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HOA boards may be held liable for violating fiduciary duties

Many in the homeowner’s association think that board members and officers are interchangeable or do the same thing. This is not the case. There are differences, and they are important to note.

The entire board of directors is responsible for managing the HOA. A select group of directors is typically elected at an annual meeting of the association members. Members usually have equal voting stature and rights and can vote on issues before the board. There are usually three or five members on the board. They are approved or removed with member approval.

Bylines state the roles of officers

The officers will have specific job titles and roles, such as president or secretary, with the bylines explaining each officer’s responsibility, duties and functions. Instead of officers elected by association members, the directors usually approve officers from a pool. If appointed, they may be both an officer and a director. They cannot vote on board issues unless they are on the board of directors. The board can remove officers if they choose to.

The fiduciary duties

Directors and officers often have an insurance policy that protects them from criminal charges and financial liability. If the carrier believes that the policy does not cover a specific matter, the association may attempt to blame the officers or directors for violating their fiduciary duty. This breaks down to three areas of responsibility:

  • Duty of care: Board members must make informed decisions for the good of the HOA, which often means research before voting. Moreover, they must exercise prudence and care while going about their work. The association’s documents must outline all actions and rulings.
  • Duty of loyalty: Board members must act in good faith, fairly and for the benefit of the entire association. They should avoid bias and situations perceived as conflicts of interest. Finally, they must not divulge private information shared with them while acting in their capacity as a board member.
  • Duty to act: The board’s authority comes from the association documents, and they must operate per bylaws and governing documents when executing their duties.

Other protections also available

Along with the insurance policy, directors and officers may have protections under state law, the HOA bylaws and other relevant rules. Officers and board members facing accusations by the association may wish to consult with an attorney who handles HOA matters here in Michigan to determine how to best protect themselves and the HOA.