Deerfield Connection

April 9, 2024

 

Silence Spurs Action: How Developers Non-Responsiveness Ignited a Legal Battle

 

In Tennessee, a homeowners' association (HOA) must annually provide specific information to its members, including financial statements, a budget, meeting notices, minutes, and updates on governing documents. Additionally, state law mandates a transition period during which control shifts from the developer to homeowners, requiring additional information to facilitate governance transfer. HOAs are designed to transition to homeowner control after the initial development period.  

 

Why was the lawsuit filed?  

The lawsuit was initiated because several homeowners sought answers to questions regarding the Deerfield Resort Homeowner Association's annual budget, expenses, and fees. Despite being entitled to this information under the law, these homeowners did not receive responses to their inquiries or the requested records after multiple requests. This lawsuit could have been avoided if Fields Development Company had simply provided the records and information requested. 

 

What types of remedies are available?  

Plaintiffs in a derivative lawsuit may seek monetary damages to compensate the HOA for financial losses due to alleged wrongdoing by corporate officers, including breach of contract, fraud, or negligence. Restitution to the HOA to restore mismanaged funds or assets, increased financial transparency and oversight, and recovery of plaintiffs attorney's fees and litigation costs are typical remedies.

 

Why was mediation pursued?  

In 2022, the court had scheduled a trial date for September 2023. In June 2023, the Defendants decided to pursue mediation and subsequently filed a court motion (see Motion for Mediation here). The Plaintiffs agreed to this course of action. Throughout the mediation process negotiations occurred leading to the establishment of terms detailed in the final agreement. On June 29, 2023, at the conclusion of the mediation, the preliminary agreement was signed by both parties in anticipation of court approval. Terms were accepted by both parties, including the payment of the Plaintiffs' legal fees, as the lawsuit stemmed from the Defendants failure to respond to legally mandated homeowner information requests and resistance to transitioning the HOA to homeowner control. Both parties understood that the terms of the mediation agreement would need to be fulfilled 30 days following approval by the court. 

 

At the close of mediation, both parties concurred and as shared by Scott Fields on Facebook, "…we are happy to announce that we have reached the framework for a final agreement," and went on to affirm, "both sides worked hard and in good faith to reach a tentative resolution…"  

 

Why is homeowner control of the HOA important?  

Self-governance is crucial for HOAs because it allows homeowners to actively participate in decisions affecting their community. It promotes a sense of ownership and accountability, ensuring resources are managed efficiently and in the best interest of all residents. By transitioning control from the developer to homeowners, the aim is to foster a community where residents have a voice in shaping its future, benefiting all homeowners in Deerfield Resort.

 

What has the lawsuit accomplished?  

As a result of the lawsuit, the court ordered a pivotal change in the governance of the HOA, shifting control from the developer to homeowners. Moreover, the court mandated disclosure of financial information to homeowners, and transfer of common areas to the HOA. Currently, the Deerfield Resort HOA owns no real or personal property, which is uncommon for HOAs. Tennessee law stipulates that HOA funds must be designated for the maintenance and upkeep of assets owned by the HOA, ensuring responsible use of homeowners' contributions to preserve and enhance community-owned properties and amenities. The unusual circumstance where a HOA operates without ownership of common areas while utilizing its funds for maintenance raises questions regarding the legality and transparency of expenditure practices, and the overall accountability of the association's financial management.

 

How will all homeowners benefit?  

Moving forward, guided by a board of their choosing, homeowners will work together to build procedures for financial transparency and communication within the HOA. This will include providing regular updates on financial matters, establishing clear channels for homeowners to access information, and implementation of mechanisms for feedback and accountability. Additionally, ongoing education and training for HOA board members and residents will help foster responsible stewardship of community resources. 

 

The facts surrounding the Deerfield Resort Homeowner Association's legal battle highlight the importance of developer responsiveness and compliance with state laws. For 38 years, homeowners have had no role in the HOA – no meetings, no financial documents shared, no updates on amended Restrictions, and no information on decisions taken by the Developer. The lack of transparency and communication from the Developer has left Deerfield Resort homeowners in the dark and without a voice. The failure of Fields Development Company to provide required information and facilitate the transition of control from developer to homeowners led to this lawsuit.  

 

The Deerfield Resort community belongs to all property owners, and it is up to us to work together to shape its future.