Understand the Fiduciary Duties for HOA Board Members

Some HOA board members embark on the position with full understanding of what’s involved. Most, however, do not. You join to help your community, maybe make some changes to how the association is being run, and meet new people.

The truth is, even though board members are volunteers, these positions come with a lot of responsibility. Every member of the board is expected to carry out the fiduciary duties of their position.

If you are unsure what the fiduciary duties are for an HOA board member, don’t panic. Think of it as a reciprocal relationship. Homeowners have responsibilities to the HOA. In addition to paying their dues, they may be required to have a certain type of mailbox or air conditioner. They may be prohibited from putting up fences or sheds. Every community is different.

In return, those responsible for making and enforcing those rules are obliged to manage the property and funds of the association in good faith. That’s what fiduciary duties are. The board is required to act in the best interests of the community.

Read on to learn the fundamentals of this very important responsibility.

The Duty of Care

HOA board members are required to make informed decisions about their communities. Those decisions may concern enforcing the bylaws or using sound business judgment when making the budget or planning a project.

Essentially, board members are required to do their homework. You must know the rules before enforcing them. You must diligently research expenditures to make sure they are in the best interests of the whole community.

Understanding the laws and other documents can ease what is the hardest part of every HOA board member’s job: enforcing rules. No one wants to approach a neighbor about breaking the HOA covenants.

But sometimes, you don’t have a choice.

For example, a community forbids window air conditioners. A member of the HOA has installed several window units. Their neighbors are complaining because they look bad. The board is legally obligated to follow the procedures for this violation as they are written. Those procedures will not be the same in every HOA. There may be a series of warnings followed by a fine, ending with legal action if the member does not comply.

This can feel overly contentious for a couple of air conditioners. Don’t listen to your inner voice saying it isn’t a big enough deal to cause a neighborhood dispute. If the board does not follow the rules, they can be held legally liable by other HOA members for breaching the duty of care.

For financial decisions, the board must use sound business judgment. Yes, that is a pretty vague term. The particular regulations will vary by HOA and by state and municipality.

In general, the board must show that their decisions about financial matters are in the best interest of the community. That doesn’t mean everyone has to be perfect, but they must be acting in good faith, and with adequate information.

The Duty of Loyalty

The Duty of Loyalty shares elements with the Duty of Care. Again, it is the requirement that board members act in good faith for the benefit of the community.

This responsibility takes the form of confidentiality and avoiding conflict of interest. An HOA board member should never act in a way that benefits their interests over those of the members of the association.

What is told to the board by a member is confidential. Board members must not share such information with others.

This seems pretty easy. Don’t act for personal gain and don’t gossip. But conflict of interest can get a little tricky. It may mean abstaining from some votes or avoiding membership on some committees.

There are some obvious things to avoid, like hiring your own landscaping company to tend the HOA property. Clearly, that’s something from which you financially benefit. But remember, you’re acting in good faith.

If you have a personal interest in something, you should not be voting on or participating in discussions about the issue. If the board is deciding whether to allow Girl Scout Cookie sales on the property and your child is a Girl Scout, you should opt out.

Where things get muddy is when a conflict of interest intersects with a sound business decision. Maybe your nephew is the best person to replace the common building roof. Your Duty of Loyalty prohibits you from being part of that discussion.

The Duty to Act Within the Scope of HOA Authority

If you had to pinpoint one thing that gives HOA boards a bad name, it would be over-zealous rule enforcement. Everyone has heard a horror story about a board member using their position to unfairly enforce non-existent regulations.

HOA board members are only allowed to act within the scope of applicable laws and governing documents on behalf of the greater community. If it isn’t in there, it isn’t actionable.

For example, no board member can make you replace your mailbox or paint your front door unless there are specific guidelines regulating those items. They can’t enforce their personal tastes or act against people simply because they don’t like them.

Like the other fiduciary duties, there is a lot of overlap here. Duty of Care and Duty of Loyalty also require board members to act on behalf of the community. Not on behalf of themselves.

HOA board members take on a lot in their volunteer positions. But most of the fiduciary duties come down to acting in informed good faith. Basically, the board needs to act like good neighbors.

Yes, board members do have legal responsibilities. Learn and understand them before you take your first action as a board member. Know your governing documents and applicable laws.

But remember that you joined the board to help. Most of your fiduciary duties are satisfied by helping to the best of your ability and for the benefit of the community. HOA communities grow and thrive with responsible leadership.

Fiduciary duties are mainly about being a decent, responsible human being. Act in good faith, know and fairly apply the rules, and be a good neighbor. You don’t need to be a lawyer to help your homeowner’s association as a board member. But you do need to be aware of your responsibilities to both the board and the community.

Volunteering is a great way to help create a cohesive, functional community. You can learn everything you need to be a great HOA board member no matter your occupation. Check out Homey Learn to find more articles to guide your way.

Part of being a responsible board member may involve using the best tools available to manage your HOA. At Homey, we make your job easier by providing financial planning tools and business insights for HOA board management.