Conflicting Interests In Your HOA

Written by Richard Thompson Posted On Thursday, 06 June 2024 00:00

When people are elected to positions of power, there is always the possibility that a conflict of interest will develop. It is almost impossible to avoid them but how they are handled is critical. For example, when it comes time for painting your homeowner association and there isn't enough money to do the whole job at once, which units get done first?

Rather than be exposed to well earned criticism, why not ask a third party consultant to make the call? This technique can be used in many situations where limited resources cause some owners to benefit over others. Avoid the perception of self dealing...get someone else to make the call.

Another technique for avoiding conflict of interest is for a director to abstain from voting when the outcome is self-benefitting. Make sure the secretary records in the meeting minutes that (fill in the blank) abstained due to a conflict of interest" so that the written record will show no intent to sway the vote.

Disclosure is another way of avoiding conflict of interest. The idea behind disclosure is that possible conflicts are brought to the board's attention. But beware. Technically, if you advise the Board that your brother in law, the HOA's landscape contractor, is giving you kick backs to influence the contract, you've provided disclosure. No foul, right? Hardly. Disclosure can smooth over minor conflicts of interest but if there are significant implications, the disclosure should be made to all members. And this may raise more questions than answers.

One of the best ways for the board to avoid self dealing is to deal openly. With a few exceptions, board meetings should be open to all owners and minutes should be complete and easily available. Frequent newsletters should advise of upcoming meetings well in advance. If the Board knows someone is looking over its shoulders, it's less likely to engage in self serving activity.

Some HOA developers spur sales by setting the HOA fees artificially low. This strategy starves the HOA of funds it desperately needs to properly take care of the assets.

Savvy developers seek outside counsel to help shape the homeowner association framework. Attorneys specializing in HOA law write usable governing documents while consultants can assist with proper budgeting and maintenance scheduling. This makes the whole process "arm's length" and more credible to owners. In a word, the developer should offer every possible resource to help ensure board success.

We're all capable of feathering our own nest even when we don't think we're doing it. The best policy is to avoid any perception of wrong doing. Step "outside the box" and ask yourself if what you're doing could be miscontrued by outsiders. Trust is a fragile thing. Take precautions to avoid conflicting interests that can conflict your community.

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