Homeowners Association Boards– Things You Should Know About Fiduciary Responsibility

In the United States, HOAs are plentiful and some communities even have more than one.  Some have great difficulty in finding volunteers and homeowners are often put into a position of saying yes just to fill a vacancy for a friend.  Other times, highly successful individuals in the corporate world put themselves at risk because of their failure to understand requirements of non profit HOA management.  Because of my background, friends and colleagues ask me questions about the topic.  After discussion, they are often surprised at what they learn or thought they knew.  So, I thought a written article of some of the highlights might be beneficial to those who already serve or, are considering serving on the Board of Directors of an HOA.  (Note: Most of these principals also apply to other nonprofit service but this article specifically addresses HOA service.)

Fiduciary means “involving trust, especially with regard to the relationship between a trustee and a beneficiary.” If you accept the responsibility of serving on an HOA Board of Directors you become “trusted” by homeowners, i.e., “benefactors” and have to act as their representative regardless of your personal beliefs.  As a representative you have to put the interests of the association’s homeowners collectively first.  HOA Directors should exercise sound business judgement and while you don’t have to always make the right decision, you should use common sense.  This is what I call the “logical person” theory.  Are you doing what a logical person would do in similar circumstances?

Another part of this trust is being able to “keep a secret” until the appropriate time comes along.  Take for example, a group of homeowners are suing the HOA because they disagree with the amount of money spent to decorate the common areas of the community for the holidays.  The HOA Board, who have a minority faction agreeing with the claimants, has an initial conversation with an attorney for the appropriate course of action including the risks of damages.  Even though the minority faction agrees with the homeowners filing suit, they have agreed to represent the entire community and since the HOA is the opposing party in a lawsuit all directors involved have a duty to keep what they learned confidential. 

Conflicts of interest can also breach the trust of a fiduciary.  For example, if you are a board member and you or someone in your family has an interest in an issue that the HOA is deliberating on, you should recuse yourself from all current and future discussions on the debate.  Otherwise, it could hit the front page of the community news and give an appearance of improper action, even if it was not your intention to do so. 

Another responsibility a member of an HOA Board of Directors has is that they are charged with overseeing its activities that are mandated in bylaws and rules.  Boards who don’t hold regular meetings, don’t treat members equally, don’t pass budgets properly or engage in activities that are not proper may also breach fiduciary responsibility.  For example, if an HOA Board of Directors is sending out notices and fining members for violations, they have a duty to police themselves and other members the same way.  Imagine a recent HOA Board of Directors embarrassment when a homeowner received a violation and protested it by providing the entire audience of pictures of the Directors homes with violations highlighted.  Clearly, not equal treatment of all members.

 Serving on a nonprofit association board is always challenging and time consuming.  Serving on an HOA Board are these things multiplied by several factors.  In the USA, HOA’s are very powerful in that they can file liens for fines against a homeowner that in some cases delay a home sale and in other cases, actually cause a homeowner to lose property.   If you are going to agree to serve on an HOA Board of Directors, you should be able to act fairly, logically and understand that HOAs do not solve neighbor disputes.  Otherwise you might end up in an emotional battle that might cost more than you are willing to pay.

One final bit of advice is regardless of what your HOA bylaws say, make 100 percent certain that your association has Officers and Directors Liability Insurance that covers your actions.  Some of these insurance policies do have exclusions for acts considered illegal and it’s a good idea to understand what those definitions are before accepting a position on the Board of Directors.

Frank I Wolfe, CAE, became an association CEO in 1994 at 33.  At that time he was one of the youngest association CEOs in America. He has won awards for his service and skills in hospitality, marketing, education and technology.  He is a regular columnist, speaker, strategist, author and consultant in both association and hospitality industries.  He has spoken in 26 countries on a variety of topics from social media to consumer travel.  He is not an attorney and his columns are based on research and experience not to be construed as legal advice.  Follow him on Twitter @frankwolfe.