Understanding the Fiduciary Duties of an HOA Board

The board of directors is an important—and required—aspect of any homeowners’ association (HOA). Comprised of elected volunteers who live in the community, the HOA board is responsible for overseeing the community’s operations and setting it up for long-term success. A critical role, board members have a duty to act in the community’s best interest when making decisions for fellow residents—a fiduciary duty.

Keep reading to learn more about what fiduciary duty means and the fiduciary duties of directors.

What Is a Fiduciary Duty?

A fiduciary duty is a legal responsibility to act in good faith on behalf of a person or group that relies on you. This relationship typically exists between an individual in a position of power or authority and those affected by that individual’s decisions.

An HOA or condo board member’s fiduciary responsibility is to help the association succeed while adhering to the governing documents. Homeowners put their trust and confidence in board members to protect the community’s quality of living, use funds wisely, and keep operations running smoothly.

To make sure you meet your obligations as a community leader, review your state laws and the HOA’s governing documents. The bylaws and Conditions, Covenants, & Restrictions (CC&Rs) should outline your responsibilities and authority. 

What Are the Five Fiduciary Duties of Board Members?

Generally, the five fiduciary duties of HOA board members include the Duty of Utmost Care, Duty of Integrity, Duty of Full Disclosure, Duty of Loyalty, and Duty of Good Faith. These five pillars act as a solid foundation to guide a board’s actions.

1. Duty of Utmost Care

Board members are bound to a high standard of responsibility to fulfill the tasks required of their positions. The duty of care means you must do your due diligence to make the most informed and reasonable decisions within your authority.

2. Duty of Integrity

The board of directors agrees to a code of ethics that requires them to act with honesty, fidelity, and professionalism. This includes following official HOA rules and processes, respecting homeowner confidentiality, and treating all residents equally.

3. Duty of Full Disclosure

The duty of disclosure means that board members must lead with transparency and be open and honest about what happens behind the scenes. The board should disclose all material factors influencing their decisions and impacting homeowners.

4. Duty of Loyalty

The board member duty of loyalty refers to the agreement to leave personal agendas and preferences aside to serve the community. There should be no conflicts of interest or intentional personal gains when a board member takes office.

5. Duty of Good Faith

The duty of good faith suggests that board members should always act in the best interests of the association. Every decision should be made to benefit residents within the confines of the law and HOA rules.

How Can a Board Live Up to Its Fiduciary Duties?

With strong leadership and dedication to the community, the HOA board can naturally live up to its fiduciary duties. Practice your duties by prioritizing:

• Good communication. By actively listening and being open to feedback, you help build trust and transparency between the HOA board and homeowners. 

• Forward planning. Anticipating association needs and getting ahead of issues can go a long way in keeping the community functioning at its best.

• Sound decision-making. Base decisions on facts, experience, and rational thinking to make educated choices on behalf of residents.

• Task delegation. Assigning responsibilities to association committees or partnering with a community management company can help board members avoid overwhelm and fulfill duties more effectively.

• Taking initiative. Addressing concerns right away shows your good intentions and loyalty to community members.

• Critical thinking. Board members must provide unbiased evaluations and analysis to solve problems affecting the association.

• Teamwork. Cooperation and compromise can help board members collaborate as they work towards the community’s goals.

What Are Breaches of Fiduciary Duty?

While most HOA board members do their best to serve their communities, some may fall short of expectations or take advantage of their positions. An HOA board member breach of fiduciary duty happens when that board officer fails to fulfill their legal responsibilities to the community—either inadvertently or intentionally. This can take many forms, such as:

• Board members refusing to work together

• Not adhering to the governing documents

• Ignoring state statutes or fiduciary duty nonprofit board laws

Examples of Breach of Fiduciary Duty

Some breaches of fiduciary duty are apparent, while others often fly under the radar and go unnoticed. Examples of a breach of fiduciary duty include:

• Using association assets for personal benefit

• Putting your interests before the community’s needs

• Making decisions outside of your authority

• Negligently managing funds or budgets

• Failing to disclose vital information to homeowners

• Encouraging conflict between residents

• Choosing sides based on personal preferences

Consequences of Fiduciary Breach

A board member’s breach of fiduciary duty can have lasting ripple effects on their community. On its surface, it can cause a break in trust between homeowners and the rest of the board, leading to suspicion and tension. The breach of duty may also result in legal action against the association.

In some cases, the board officer may be personally liable for damages or financial losses caused by the breach of fiduciary duty. If the breach violated state laws, criminal prosecution could even be possible. Review your community’s governing documents or ask your HOA attorney for more details on the potential consequences of a fiduciary breach.

Understanding the HOA Board of Directors & Its Role

Do HOA board members have a fiduciary responsibility? Yes. As association leaders, an HOA board has a fiduciary responsibility to act in the best interest of the community. Guided by five pillars, the fiduciary duty of directors is meant to preserve the integrity of the board. An honorable role, serving on an HOA board can also be an exciting and fulfilling endeavor. Check out “HOA 101: Understanding The HOA Board of Directors & Its Role” for more insight into HOA board member duties and expectations.