Liability of HOA Board Members for Association Debts

Learn about your personal liability for an HOA debt when serving on your homeowners' association board.

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Many people love living in planned unit or common interest developments (“planned developments”). Most offer great amenities such as security gates or common clubhouses or pools. But maintaining these amenities and ensuring the planned development operates properly takes a well-run homeowners’ association (HOA). And in order for an HOA to run well, it must have a good board of directors (“board”). If you are a homeowner in a planned development, one way to help your community remain a great place to live, is to serve on your HOA’s board.

Some people hesitate volunteering for their HOA’s board, however; fearing potential personal liability if someone gets injured on the development’s property and sues the HOA board for damages. Nolo’s article Liability of HOA Board Members for Personal Injury on the Property explains why this concern should not deter you from serving on your HOA board

Another liability concern is whether a board member might be personally liable for HOA debt—for example, unpaid amounts owed to the HOA’s pool cleaner, or unpaid bills from the HOA’s landscaping service company. This also need not be a deterrent to serving on the board because, except for very limited circumstances, board members are not personally liable for HOA debts. Read on to learn more on this issue.

HOA Board Member Duties Under the HOA Corporate Structure

Most HOAs are nonprofit corporations (or in California, sometimes mutual benefit corporations), usually made up of members, comprised of all the homeowners in the development. When you buy property in a planned development, you automatically become a member of the HOA. Similar to any corporate entity, the HOA is typically run by a board—in this case, the HOA board is usually a small number of members, elected from the membership at large (all the homeowners). If you serve on the HOA board, you are acting as a fiduciary for all the other HOA members, and owe the other members a fiduciary duty to act in the best interest of the development as a whole. This is explained more in Nolo’s article Fiduciary Duties of HOA Board Members.

An HOA board member’s personal liability for HOA actions is usually limited to cases where a board member breaches his or her fiduciary duty to the HOA—for example, by acting negligently, engaging in willful misconduct, or acting outside the HOA’s authority.

Circumstances Where Personal Liability for HOA Debt Is Possible

In most circumstances, any debt incurred by the HOA is the responsibility of the HOA itself, not the individual board members. As long as you don’t misrepresent yourself, act outside your authority, or intentionally take on the HOA’s debt, the HOA is responsible for its debts, not you, the individual board member.

Here are some examples of limited circumstances where a court might find a board member personally liable for an HOA debt (with or without finding a breach of the board member’s fiduciary duty):

  • The board member deliberately assumes personal responsibility for the debt—for example, by personally guaranteeing a promissory note, or putting up personal collateral for a loan to the HOA.
  • The board member personally signs a contract without disclosing that he or she is signing on behalf of the HOA—for example, by personally signing an order for a truckload of flowers from the local nursery, without indicating that the order is for the HOA to landscape a common park.
  • The board member signs a contract without the authority to do so—for example, by ordering flowers (per example above), but signing on behalf of the HOA without the HOA’s consent.

How Insurance Protects HOA Board Members

Even if you are sued personally for an HOA debt, your HOA’s insurance might cover any expenses you incur in connection with the suit, as well as any damages you owe as a result of the litigation. This depends on whether your HOA has good Directors and Officers (“D&O”) insurance and general liability insurance, and what types of exclusions apply.

D& O Insurance

D&O insurance policies protect board members by reimbursing them for any costs and expenses arising from their actions on the board. However, most policies have exclusions for certain matters, such as a board member’s gross negligence or willful misconduct. Whether the insurance covers you depends on the facts of your situation. Obtain and review a copy of your HOA’s D&O policy (you can get this from the HOA, the development’s manager, or the insurance agent’s office) to see if it covers board members’ personal liability for HOA debt, and whether any exclusions apply in your situation. See the Nolo article What HOAs Need to Know About D&O Insurance for more on the subject.

General Liability Insurance

Your HOA might also have general liability insurance. While this is typically designed to protect the HOA itself, most general liability policies offer some minimal protections for board members. Again, exclusions will apply, and you must review your HOA’s policy to see whether you are covered for any liability for an HOA debt.

Attention to Your HOA Board Member Responsibilities Will Reduce Potential Liability

Although it is possible for a board member to face personal liability for an HOA debt, this liability is easy to avoid if you always act carefully. Follow the advice above, and especially be sure that:

  • you don’t extend personal guarantees
  • your actions (and the HOA’s actions) are authorized, and
  • you always disclose that your signature is on behalf of the HOA.
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