RealManage Insight

Conflicts of Interest in HOA Boards

by Kara Cermak, CMCA®, AMS®, PCAM® on Aug 4, 2020 8:29:00 AM

A conflict of interest can range from problematic to disastrous for a homeowner association board. HOA board members should be impartial representatives of their communities who make decisions with the entire association's wellbeing in mind. A conflict of interest will interfere with these duties and can lead to severe consequences if not dealt with in time. Therefore, it's important to be able to recognize conflicts of interest, and to know exactly what to do if one arises.

What is a Conflict of Interest in Terms of your HOA?

Broadly, a conflict of interest is when there is a gap between the goals of two parties. In the context of an HOA, a conflict of interest would be when a board member's personal intentions are incongruous with the goals of the overall HOA and it's goals for the community as a whole. A board member might use their HOA board position to gain extra money or to promote friends and family. Whatever the case, you want to avoid these conflicts whenever possible to ensure integrity. 

Common Conflicts of Interest

Financial

There are many ways that a board member could exploit their position for financial gain. For example, since all HOA members pay fees to be part of the HOA, a board member may wish to keep HOA fees artificially low. HOA board members also have access to information that the entire HOA may not have. Board members shouldn't be using this information to get a financial edge on regular HOA members, but it can happen.

Board members also have access to the association's funds. Care must be taken so that no board member uses HOA funds for personal reasons. Embezzlement is a serious crime, and if an HOA board learns of it legal counsel will usually be necessary.

Contracts

HOA boards are usually responsible for contracting companies to improve the neighborhood. When choosing who to employ for a neighborhood project, HOA boards should make sure they are aware of all connections between board members and contractors. If these connections are hidden, or if a board member is allowed to vote to use a contractor they have ties to, the contract can be voidable.

Nepotism

Similarly, board members should not be allowed to use their positions to promote friends or relatives. One way this could happen would be if a board member convinced the board to use a relative's company for a neighborhood improvement project, as discussed above. A board member might also support a family member in HOA board elections, which would be a complication in the democratic process. This doesn't mean that board members can't have any relationship with contractors or other board members. Nonetheless, if a board member has a friend or relative running for the board or offering contract work, the decision to elect or hire can't involve said board member.

Avoiding Conflicts of Interest

It may seem somewhat overwhelming to ensure there are no conflicts of interest in your HOA board. Luckily, there are steps you can take to avoid conflicts of interest. It's always good to practice transparency: it helps you identify potential conflicts of interest before they become problems, and it builds trust in the association board among HOA members. Board members should never use their position for personal gain, whether they gain from bending minor HOA rules or use confidential knowledge to influence their personal financial or property decisions. HOA rules should apply to everyone, including board officials. Be aware of any relationships between board members or between board members and contractors. You should also keep track of board finances to make sure all financial dealings are completely honest.

When you're on an HOA board, you should also be aware of your own potential conflicts of interest. When making HOA decisions, you should take the time to pause and ask yourself how you could personally benefit in a way that would be unfair to other HOA members. If you feel you could have a conflict of interest, you should raise the matter to the other directors and, if necessary, recuse yourself until the decision has been made. You should also speak up if you think there may be a conflict of interest with another member.

Being on a homeowner association board is a significant responsibility. All board members should hold themselves and their fellow officials to strong ethical standards in order to maintain a thriving community. HOA management can help your homeowner association most properly serve its community. If you're interested in HOA management services, contact our team to learn more.

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