What is the HOA Board’s Fiduciary Duty?
What is a fiduciary duty? It is not something that only pertains to big corporations, especially the Board of Directors that governs them. It also applies to the directors of a non-profit homeowner association too. Since the Board of Directors always have a fiduciary duty to the members of the homeowner association, it behooves us to ask "what is a fiduciary duty."
1. Fiduciary Defined. The English word fiduciary is derived from the Latin root word fiducia which means a trust. A fiduciary is a person who is in a position of authority who enters into a trust relationship and an obligation to act with care on behalf of another. Therefore, a fiduciary duty involves a confidence or trust that is placed in a Board of Director, as they act in good faith in their capacity as a director. It involves acting with good faith, with care, and as an ordinary reasonable person acting in the same capacity should act. The concept of fiduciary duty is an umbrella term that includes a duty of loyalty and a duty of ordinary care.
2. A Duty of Loyalty. A duty of loyalty means that a Board member must refrain from using their position to take an unfair advantage of the community association. In other words, Board members must refrain from conflicts of interest. Board of Directors must act with undivided loyalty and in the best interest of the association. It prohibits a director from making decisions that further his or her own financial benefit or personal interests at the expense of the association and its members.
3. A Duty of Care. A duty of care means that a Board member acts in the best interest of the association by exercising good faith and as a prudent reasoning person under a similar position and circumstances. To act in good faith involves honesty, fairness, and a lawful purpose in the abstinence of any intent to defraud, maliciousness, or establishing an unfair advantage. To act reasonably as a prudent person is to act with a good reason, plan, or purpose that is in the best interest of the association and its members.
Because Board of Directors exercises the trust of homeowners it is imperative that they fulfill their fiduciary duty. If a director is ever in doubt, always disclose the matter to the full Board. If the Board believes that legal counsel is necessary to advise the Board on the matter, then an attorney specializing in HOA law or non-profit corporation law should be obtained for that purpose.
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DISCLAIMER: The information contained herein is intended for informational and educational purposes only and should not be construed as offering legal advice. For legal advice, seek the counsel of a competent attorney specializing in Community Association Law on matters pertaining to your state and community.
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