Serving on the board of your homeowner’s association (HOA) is a meaningful way to support your community. At the same time, it comes with some serious responsibilities. Among those is the concept of fiduciary duty. Understanding (and living up to) this duty helps protect your community, fosters trust, and aids in avoiding potential legal or financial trouble.
What is fiduciary duty?
A fiduciary duty is an ethical obligation to act in good faith on behalf of others who rely on you. In the context of an HOA, board members hold a position of trust - homeowners expect the board to make decisions in the community’s best interest, not for personal gain.
For an HOA, fulfilling fiduciary duty means:
- Putting the association and its homeowners first.
- Making informed, reasonable decisions.
- Following the governing documents and laws pertaining to HOA business entities.
Board members who apply the “business judgment rule” generally are protected if they act in good faith, with reasonable care, and in the association’s interest—even if an outcome turns out poorly.
Key fiduciary duties for HOA board members
Three core fiduciary duties apply to HOA board members. Let’s break them down in plain language.
1. Duty of Care
This duty means board members must use due diligence when making decisions. For example:
- Review the relevant information, discuss fully, reach consensus among all board members, and understand the implications of the board’s decisions before voting or acting.
- Consult professionals (e.g., attorneys, accountants, community managers) before taking actions that would reasonably benefit from subject matter expertise.
- Understand the governing documents, the association’s finances, rules and restrictions, and stay current with relevant laws.
Failure to act with care (like making major decisions without discussion or checking facts) can expose the board and individual directors to personal risk.
2. Duty of Loyalty
This duty requires board members to put the interests of the association and its members above their personal interests. Key points include:
- Avoiding conflicts of interest (and disclosing them when they do exist).
- Treating all homeowners fairly and avoiding any perception of favoritism or discrimination.
- Acting as custodians of the HOA, board members must make business-minded decisions that secure the association’s value and assets for the long term.
3. Duty to Act Within the Scope of Authority
Board members must act within the powers granted by the association’s governing documents and applicable laws. That means:
- Avoiding actions that conflict with the law and always acting within the limits of authority specified in the governing documents.
- Enforcing rules consistently and uniformly, in line with the governing documents.
- Following required business protocols for board and member decisions and always demonstrating a unified board position to the membership.
How HOA board members can fulfil their fiduciary duties
Putting fiduciary duty into practice doesn’t have to be overwhelming. Here are practical tips:
- Always refer to your governing documents before making major decisions.
- Make sure decisions are informed: gather data, ask questions, consult experts.
- Maintain transparency: communicate with homeowners to foster engagement and disclose conflicts of interest when they arise.
- Keep good records of meetings, decisions, ARC requests, vendor contracts, and financials.
- Act fairly and consistently. Avoid exemptions, favoritism, and hidden motives.
- When in doubt: consult your association’s attorney or community management partner.
What happens when fiduciary duty is violated?
Violating fiduciary duties can have serious consequences for both the association and individual board members:
- Loss of trust. Homeowners may feel the board is not serving the community’s interests, which can erode trust and make governance harder.
- Legal and financial risk. The HOA may face lawsuits or penalties for negligence or mismanagement.
- Personal liability. In extreme cases, individual board members can be held personally responsible if they act outside their authority, in bad faith, or for personal gain.
There is no free pass for breach of fiduciary duty. While every board should maintain insurance coverage for Directors’ and Officers’ Liability, insurance will not cover egregious acts or overt negligence.
Bottom line
Your role as an HOA board member carries the responsibility to serve your community with integrity, fairness, and diligence. Understanding fiduciary duty and embracing the responsibilities of care, loyalty, and obedience helps your association thrive. By acting transparently, making sound decisions, and avoiding conflicts, you protect not just the community’s interests but also your own.
About Community Association Management Services
In business since 1991, CAMS has grown to become North and South Carolina’s premier community management company. With experienced local managers in each of its nine regions, CAMS provides innovative solutions to the community associations it serves. To learn more, visit www.camsmgt.com/choose-cams.
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