HOA Board Member Fiduciary Duty: What Directors Owe the Community

HOA directors are volunteers who manage other people's money and enforce rules, so the law expects them to act carefully and in the association's interest, not their own. The details differ by state and by the type of association, but the core duties are consistent: care, loyalty and good faith.

The core duties

• Duty of care. Act as a reasonably prudent person would: read the budget, ask questions, attend meetings and get professional advice on matters such as insurance, reserves and legal disputes.
• Duty of loyalty. Put the association's interests ahead of personal or business interests, and avoid or disclose conflicts.
• Duty of good faith. Make decisions honestly, within the powers in the governing documents, and apply the rules even-handedly.

Many states' nonprofit corporation laws, or the community association statute, set these standards, and many give directors some protection for good-faith decisions. The standard and the protection vary, so check your state.

Conflicts of interest

A conflict arises when a director or the director's family or business could gain from a decision, such as hiring a company they own. Colorado, for example, requires associations to adopt a conflict-of-interest policy that defines when a conflict exists, sets disclosure procedures, says whether a board member must recuse from discussion or voting, and provides for periodic review (C.R.S. 38-33.3-209.5(4)). Even where a statute does not require it, disclosing the conflict in the minutes and abstaining is the safer practice.

Practical habits that show good faith

• Follow the governing documents and write decisions into minutes.
• Obtain multiple bids for major contracts.
• Keep association money in association accounts, with at least two people involved in approvals.
• Make records available to owners as the law requires. See the state records requests, such as Florida and Texas.
• Enforce rules consistently and follow notice and hearing steps. See the violation letter.
• Hand over records and access cleanly when roles change. See the treasurer handover letter and bank signer change letter.

The HOA budget cover letter is one way to explain spending to owners, and owners can request records with a letter to the HOA requesting documents.

Leaving the board

A director who resigns should do so in writing and return records and access. Use the HOA board resignation letter. A director who is removed rather than resigning follows the process in the HOA board member removal letter, and an officer leaving the president role uses the HOA board president resignation letter.

Common questions

Can a board member be personally liable?

Sometimes, depending on state law, the governing documents and insurance. Many associations carry directors and officers insurance, but acting outside authority or for personal gain can create exposure. Ask the association's attorney.

Do directors have to vote?

Usually, yes, unless there is a conflict. Abstaining without reason can be criticized, and abstaining for a conflict should be recorded.

Can a board member also be a vendor?

Only with disclosure, and often with a vote by the disinterested directors. Check your documents and state law.

This page gives general information and sample wording. It is not legal advice, and requirements differ by state and by association.