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What Is This Thing Called Fiduciary Duty?

From time to time you may hear that the board of the homeowners association operates in a fiduciary capacity for the homeowners. Or you may read about the board’s fiduciary responsibility in the governing documents. Just exactly what does this mean?

Fiduciary duty simply means the board has an ethical and legal obligation to make decisions that are in the best interests of the entire HOA. That’s a small explanation for a very big responsibility.

Fiduciary duty includes a duty of loyalty to the homeowners association, which means that board members should never use their position to take advantage of the association. They should never make decisions for the association that benefit themselves at the expense of the association and its members.

Fiduciary duty also includes the duty to exercise ordinary care. This means board members must perform their duties in good faith and in a manner they believe to be in the best interest of the association, with such care as an ordinary prudent person in a similar position under similar circumstances would use.

In short, boards must act in the best interests of the association and act reasonably.

Board members fulfill their fiduciary duty by:

  •  Developing and using a formal budgeting process.
  •  Establishing and adhering to budgetary guidelines.
  •  Making sure the budgeting process reflects the wishes of the association members.
  •  Promoting understanding and acceptance of the reserve accounts among the members.
  •  Collecting sufficient fees to adequately operate the association.
  •  Soliciting bids and negotiating appropriate contracts.
  •  Authorizing expenditures.