An HOA has a fiduciary relationship with the homeowners within the community. As a board member, you’re responsible for maintaining that relationship and ensuring that there is trust between the HOA leadership and the homeowners you serve.
So what, exactly, are the fiduciary responsibilities of HOA board members?
The legal definition of a fiduciary duty, according to Black’s Law, is “a duty to act for someone else’s benefit, while subordinating one’s personal interest to that of the other person. It is the highest standard of duty implied by law.”
Legally speaking, your fiduciary duty is the duty to care, the duty of loyalty, and the duty to act within the scope of your authority.
Basically, you’re elected to put the interests of the community ahead of your own personal interests.
That may seem easy enough in theory, but how does it translate into practical, day-to-day terms?
We’re investigating that question in today’s blog because we want to help you be the most effective HOA board you can be.
HOA Board Members and the Duty of Care
Duty of care is the responsibility of HOA board members to make informed decisions regarding all HOA matters.
In short, you need to know your stuff, and you need to make decisions that are based on your research and your understanding of what would be best for your community.
This isn’t always easy, especially when volunteer board members are always putting out fires. You’re asked to make a lot of decisions, and reviewing the pros and cons to each potential action could take you weeks or even months. You likely don’t have that kind of time.
So, the law allows HOA board members to fulfill their duty of care even while relying on other outside support. You can outsource some decisions to an HOA property management company or an attorney. You can hire staff or appoint officers and chairs to manage specific decisions about unique problems.
In the end, however, the HOA board of directors is accountable to and responsible for all the decisions that affect the community.
Duty of care is upheld when board members:
- Collect monthly, quarterly, or annual dues from members for the association.
- Impose fines on homeowners for violations.
- Hire vendors to make repairs, improvements, and upgrades throughout the community.
To effectively meet this fiduciary responsibility, board members need to know the association’s rules and regulations. You need to be familiar with the bylaws. You cannot simply impose a fine or create a rule based on your own opinions, likes, or dislikes. Follow all the protocols for fines, violations, and other consequences. Follow the procedures set forth in your bylaws, and always refer to your corporate documents if you’re ever in doubt about what you should be doing.
HOA Board Members and Duty of Loyalty
Under the duty of loyalty, board members must act fairly. You must also act in good faith, and for the benefit of the association as a whole.
This fiduciary duty prohibits you from making decisions based on personal interest or gain. You should not hire vendors that will enrich you or your family, for example. You should also be mindful of your own potential conflicts of interest. If you own a landscaping company, you should not be involved in choosing the landscaping vendor for your association. Leave that to the other board members or to your independent and objective HOA property management company.
The duty of loyalty also requires you to protect the privacy of your homeowners. You need to maintain confidentiality in a number of situations. Perhaps a homeowner is going through a foreclosure. That’s not something to talk about with other members of the community. If one neighbor has a complaint about another neighbor, it’s not something that needs to be gossiped about in your circle of friends, some of whom might know the parties you’re discussing.
You’re expected to put the interests of your association first, and to act in good faith. That’s your duty of loyalty.
HOA Board Members and Scope of Authority
Finally, HOA board members are required to only act within the scope of their authority. You cannot become obsessed with the power of making decisions in your community and step outside the boundaries of what you’re actually allowed to do. You aren’t empowered to make decisions on matters that are outside scope of your authority or even the HOA’s authority.
Read your bylaws and other governing documents so you know exactly where your authority starts and ends.
Your HOA governing documents do not come before the state, federal, and local laws that must always be followed. You might not allow pets in your community, but the law does not see service animals as pets. So, you cannot prohibit your homeowner from keeping their service animal in their home. That’s just one example of your duty to follow the law.
Your fiduciary responsibilities are one of the most important components of being a community leader. You need to know what it means to serve on the board and how you can best make a difference in your community that’s meaningful.
Your commitment to your HOA fiduciary duty protects both the association and your own individual interests. Fiduciary duties inspire the right and responsible actions. They also uphold accountability.
When you are faithful to your fiduciary duties as a board member, you’ll be protected from personal liabilities. You cannot be sued for a decision you make when you’re acting on behalf of your HOA’s best interests.
You need the tools to succeed as a board member, and if you’re not sure where you stand, consider partnering with an HOA management company that can help. You can find resources and training through an experienced management company that understands the requirements of HOA boards.
We’d be happy to help. Contact us at Hill & Co. so we can tell you more about the HOA services we provide in California for HOA boards and community associations just like yours. We can deliver full-service management or virtual management if you’re looking for something more flexible and cost-effective.