As a volunteer member of an HOA board, you are bound to encounter terms or situations that are unfamiliar to you. Much of the time, you’ll be able to learn as you go, picking up new terminologies, ideologies, and ways of handling different situations. However, there are some terms that you should be familiar with from the get-go.
Below are five terms that every HOA board member should know when they get elected.
- Fiduciary Duty – The highest ethical and moral obligation to fulfill your responsibility to act in the best interests of the association. The term is founded in trust – trust that members of the board are acting for the good of the community as a whole at all times, not fulfilling their best interests. The residents are trusting that you, as a board member, are making each and every decision for the benefit of all residents of the community.
- Note: Whether a board member is a fiduciary depends on your state, the governing documents and in what ways you are acting on behalf of the association. However, it is clear in most instances that board members owe certain duties to the association (which may vary by state). These duties typically include … the duty to act in good faith, with the appropriate level of care (due care when acting as a fiduciary, ordinary care when not) and in a manner the director reasonably believes is in the best interests of the association. Examples of this would include no self-dealing, disclosing any conflicts of interest (such as voting on a contract that the director has a personal or financial interest in), regularly inspecting the HOA’s financial records, maintaining adequate insurance for the HOA, being familiar with the HOA’s governing documents as well as applicable laws, consulting experts and other professionals whenever appropriate, and properly budgeting for the HOA’s current and long-term operation and maintenance of its property.
- Governing Documents – Also known as the Conditions, Covenant, and Restrictions, or CC&Rs. These are the declarations, bylaws, operating rules, and all other articles that govern the operation of your community. They define exactly what board members can and cannot do. As a board member, you are responsible to thoroughly read and understand these documents so that you can be assured that you are accurate and fair in all of your decision-making. It is essential that you know the rules so that you can follow them, enforce them fairly, and know when rules need to be updated or changed.
- Objectivity – Defined as the quality of being unbiased by personal feelings, interpretations, or prejudice, or acting based on facts, this is crucial when running a successful HOA board. As mentioned above, you will be making decisions for the community as a whole and you will never to able to please everyone. Some of your decisions or policy enforcements might be unpopular. Don’t take it personally! If you remain objective, you will ensure fair treatment of all residents in every situation. Being unbiased and sticking strictly to your governing documents will leave you blameless if and when conflicts with community members do arise.
- Business Judgment Rule – This ensures that all actions taken by board members reflect reasonable and honest judgment. Basically meaning that all decisions are made in good faith and with sincere belief that the action will result the best outcome for the community. It should be clear that decisions are made in an honest and fair manner, with judgment that an ordinary, logical individual could understand, and in a way that evidences a reasonable belief that one’s actions are in the best interest of the community.
- Insurance – Make sure to understand your community’s insurance policy. Be familiar with all terms in the policy, and seek out legal advice or explanation where there is something that is unclear. Inviting your insurance agent to a board meeting or scheduling a conference call will guarantee that you know and understand your coverage and liabilities so that you can effectively communicate with the homeowners in your community should the need arise. Make sure that you have an insurance agent who specializes in community association coverage and that you have a directors and officer’s policy that covers the association and the board. Review your coverage regularly and make changes when necessary.
These are just a few of the most important terms involved with running a successful HOA. There is a lot to learn when acting as an HOA board member, but there are plenty of resources available to you. When you encounter terms or situations that you are unsure of, don’t be afraid to ask for help! It is always better to be informed than to make a decision based on a guess.