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An HOA Board’s Fiduciary Duty: The Key to Avoid Conflicts of Interest

April 15, 2016 / by HOA Manager

honesty_principles_trustIn homeowner’s associations, you and every board member are considered a fiduciary and are duty bound to act in the best interests of all residents, not your own best interests.

1) n. from the Latin fiducia, meaning "trust," a who has the power and obligation to act for another under circumstances which require total trust, good faith and honesty.

In general terms, fiduciary duty is the highest standard of care imposed under law, and it occurs when one or more persons are responsible for the money or property of another. The fiduciary is expected to be honest, free from fraud and faithful to his or her obligations. 

Due Diligence

HOA board members are required to do their Due Diligence with regard to the business of the association. Board members should be present and participate at meetings, be involved with maintenance and violation issues, make decisions in the best interest of the association, and keep accurate corporate records.

Board members also have a duty to be loyal to the association and the decisions of the board, sometimes at the expense of your personal interest.

Accusations of self-dealing or conflicts of interest sometimes arise during the vendor hiring process. Generally, HOA board members who profit financially from hiring a vendor risk putting their own interests before those of the community.

What is your association doing to ensure the community comes first?

  • Ask board members to fully disclose a conflict when objectivity cannot be maintained.
  • Ensure the board minutes reflect the entire disclosure.
  • Require conflicted board members to sit out the board’s decision on the conflicting matter, as well as related executive sessions that may occur.
  • Seek multiple, sealed bids and carefully review them before making a decision.

If you have any questions about fiduciary duty, conflicts of interest or expectations for HOA board members a management company can help you avoid the pitfalls that may arise.

Guide to Choosing an HOA Management Company 

Topics: HOA Responsibilities, HOA Contractors, HOA Law