It is not uncommon to have an HOA conflict of interest in any given association board. The important thing is to learn how to distinguish them and subsequently come to a resolution.
Understanding an HOA Conflict of Interest
What is a conflict of interest anyway? Simply put, a conflict of interest is when personal and professional interests clash. It can arise when a person stands to gain something — financial or otherwise — from an official decision or action. Conflicts of interest are commonplace in organizations, and homeowners associations are no exception.
The structure of an HOA naturally gives way to potential conflicts of interest. An HOA is run by a set of board members, referred to collectively as the HOA board. Board members run the association according to its governing documents and make decisions in the community’s best interest. Sometimes, though, a decision can put certain board members at a crossroads.
To avoid potential conflicts of interest and protect the community’s trust in the board, it is essential to learn how to resolve them. But, before you can do that, you must first know how to identify an HOA conflict of interest.
Recognizing Conflicts of Interest in the HOA Board
Board members have certain fiduciary duties to uphold. This means board members like you must exert due diligence, exercise caution, and have enough forethought before making a decision or action. It also means preventing conflicts of interest.
The good news is, it is fairly easy to determine whether a conflict of interest exists. If you or any other board member will be affected, whether directly or indirectly, by a board decision or action, then there is a conflict of interest.
Sometimes, you may find yourself unsure of whether a conflict of interest exists. In those cases, it is best to assume that there is one and proceed with dealing with it in the best way possible. If something does not feel right, then there is a good chance your feelings are grounded.
Beyond actually preventing or resolving a conflict of interest, it is equally important to preserve the perceived integrity of your board. This way, residents will not lose their trust in you. Therefore, you must avoid even the mere impression of an HOA Board of Directors conflict of interest.
Board of Directors Conflict of Interest Examples
Here are some of the most common examples of an HOA conflict of interest:
1. Business Contracts
Awarding business contracts to vendors is a normal part of running an HOA. But, it is best not to hire a company or professional service if a board member owns or partially owns it. The same goes for companies that a board member’s friend or relative owns. This is because the board member in question stands to financially gain from the business contract.
It is also a conflict of interest if a board member’s family member is set to benefit from the association. That includes performing paid work or joining the HOA board. If your family member is being considered for something, you must not participate in the voting nor push for other board members to support them.
3. Paid HOA Work
Another common example of an HOA conflict of interest is when a board member asks to receive payment for performing HOA work.
A board member might offer themselves up to assume the role of the HOA manager and request compensation or a reduction of assessments. Remember that board members are volunteers and do not get paid to perform their job.
Board members must never ask the association for a loan. Similarly, board members must never use association funds to provide loans to community members. Association funds should solely be used for maintaining the community and never for the personal benefit of its members.
5. Making Decisions or Rules
Board members make decisions and change rules all the time. But, you must remember to keep your personal interests separate when placing your vote.
For instance, if your board is voting on pet restrictions, you must make a decision based on the community’s best interests and not because you have a dog yourself. Always put the community ahead of your personal preferences or interests.
Some states even have laws regulating when board members should recuse themselves from voting. In California, for example, Civil Code Section 5350 specifically lays down what items board members cannot vote on.
How to Deal With an HOA Conflict of Interest
After identifying a conflict of interest within your HOA board, the next step is to resolve it. Normally, this can be done in one of two ways: recusal or resignation.
Disclosure and Recusal
Board members must fully disclose all pertinent information in case of a conflict of interest. Additionally, the board member in question should recuse himself from voting on the matter. In doing so, the board member can avoid any potential liability.
Typically, recusing oneself from the voting process is enough to prevent conflicts of interest on a smaller scale. Besides, for small towns or cities where there are only a handful of landscapers, it can be difficult to avoid considering a board member’s relative who has the qualifications for the job.
For larger or more constant conflicts of interest, though, the other option would be for the board member to resign.
Furthermore, if the board member intentionally fails to disclose the conflict of interest and allows it to continue, that member must accept the consequences of his actions. This includes resignation and possible legal action.
Working to Preserve Your Board’s Integrity
When allowed to take place, an HOA conflict of interest can tarnish the reputation of your board. This can breed mistrust within your community and the HOA board. Though fraud or any other misdeed may not exist in the deal, even the appearance of a conflict of interest can lead to problems. Hence, it is always best to fully disclose all material facts and recuse yourself from the voting or decision-making process if a conflict exists.
Hiring an HOA management company can also help with conflicts of interest within your board. Call Cedar Management Group today at (877) 252-3327 or contact us online to learn more about our services.
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