: According to Mr. Nusbaum, CEO of the American Resort Development Association, “there are many such qualified experts in our Association.”

I can’t say whether Mr. Nusbaum or Mr. Hagberg is giving us the more accurate description; however, it does show that clearly we have to be very careful about evaluating what we are told about what is happening with Sandcastle as different people can have very different views about the same thing.

SUMMARY
I think Mr. Hagberg’s style of communication has lead to much confusion and perhaps even mistrust by some. I believe we simply need to be sure we obtain clear answers from him.

There remain two important issues for Sandcastle owners. The first is a question as to whether Mr. Hagberg and the owners of Outfield Marketing (which have practiced “illegal and false” sales tactics) are reliable and dependable stewards of our Sandcastle Trust as Trustees, and the second are legal questions for the Attorney General’s Office.

A. Is Mr. Hagberg a reliable Trustee?
i. Does he show good judgment by involving Outfield Marketing and their sales practices? Can we understand why they are involved at all?
ii. Is Mr. Hagberg reliably going to improve Sandcastle with a balanced budget when he has provided no real figures or estimates and states he was blindsided by a $350,000 shortfall, unaware of a significant missing Reserve Fund, and surprised by the extent of repairs needed at Sandcastle?
iii. Has he convinced us that his salary as Manager and the cost of his Management Company are justified, reasonable, and customary? Recall that whatever his Sandcastle salary is, it is only a % of his total salary, since he runs other timeshare properties and has other businesses. Is this salary commensurate with the salaries of other Managers?
iv. Is he exhibiting any conflicts of interest as Developer, Trustee, Owner, Manager, and main owner of the management company?
v. Is he transparent in his actions?
vi. In accordance with State law, will he provide us with “a copy of the budget prepared in accordance with the provisions of clause (6) of subsection (a) of section 38 of 183a and an accounting of income and expenses for the preceding year” when we are being given our “special assessment” on top of our 26% increase in maintenance fees?

B. Are the current Activities of the Sandcastle Developer legal?
i. Is it legal for “development properties” which are 30 years old and have never been sold and thus are not assessed maintenance fees or special assessments to be renovated (after falling into disrepair over decades) by maintenance fees paid by other existing owners? Or is it not the responsibility of the developer to finish building a property so that it is sellable?
ii. If a “unit” is rented (ever) or partly owned by another owner, is it still permitted to be construed as “development property”?
iii. If there are “no documents” available to show “any records of anything”, how do we know these “development units” have never been owned by someone? We don’t even know how many units we are talking about, what weeks, and where. Mr. Hagberg has declined to provide this information.