The subdivision I live in has a homeowners’ association. The homeowners’ association has had trouble recruiting directors to serve on the board. The current directors, in an effort to recruit more owners to join the board, have indicated they want to start paying themselves and new directors for their time. To do this, the board will have to increase the assessments on the property owners in the subdivision.
As a homeowner, I'm not too happy about having to pay more. (Then again, I don't have time to serve on the board, either.) Is it legal for HOA directors to be compensated?
The Board of Directors (Board), as the decision-making body for the homeowners’ association (HOA), must make all of its decisions in accordance with the HOA’s own governing documents and state law. This means that you will most likely be able to find your answer in either the applicable state statute or in one of the HOA’s governing documents.
As a first step, you should examine the HOA’s governing documents. The HOA’s governing documents often include both Covenants, Conditions, and Restrictions (CC&Rs), and bylaws. The goal of the CC&Rs is to protect, preserve, and enhance property values within the community.
For example, the CC&Rs may prohibit you from painting your house hot pink or keeping a pet snake. Bylaws, on the other hand, typically address voting rights of members, meeting requirements, and issues related to the board of directors.
The odds are that the answer to your question will be in the HOA's bylaws. You may have received a copy of the bylaws prior to purchasing your house from either your real estate agent or a title company. However, if you don’t have a copy available, the bylaws should be available at the office that maintains public property records in your area, such as the county clerk or county recorder.
In many instances, there will be a specific provision in the bylaws addressing this very issue. A common provision related to your question states: “No Director shall receive compensation for any service he may render to the Association. However, any Director may be reimbursed for his or her actual expenses incurred in the performance of his or her duties.” In other words, within a community whose bylaws say this, the board member could claim reimbursement for phone calls, gas, and so forth, but not for the actual value of his or her time.
Bylaws, CC&Rs, and other governing documents aren’t always prepared by experts, so in addition to reviewing them, you may also want to look through any other governing documents.
Next, you might review your applicable state law to see if you can determine whether your state expressly prohibits compensation of directors. Depending on where you live, there may be a public law library with a librarian who may be able to assist you. Alternatively, a lawyer would able to help you research this issue.
If, after reviewing both the applicable state law and the bylaws, you can’t find a law or rule prohibiting compensation of board members, it’s possible that it’s lawful for board members in your HOA to be compensated.
That just leaves the question of whether your Board followed appropriate procedures in deciding to compensate itself. In many states, amending HOA bylaws requires a majority vote by the property owners. This means the issue must be presented to the property owners in the community for a vote. If the board elects to proceed with approving compensation of its directors, you will want to also review state law and the HOAs’ governing documents to make sure the board follows the proper procedure in making the decision to allow compensation of directors.