Deerfield News Connection

April 13, 2024

 

Financial Disclosures Spark Concerns: Shedding Light on Potential Fee Misappropriation

 

Lack of Adequate Financial Records

Homeowner associations (HOAs) typically share financial documents with homeowners, including the annual budget, financial statements (i.e., balance sheet, profit and loss statement, cash flow statement, statement of changes in equity, budget vs. actual statement, and statement of reserves), reserve study, meeting minutes, annual financial report, and audit reports. These documents offer insight into an association's financial health and fee allocation.

 

Through the lawsuit, it was discovered that these documents do not exist for the Deerfield Resort HOA. Instead, very basic records were offered in response to multiple court orders. Additionally, homeowners were told that pre-2016 financial records cannot be found. During transition from developer control to homeowner control, it is customary for a HOA to turn over all records for the entire period of developer control. This lack of adequate record keeping will hinder the ability of the Deerfield Resort Homeowners Association’s new board to accurately assess financial health, prioritize expenditures, address maintenance needs, anticipate future obligations, and fulfill fiduciary duties effectively.

 

Deerfield Resort Bank Accounts

During the discovery and deposition process, homeowners learned that Fields Development Company set up two bank accounts related to the development of Deerfield Resort, both with “Deerfield Resort” in the name of the account. There was an account at Built Well Bank (formerly First Volunteer Bank) entitled "Deerfield Resort Homeowners Association, Inc.” In depositions, we were told by Paula Fields LeJeune this account was set up for the Deerlake Condominiums.

 

The second account was at Hearthside Bank (formerly Home Federal), in the name of “Deerfield Resort”. This is the account into which Deerfield Resort Security and Maintenance fees have been deposited.  Additionally, Paula indicated the business of the HOA was run out of the Deerfield Resort account and not the Deerfield Resort Homeowner Association account. Yet, to add to the confusion, the insurance for the Deerlake Condominiums was paid out of the Deerfield Resort account, which is the actual account of the Deerfield Resort HOA. There was no explanation provided for the logic of the approach to either the naming of the accounts or the management of the finances within these accounts.

 

Review of HOA Financial Records 

HOA fees are collected to cover the costs associated with maintaining, managing, and improving community common areas and amenities. Below is a review of the Deerfield Resort HOA account records received from the Defendants through court orders and subpoenas. Listed below is a review of some of the records that raise concerns.

 

Property Taxes  

The Developer has been utilizing Security and Maintenance fees to pay taxes for property owned by Fields Development Company, the estate of Paul and Madeline Fields, and the Deerfield Flying Association. The estate and these corporations are closely related, with Scott Fields and Paula Fields LeJeune currently in leadership positions. Use of HOA fees to pay taxes for property owned by current or former board members could be seen as a conflict of interest and misuse of association funds for personal gain, which is a serious breach of fiduciary duty. 

 

From the bank statements and receipts from Campbell County Assessor’s Office, it has been found that between 2018 and 2020, Fields Development Company paid $28,868 in property taxes out of the Deerfield Resort HOA account, including $9,066 in 2018, $12,149 in 2019, and $7,653 in 2020. (PropertyTaxes 2018) (Property Taxes 2019) (PropertyTaxes 2020). Additionally, there were only $711 in taxes paid for the tennis court property, which at the time was owned by the Deerfield Resort HOA.

 

Business Advertising 

Between March of 2015, and March 2023, Fields Development Company entered into a series of billboard contracts to advertise Deerfield Resort (Link to Contracts). A total of $232,616.25 was spent on billboard rentals during this period. Financial records show that between 2016 and 2020, $15,808.16 was paid out of the Deerfield Resort HOA account to cover these expenses, including $1,350 in 2016, $3,817.16 in 2017, $1,661 in 2018, $910 in 2019, and $8,070 in 2020. 

 

Paying for billboards through a contract in the Developer's name, particularly when the advertising primarily promotes Deerfield Resort, does not fall under the fee categories of Security or Maintenance, and therefore should not be an expense for the Deerfield Resort HOA. At the time of these expenditures, the Developer controlled the governance and decision-making processes of the HOA. Billboards benefiting Fields Development Company and its closely affiliated companies could lead to concerns about the fairness and transparency of the HOA's financial decisions, as homeowners were not informed about how their fees were being spent and/or why fees were used to support non-Deerfield Resort HOA activities.

 

Business Insurance:  

Plaintiffs were told that the Deerlake Condominium insurance was paid out of the Deerfield Resort HOA account.  HOA records indicate that, between June 2016 through June 2021, $257,532.83 was paid to Nationwide Insurance out of the Deerfield Resort HOA account. As contract details were not provided with record requests, homeowners have not been provided with information on the types of policies purchased. Through cancelled check memos and bank records, a life insurance policy was confirmed. In depositions, Paula shared that the Deerlake Condominium insurance and key person insurance were two of the policies purchased through the Deerfield Resort HOA account. In addition, she indicated that the Deerfield Resort HOA account was reimbursed for the Deerlake Condominium insurance expenditures. However, to date, documentation has not been provided and repayment has not been verified.

 

Key person insurance is a type of life insurance taken out by a business on a key employee or owner. It provides financial protection to the business in case of the key individual's death or incapacitation, covering losses such as hiring replacements or compensating for lost revenue. Paula indicated in deposition that this policy was purchased for Fields Development Company.

 

Miscellaneous Expenditures

It appears that some of the expenditures below may not directly benefit the HOA or its members, raising questions about appropriateness. Between 2017 and 2020, a total of $4,758.50 was allocated towards business memberships, including contributions to chambers, Rotary, and BBB. Additionally, expenditures amounting to $4,544.84 were paid to a local dock company in 2016 and 2020; and charitable donations were made from 2106 through 2020, totaling $2,757.78.

 

Non-Sufficient Fund (NSF) Charges

Over the span of two years, through management by Fields Development Company, the Deerfield Resort HOA bank account accumulated a total of $2,695 in NSF fees, resulting in 77 bounced checks (i.e., 34 checks in 2020 and 43 checks in 2022). Most recently, the Defendants, per the Mediation Agreement, had agreed to reimburse the Plaintiffs for $160,000 in legal fees.  Their bank would not honor the check that they provided, which necessitated their having to provide a cashier’s check. These types of activities represent a pattern of irresponsible financial management.

 

The expenditures above do not include the entire list of financial activities that raise concerns and questions. However, this sampling alone represents $316,783.11 in spending that requires additional investigation. HOA board members have a fiduciary duty to act in the best interests of the association and its members. Because of the irregularities in spending and bookkeeping by the Defendants, many of the Plaintiffs have placed their Security and Maintenance fees in a trust account with their attorney until a bank account is set up under the management of the court through the court reciever.

 

Ensuring HOA Financial Integrity

The above detailed allocation of funds raises serious ethical and legal questions. Deerfield homeowners have entrusted their fees to the Deerfield Resort HOA for the Security and Maintenance of their community, not for the payment of expenses of the Developer or its affiliated companies. Fields Development Company, as the entity responsible for managing Deerfield Resort HOA funds until the new board is elected, has a fiduciary duty to act in the best interest of the HOA. Using HOA funds for expenses unrelated to the community's needs constitutes a breach of this duty.

 

Active advocacy from homeowners is crucial in safeguarding the financial integrity of the association. By implementing robust systems to monitor adherence to relevant laws, regulations, and governing documents, the HOA ensures accountability in decision-making and financial management practices. Regular audits and compliance checks are essential components of these systems, helping maintain integrity and trust in the HOA's operations. This will be the job of the newly elected homeowner board, which will foster confidence among homeowners in the responsible management of community resources.