Board members of a homeowners’ association (HOA) have significant responsibilities and power within their community. In fact, the community has entrusted them with the ability to make decisions that affect all aspects of HOA life, from its financial health to its appearance.
However, the HOA Board must agree to follow certain standards and duties in return. These duties include fiduciary duties, which may be confusing or overly legalistic for the volunteer Board member.
But don’t worry.
In the rest of this guide, we break down what fiduciary duty is, why it is important, and how your Board members can avoid the most common pitfalls.
What Is Fiduciary Duty?
First, let’s start with the definition of fiduciary duty. It is the obligation of HOA Board members to act in the best interests of the association, rather than for personal benefit or outside influence.
There are three main components to fiduciary duty:
- Duty of Care
- Duty of Loyalty
- Duty of Obedience
Let’s break each down in more detail.
Duty of Care
HOA Board members must act with reasonable diligence and prudence when making decisions to follow the duty of care. Essentially, your Board must gather enough relevant information and documents to make informed decisions about the future and welfare of your community.
Duty of Loyalty
The duty of loyalty is one of the most commonly understood fiduciary duties. This component says that the Board member must act in the best interest of the HOA, not their own personal interests.
Thus, Board members must avoid conflicts of interest when making decisions about the HOA. They should also disclose any potential conflict of interest to the Board.
Duty of Obedience
Finally, there is the duty of obedience. This fiduciary duty requires your Board members to act within the authority granted by the association’s governing documents and applicable laws.
Why Fiduciary Duty is Important for HOA Boards
Ensuring each Board member understands and fulfills their fiduciary duties is essential to keeping your HOA in compliance. However, it is also about more than that. Boards that uphold their fiduciary responsibilities are better equipped to do the following.
- Protect the HOA finances.
- Reduce risk.
- Build trust with homeowners.
- Make decisions that support long-term stability.
- Avoid disputes and claims of mismanagement.
Common Fiduciary Mistakes to Avoid
Clearly, the HOA Board members’ fiduciary duties are essential for the proper governing of a community. Yet, even the most informed Board can make mistakes.
Here are common fiduciary pitfalls for your HOA Board to avoid.
- Making decisions without proper documentation.
- Failing to review contracts or financials.
- Allow personal preferences to influence votes.
- Inconsistent rule enforcement.
At ACRI Community Realty, we offer support in all aspects of HOA community management, including advising your Board on how to be better in compliance with your fiduciary duties.
Request a proposal today, and get started making your HOA a great place to live!
