Legal Obligations for HOA Board Members
Many HOA Board members don’t fully understand the legal obligations that come with serving their community. You rarely see one document that completely lists all responsibilities. State law may determine some. Governing documents outline others. And other regulations can further complicate the question. It’s little wonder that a lot of confusion surrounds legal obligations. Here’s a way to look broadly at your duties.
When you accept an HOA Board position, it’s a legal commitment. You agree to the responsibility to manage your association well. You take on the duty of keeping the HOA fiscally sound. You are responsible for maintaining common areas and property values. You plan for the future. All these hats fall under the legal duties of the “Three D’s”.
Duty of Care: Board members must exercise forethought and attention in performing all duties. Each officer should participate in planning, research and meetings so he/she can make informed decisions.
Duty of Loyalty: Interests and well-being of the association must come first. Officers must act fairly and impartially. When conducting association business, officers should not gain personal benefits from decisions. Conflicts of interest also extend to family members. Relatives of Board members should not derive personal gain from HOA business.
Duty of Obedience: Board members have a legal obligation to ensure that the HOA complies with articles of incorporation, governing documents and association laws and regulations. Board members can’t be experts in all areas. Thus, they need advice from industry professionals when faced with a decision. Qualified experts include insurance agents, attorneys, reserve specialists, accountants, property management company, etc.
HOA Boards have a fiduciary responsibility to oversee the association’s finances. This goes beyond simply balancing and reviewing monthly expenditures. The Board is responsible for developing an annual budget, establishing assessments and collection policies. Individual officers breaching fiduciary duty can be held liable to the association for resulting damages.
Board officers are responsible for setting association priorities and policies. They establish the guiding management plans for the association. Typically, Board officers can’t do all the work themselves. Professional community association management companies often carry out daily processes required to support the board’s policies and priorities. However, the Board retains legal responsibility for all actions.
As you can see, legal responsibilities span a wide range of areas. While officers may strive to follow all the legal duties, disagreements and lawsuits can happen. An association’s general liability insurance typically doesn’t cover legal expenses and damages for Board members. As an added precaution, be certain to protect your Board members with Directors and Officers (D&O) insurance.
Understanding your obligations as a board member is key to serving your community successfully. Playing an active role in your HOA is both challenging and rewarding. Don’t be afraid to take the opportunity to serve to positively impact your community.