Chapter 11 Reorganization

[Flagstaff, AZ] The Board of the Continental Country Club Homeowner Association announced today that it has filed a voluntary petition for relief under Chapter 11 in the U.S. Bankruptcy Court for the District of Arizona as part of a reorganization plan to address immediate and future financial issues in maintaining the 50-year-old facility, including long-standing concerns with Lake Elaine.

It is anticipated the filing will not impact day-to-day operations of the country club, which in addition to the homeowners’ association (HOA) amenities, includes Flagstaff’s only public golf course and the Oakmont Restaurant.

“This filing allows Continental and its homeowners the chance for a fresh start so we can best address several issues,” said Jon Held, president of the non-profit association’s Board of Directors. “In some cases, these problems predate the current Board by years, if not decades. For the good of our residents and those who enjoy our facilities, it was time to take action.”

Among the challenges facing the country club is the future of man-made Lake Elaine, a 38-acre reservoir that has had seepage problems since its construction in the mid-1970s. The lake was originally built to hold reclaimed wastewater for golf course irrigation, a use that was discontinued in 1984, when it primarily became an aesthetic feature for the 52 lakeside properties in Continental.

In 1988, a group of lakeside homeowners filed suit against Continental over the lake levels, which resulted in a 1990 consent agreement that the lake should be filled to and maintained at a “full elevation” of 6,845 feet.

Multiple measures have been taken over the years to keep Lake Elaine at full elevation, including installation of a synthetic liner and adding earth to the bottom of the reservoir, but seepage problems persisted. A 2016 report estimated that for the almost 80 million gallons of reclaimed wastewater added to the lake annually, more than 60 million gallons were lost due to seepage.

Another suit was filed in 2017, citing failure to comply with the 1990 consent agreement. A preliminary ruling in October 2020 directed Continental to refill and maintain Lake Elaine at the 6,845-foot water level. It also indicated a daily fine would be imposed for each day the lake was not filled.

“The estimated cost for repairs to mitigate seepage at Lake Elaine exceeds a million dollars and that’s before we start adding water,” said Held who noted the HOA does not have the reserves necessary to undertake this. “It’s also not as if we could just put a hose in and start filling it tomorrow. There’s planning, engineering, state and other governmental regulatory requirements that need to be met, which could take several months to a year.”

Later this year, the HOA also faces a balloon payment for financing it took out about a decade ago to install the new golf course irrigation system.

The Continental Country Club Board of Directors investigated all possible options to deal with these problems and decided that the filing of Chapter 11 Bankruptcy offered the best path to resolving these issues and to ensuring the future financial health of the Association.

Continental has retained the services of Engelman Berger PC to handle its Chapter 11 filing.

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