Posted by IKO Community Management on August 23, 2018 at 9:00 AM
Being a part of the homeowners association is a big responsibility. It’s one that comes with potential consequences if you don’t fulfill your law-abiding duties. To avoid the courtroom, it’s important to understand your legal responsibilities as an HOA board member.
The fiduciary (involving trust, especially with regard to the relationship between a trustee and a beneficiary) duties of HOA board members often arise from state corporate law. This is because most homeowners associations are nonprofit corporations that are formed by filing articles of incorporation in the state the community resides in.
Because the state recognizes that this nonprofit corporation’s board members serve in a position of trust, every state’s law imposes a fiduciary duty on the board of directors. This law requires each member to act in the best interest of the corporation.
While some limitations in law exist, this fiduciary duty applies to homeowners associations even though they’re considered nonprofit corporations and HOA board members are often volunteers.
An HOA board member's fiduciary duties involve a trio of basic components, as followed and outlined by Nolo, a legal book and software publisher:
The Duty Of Care
“To meet the duty of care, an HOA Board member must make informed decisions,” according to Nolo. These informed decisions might require research before action or voting on an HOA matter.
For example, before fining a homeowner for an HOA rule violation, board members must be familiar with the community’s CC&Rs and the details of the situation. HOA board members must also act in a cautious and reasonable manner. This includes using sound judgment and avoiding arbitrary or irrational actions.
For example, you can’t fine a homeowner for painting their home red only because you don’t like that color, especially if this isn't a violation of HOA rules.
The Duty Of Loyalty
According to Nolo, “The duty of loyalty requires that HOA board members act fairly, in good faith, in the interest of, and for the benefit of, the HOA as a whole, rather than make decisions based on any personal interest or gain.”
Board members should also avoid acting during a conflict of interest. For example, a board member who is responsible for selecting subcommittee chairs shouldn’t appoint their friends and family if they’re not qualified.
“Additionally, an HOA board member must protect members’ confidentiality and not divulge information provided in confidence,” the Nolo blog read.
For example, if a homeowner confides in a board member about an impending foreclosure in order to arrange a payment plan for HOA dues, the board member shouldn’t disclose this information to a friend or neighbor.
The Duty To Act Within The Scope Of Authority
“This duty requires the HOA Board to perform the duties it’s obligated to carry out but prohibits the board from making decisions or acting on matters without the authority to do so.”
The authority of a homeowners association and its board members comes from its obligations under state laws and the community’s governing documents.
To ensure that obligations of a board member are met, it’s important to understand what duties are required within state law and governing documents. Special attention should be paid to the article of incorporation and bylaws and CC&Rs.These legal sections detail the depth of authority that a homeowners association has.
For example, if the state laws or governing documents don’t grant the HOA board the authority to adopt new rules and regulations, any restrictions the HOA adopts might be invalid.
For more information about HOA laws and the legal responsibilities of board members, download IKO Community Management’s Guide To Understanding Everything About HOA Policies & Bylaws. Click on the button below:
Topics: HOA Board