HOA Insights: Common Sense for Common Areas

094 | Don't Breach your HOA Fiduciary Duty!

• Hosts: Robert Nordlund, Kevin Davis, Julie Adamen • Season 3 • Episode 94

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HOA board members, breach of fiduciary duty is the #1 claim against associations. Learn how to protect yourself and your community.
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Breach of HOA Fiduciary Duty is the #1 legal claim against board members—costing millions in legal fees. In this episode, Kevin Davis & Robert Nordlund explain how HOA boards can stay compliant, protect their association, and avoid costly lawsuits. Learn the four key principles of fiduciary duty: duty of care, loyalty, obedience, and transparency—and how failing to follow them could land your board in legal trouble. Plus, discover why Directors & Officers (D&O) insurance is a must-have for every association.

Chapters From This Week's Episode:

00:00 You Lied to Your HOA? 
00:44 Intro to episode, last week recap, and merch store
03:21 Someone Accused You of Breaching Fiduciary Duty… What Do I Do? 
05:15 The #1 Claim Against HOA Boards & How to Avoid It
08:45  Duty of Care: Acting Reasonably & Competently
11:20 Duty of Loyalty: Avoiding Conflicts of Interest
13:50 Duty of Obedience: Following HOA Governing Documents
16:30 Duty of Transparency: The Role of Open Communication
19:15 Legal Consequences of Breaching Fiduciary Duty
21:02 Ad Break - Kevin Davis Insurance Services
22:00 How to Protect Yourself: Directors & Officers Insurance
25:10 Common Pitfalls That Get HOA Boards Sued
28:45 Final Advice: Best Practices for HOA Board Members

The views & opinions expressed in this program are those of the Hosts & Guests, intended to provide general education about the community association industry. The content is not intended to provide specific advice or recommendations for any individual or organization. Please seek advice from licensed professionals.

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Julie Adamen
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Kevin Davis:

Yeah, we should have gotten reserve study. We should have we look at a new board. New board comes in, goes back to the old board, and said, Mr. President, did you get a reserve study? Because we're worried about, oh, no, we never got one. And then look further down the road, they go, Hey, we found it. You lied to us. Now we want to sue you past board member, because guess what? Now, you lied about the about the reserve study. You didn't fund it. You ignored it, and now, of a sudden, we as the new board have to pick up for

Announcer:

it. HOA Insights is brought to you by five companies that care about board members, association, insights and marketplace Association, reserves, community, financials, Hoa invest and Kevin Davis, Insurance Services. You'll find links to their websites and social media in the show notes.

Robert Nordlund:

Hi, I'm Robert Nordlund of association reserves,

Kevin Davis:

and I'm Kevin Davis of Kevin Davis Insurance Services. And this is HOA Insights, where we promote common sense for common

Robert Nordlund:

areas. Well, welcome to episode 94 where we're again speaking with insurance expert and regular co host Kevin Davis about how to prevent breach of fiduciary duty claims at your association. Kevin tells me that year in and year out, breach of fiduciary duty is the number one type of claim against Community Association boards of directors. So we want to share with our audience how that type of claim arises and what you can do to prevent it from happening at your association. We want our podcast audience that's you to be well informed and to be well prepared. This is a follow up to episode number 92 with subject matter expert Mitch drummer from Excella technologies, talking about his area of specialty, which is collections and cash flow. I think I said 92 and that should be episode 93 expenses continue to increase, and you want to make sure your budget is not crippled by some non paying or slow paying homeowners at your association. So if you missed that episode or any other prior episode, take a moment after today's program to listen from our podcast. Website, www HOA insights.org or watch on our YouTube channel, but better yet, subscribe from any of the major podcasts, podcasts platforms, so you don't miss any future episodes. Those of you watching on YouTube can see that the HOA insights mug I have here that I got from our merch store, which you can browse through from our HOA insights.org website, or from the link in the show notes, you'll find that we have some great free stuff there, like board member zoom background so you can use when you have your board meetings, and some specialty items for sale, like this month. So go to the merch store, download the free zoom background and take a moment look around, find the mug you'd like and email me at podcast, at reserve study.com with your name, shipping address and mug choice, mentioning episode 94 mug giveaway, and if you're the 10th person to email me, I'll ship you that mug free of charge. Well, we enjoy hearing from you responding to the issues that you're facing at your association. So if you have a hot topic, a crazy story, or a question you'd like us to address, you can contact us at 805-203-3130, or email us at podcast at reserve, study.com one of those questions led us to today's topic, and we had Regina from Cleveland asking someone accused me of breaching fiduciary duty, what did I do? And now, what do I do? So, Kevin, what do you say to Regina? Well,

Kevin Davis:

you know, it's interesting, Regina, we handled Director of Office of liability insurance, and I've been doing it for way too many years, and it is the number one claim that we see year in and year round. We always hear about this board members preaching their fiduciary duty, and as a result, I've been harmed. I've been damaged in all kinds of ways. So Robert, I think the first thing we got to do is talk about what fiduciary duty means, what it is okay, as a board of directors of a community association, you have a legal obligation to do certain things. You have to act in the best interest of the association. You have to make sure you manage the association properly. You have to do there's certain things you have to do, and if you don't do those things, right, that's where fiduciary duty comes in. Now there are four parts to fiduciary duty. There are key principles. Number one, you have a duty of care. That means you got to act reasonable, diligent and be competent. Okay? Number two, duty of loyalty. That means you have to be loyal. You can't have any interest outside of the association. Can't you can't focus in on anything. You can't prioritize your own situation, your own personal goals,

Robert Nordlund:

okay? So like the I. Can we say no conflict of interest? Yeah, that's perfect.

Kevin Davis:

That's it. Okay, having conflict of interest, that's perfect. Next one, the duty of obedience, okay? That means you get must adhere to the governing documents, the laws, legislations everything that says this is how you perform in a that's how you manage your community associations, as outlined, either the documents and let the laws legislation. They they have a duty of transparency, okay, which is open communication, but open and accurate communication.

Robert Nordlund:

So you got to be forthright. Yes, you know, so

Kevin Davis:

when we So, we say breach of fiduciary duty, all we're saying is that you have to act in a reasonable manner. You know you have to be careful, you have to be loyal. You know you have to just do your job. It kind of outlines how your job is done. And the question is, and from Regina, there is that when somebody said you breached your fiduciary duty, that means you didn't do one of these four things. You didn't act reasonably. You know, you didn't have loyalty. That means you had an outside interest. They had conflict there. Maybe you, maybe the landscaper was your friend or buddy. Are you getting Are you accused of getting kickbacks? You know you didn't adhere to the governing documents. You know you didn't give accurate information out. So when we talk upreacher for your share of duty, and this is why this is such an important question, because as a board members of Community Association, it's a legal obligation you have to do these things the right way. Okay?

Robert Nordlund:

I'm digesting that all. I'm thinking that it's a little bit similar to what I think we've talked about in the past, that we talk about the business judgment rule, that's a three part test, and I'm also hearing Julie Adams voice in my head, because she stresses effective communication, and just making sure that you are you use the word transparent, open communication. You're being clear. You're not hiding anything. Bad things happen when you're hiding things. Bad things happen when you do a white lie and then it snowballs. I'm thinking back to an episode we had with George Nowak, long time ago. Attorney George Nowak from Atlanta, right? That's fine, wonderful southern accent. And he's talking about, he was talking in that episode, how hard it is to be perfect, and how you can't expect to be perfect. So I want to relieve you of that burden. You want to be good, but it's hard to be perfect. And Kevin, what you're talking about here, that's

Kevin Davis:

the good part about this whole breach of fiduciary duty. It doesn't say you have to be perfect. It says you have to be reasonable. Yes, use reasonable care. Okay? It says you can't have a conflict of interest. You know you have governing documents,

Robert Nordlund:

right? It means that you can be you can be friendly with a long term provider of services. You can be friendly with the landscaper that's served your association well for 10 years. You want to honor that provider, but it doesn't mean that you give him too much of a competitive advantage when it comes or it doesn't mean that you slip him a competitor's proposal if you're going out for bid exactly

Kevin Davis:

and again, okay, that's why there's a nice there's a line there as for board members of community association for Regina there Regina basically, somebody says, Look, They're accusing you of breaching one of these duties, one of these things, they said you did wrong. Well, guess what? They can say you did them all wrong. You know you didn't use reasonable care. You know you you didn't give me information, accurate information about the budget or reserve study. You gotta, I got a reserve study, and guess what? And it says that you have to invest this much money every year and, yeah, put much, much money away. Okay, you didn't. You didn't share that with me. You didn't, you weren't open, and that's what you said. Something really important is that you're going back to past podcasts that we did every all the podcast equals to one thing. If you didn't listen to those podcasts, and you said, You know what? I like, what she said about open communication, but it's not that important. Well, guess what it is, because, again, it's one of the duties you have as a board member, called duty of transparency. So everything goes back, everything we've talked about for the past 92 webinars goes back to the day. Is that if you don't do any things that we've been talking about over the past 93 that means you have the potential of breaching your fiduciary duty.

Robert Nordlund:

Yeah, okay, let me give you a hypothetical. And I think this came up in a past episode. Also, let's say that you have a 30 day board meeting notice requirement, okay? And you the power is off, okay? We've had wildfires in California. We've had hurricanes in Florida. Let's talk about hail storms in Texas or Colorado. Let's say there's good reason you had no power. And so the notice for the board meeting goes out 25 days in advance. Do you be forthright and say, Hey, we. We haven't given the 30 days. We're giving 25 days. We're doing our level best. How would you manage that? Would you defer the board meeting from the normal first day of the month? Or would you cross your fingers and go with a 25 because that's pretty close, because you're being honest.

Kevin Davis:

Here's here's the interesting part about this is why it's the number one claim that we see. Because whatever I if I'm a unit owner, whatever am I upset, I'm going to say, Guess what, you breach your duty. Because, guess what, you weren't reasonable, you weren't loyal, you weren't obedient, you weren't transparent, one of those four things. Now, what you just said is a situation where, guess what, we can't do 30 days. So what we're doing is being reasonable. You know, we're being reasonable. We're being competent. We did our due diligence, okay? Because at the end of the day, do you have a defensible position? That's the bottom line. I like you have defensive position. And going back to Regina, okay? Regina, somebody accusing you? Okay, breaching your fiduciary duty. Okay, now, right off the bat, did you breach it or not? Did you preach it? Then you can say, Yeah, I did this 25 it's 30 days to 25 days, I did breach my fiduciary dude, okay, but I have a defense for it. I have a defense. This is my re This is our reasoning. So it was reasonable for what we did, you know, and it goes back to the prudent man, did you act in the best interest? Was no any conflict there? Were you reasonable? Okay? And that's the key thing, because sometimes, guess what? And you know, as a result, when you do reserve status, you give it to somebody, and guess what they do with it? They do something that's unreasonable. They go, you don't know you talked about and and ignore it. That's not reasonable, okay? That reasonable. So again, duty of care is so important, and it goes back to one of those things, yeah, were you reasonable? I'm

Robert Nordlund:

wringing my hands because you just brought back a memory. We had one client not long ago that prepared a reserve study, and it was challenging, news as so many Reserve says are, and they buried it. And apparently someone asked them if they prepared a reserve study, and they said no. And that was trouble, because they were they were inaccurate it. They were covering something up. And then there was a situation I had forever ago where a board member called us up and wanted to reserve, say, proposal. And it was a simple thing. It was an update. And I remember the number was like, $900 okay? And then the management company, a management company, called a couple weeks later, a slightly different named Association, slightly different number of units, slightly different description of the properties, and we bid it at 1000 and the management company called me up a few days later screaming, bloody murder, because they were so embarrassed that it looked like we were doing a kickback, a 10% kickback, to the management company for our reserve, say, proposal For that association. And I was like, What are you talking about? We didn't do that, but the circumstances were two proposals in the same period of time, slightly different names, slightly different descriptions, slightly different number of units. And yes, it was 10% more work, but it made the management company look so bad that they were, you know, it took us a lot of effort to unwind that. And boy, the trouble. It amounted to nothing, but to be honest, and that's what we're talking about here.

Kevin Davis:

But I mean, Amanda interrupt because you had two things, duty of transparency, they lie right, duty of loyalty. That means you acted in your own interest, not the other person's interest. So it all goes. And then you just said the same thing. It cost a lot of work and a lot of headache for it, and that's where Regina is at right. Now you think about Regina situation, so my accused her of doing one of these things, and Regina go, Wait a minute. I did my job properly. I did my things I should do. Yeah.

Robert Nordlund:

How can they explain me? Yeah, yeah. And that could be like for us. It was just accident. It was, yeah, slight different descriptions. It could be, you are going out to bid for the landscape contractor, and someone sees you chatting friendly with the landscape boss, who's there at one day, and they get the contract, and they someone who's not happy with you? Someone who, well, people are entitled to their opinion. Exactly. What have we heard? People can sue for anything and

Kevin Davis:

and this is what, this is why it's such an important topic, because you see now in those four areas, you can sue for anything. Now, what happened to you was a headache for you, but you could unwind it pretty easily. What happens many situations where you have more people involved, you have a community association involved, you know, against the board, because the board failed to fund the reserves. Okay, can you imagine, I unwind something like that? That the time it takes the lawyers that are involved. And that's where it comes into a problem area, and that is now of a sudden. I've been Sue. Regina has been sued because she breached her fiduciary duty to take you in one example. Because guess what? It was 30 days you did it until either you didn't do it in a timely manner, okay? The breach judiciary because you didn't do it in a timely manner. Now let's say that she did it in time. Man, and she did it. She was reasonable in it, but she still had a lawsuit there that she has to respond to, okay, and now she respond to she has to go to court and go back to George Novak situation, right? GEORGE Novak said, how will you harm? Remember that situation right here in front of a judge, because you didn't do it in a timely manner that you said you want to do, how will you harm? And all of a sudden, you know well. You know well. But again, that may take how long a year, three months, six months a year. And guess what? There's an attorney there who's spending time and energy because guess what, as a board of directors, you did not do the job you're supposed to do. You there's accusing of breaching your fiduciary duty, but you as a board member, are saying, well, guess what? It was reasonable. So now you're battling back and forth and judge at the tournament. Was it reasonable? And the key thing is this, Robert, is that there's certain times you spend 3040, $50,000 at the end of it, it's over, and there's no judgment. There's no damages, you know, because a lot of times you think, pretty fiduciary duty. There's millions of dollars in damages. Because, guess what? I was hurt. I was harmed. But it's not about damages. Is about the energy you just felt when you just said pulling apart those two situations took that much energy and how much you felt about it. That's breach of that's what Regina is feeling right now. And nothing even started yet feels you know why they even accused of anything? Yeah,

Robert Nordlund:

it may have been, well, let's flip it. Let's say they put out the board member notice 30 days. And maybe the accuser is the one who was out of town and didn't get the notice until the 25th day. Yeah, and they're upset. Yeah, it could be crazy things like that, but you're right, once the attorney letters start flying. That's when you hope it's just an accident that it can all be explained away. But Attorney hours add up, and I keep there's these more lights in my brain flashing that insurance is for accidents. As a board member, you're trying your level best to do these things, and I wrote him down. Duty of care to be reasonable, duty of loyalty, no conflict of interest, duty of obedience, to follow your governing documents and legislation and duty of transparency that open communication. What's another way to open sunrise, Open Board meetings, things like that? Exactly different ways to say that, but just, you know, being honest, I'm a volunteer here. We are happy Villa condominium association, and I'm a volunteer. We're doing our level best. It isn't going to be perfect, and that's why I love there being insurance, because accidents happen, yeah,

Kevin Davis:

and somebody accuse you. And the difference about this type of insurance, it's a little bit different, because it's not really even just you just being accused of something. You breach your but you could have actually breached it and still have insurance. Let's say you need to slide like the person who said they lie. They said, listen, yeah, we should have got reserve study. We should have we look at a new board. New board comes in, goes back to the old board. We said, Mr. President, did you get a reserve study? Because we're worried about, oh no, we never got one. And then look further down the road, they go, Hey, we found it. You lied to us. Now we want to sue you past board member, because guess what? Now, you lied about the board, about the reserve study. You didn't fund it, you ignored it, and now of a sudden, we as the new board have to pick up for it, so especially

Robert Nordlund:

making us be the bad guys by paying a special assessment. So

Kevin Davis:

now insurance comes into play and go, Okay, now what happens? Who's protected, who's not protected? And then that old board, that old board member, can say, Guess what, you breached your fissure duty. Because at the new board, you need to do you know, duty of care, duty of reasonableness, and all those different things pop up, and this is the reason why, when you say the word breach of fiduciary duty, it is just encompasses everything. As a board members of community association is such an important thing, such an important topic?

Robert Nordlund:

Yeah, hey, Kevin, did you play football? Yeah, yeah. Okay. If any of you have met me in person. I'm not a football sized kind of guy, but I'm thinking that, you know, there was something that happened, like a fumble, and then you get a pile of big football guys on it, and it's the referee's job, which is, in this case, maybe the the judge just job to graduate one by one by one, peel the people off, yeah, find out what actually did happen, yeah? And so there's all these accusations going on, yeah? And that takes time for the judge or whoever, or the mediator or whatever to unwind it, and that's why you need insurance, because that kind of a situation is expensive, and that's

Kevin Davis:

the key thing, because it could be so expensive, because each one, each party, can have their own. Lawyers, the association. I mean, it just it becomes and when you see these things, there you go. All right, if the Board did their job, if the board understands, you know what the breach of fiduciary do duty means, then guess what? It can cost maybe 510, $1,000 you get that board member at it, Regina, right now, if she goes back and say, Okay, I was accused of not sending out a Tommy notice, but I didn't do it because guess what happened? Last week, we had a major fire. I'm in California, and that for one week we were we couldn't do anything. Now that unit owner doesn't understand that, because you don't happen to be captain lives in Connecticut right now, and they come here just for the, you know, the fight nice weather, and they're not being they're the ones not being reasonable. See the problem with Union orders, they don't have to be reasonable. They don't have a fiduciary responsibility.

Robert Nordlund:

Now you got me rubbing my head? Hey, Kevin, okay. I think we've explained the problem here. I have a list of follow up questions, but we'll catch them. But right now, it's time to hear from one of our generous sponsors, after which we'll be back with more common sense for common areas.

Kevin Davis:

Hi, I'm Kevin Davis, the president of Kevin Davis Insurance Services. Our experienced team of underwriters will help you when you get that declination. We provide the voice of reason, someone who will stand by you. Our underwriters bring years of knowledge to our clients that can't be automated by technology or driven by price as a proud and wins company. We bring true value to your community association clients. We are your community association insurance experts,

Robert Nordlund:

and we're back. Well, Kevin and I had a lot of head esteem on this conversation as we went to the break, but I have a number of questions, and it starts out with what happens to the person making the claim that something was wrong, the person that was accusing Regina,

Kevin Davis:

and that's the key when we start from that person, that unit owner, the person who lives there, accusing Regina of doing something that breached her duty. What are the things we talked about? It could be reasonable. It could be unreasonable. That person could be dead wrong. Person could be purely emotional, but Regina has to do is act in a prudent manner, you know, and do the thing. Please. Let me know what happened. Just ask that individual. What did I do? Why do you think I breached my duty and put it in writing? Because what happens there? Most people won't put it in writing. Most people will just want to gripe and they move on. Okay, okay, once they put it in writing, now they have a claim. And that mean a claim is a demand. Stop doing this. Stop, you know, sending about notices in an untimely manner, whatever it is, stop doing it. Once they do that as a claim made against that board member, and once that claim is made, okay, you have to notify the insurance provider

Robert Nordlund:

for your own protection. Are you adding fuel to the fire when you as the board member are asking the accuser to put it in writing? Or should it be? Is that important enough to you that you Excuse me? Do you instruct them to put it in writing, or do you ask them if it's serious enough that they want to put it in writing? How would Regina, kindly and appropriately see if it's a big enough deal, or if it's just someone blowing off steam.

Kevin Davis:

Well, the problem to me, again, I'm not without lawyers or without specialized right, speaking from an insurance point of view, who see this all the time? The question is this, people have a right to complain all day long, but when they put it in writing, that means it's serious enough for them. When you sell somebody, can you send me? Send me notarize. Send me a note. Send me something that really explains why you believe I breached your fiduciary duty. So

Robert Nordlund:

you can do it kindly and just say, can you clarify? Can you put it in writing to make sure I understand you clearly, Exactly

Kevin Davis:

Okay, exactly, because the key thing which you want them to do, because most people want to complain and they walk away, and they want to be heard, too. When you when you tell them, put it in writing, let me know what you mean. That means they've been heard, and life goes on so and most of the times that's what happens is, oh, well, notify me. Put me in put it in writing. Let me know what's going on once they put in the writing. That means a serious set person. When somebody puts the time and put something writing a dress to Robert Nordlund, guess what? You got to pay attention to it. You know, get that phone call from that manager saying you embezzled my money, or you got kickbacks. The difference when you get in that letter in writing saying it's still you still had that same issue. But boy, once that in writing, it's in writing and that now you give it more attention,

Robert Nordlund:

yeah, and that triggers you to contact your insurance agent. That triggers, that

Kevin Davis:

triggers that insurance. Okay? As soon as you do that, it triggers the insurance so they sure. And this is the problem the manager, you give to the manager, the manager say, Ah, this person does it all the time. Throw it away. Okay, the boy, no matter what happens, you have to make sure your insurance get it to protect. To you in the future. That's all you're doing is protecting you in the future, because you don't know what's going to happen when that person is upset enough to put something in writing, that means they're upset if you don't do the right thing, the next thing is calling that lawyer, and that lawyer is going to start easy. All he wants to do is set up. Guess what? They breach it fiduciary duty. I'm on this, because that board of directors, they should know better. Now, all of a sudden that that lawyers on the on on a dime, he's making money, and that means you got to hire a lawyer that makes money. And if you were to put them on notice, guess what happens? That means the insurer, provider is the one that gets in there, jumps in there, and they're taking care of it. They're taking a lot of the weight off your shoulders. That's their job from the insurance point of view. Okay,

Robert Nordlund:

good. They can bring your blood pressure back down. Yeah, okay. Our

Kevin Davis:

first webinar we did Robert, we talked about DNO shard. He called it peace of mind insurance. Remember that we did? Yeah, okay, years and years ago. It

Robert Nordlund:

seems like it okay. So what happens to the association? We talked about the accused says, Can you clarify? Can you put it in writing? The accuser either realizes that they were just blown off steam, or they do want to put it in writing. How is what happens to the association? Is the association damage? Association? A party to anything here? Okay, good.

Kevin Davis:

Because what ended up happening is now, all of a sudden, the association that individual, Regina, you know, gonna say that they she really did breach their duty. Let's say she did something that didn't act reasonably, you know. Okay, she gave misinformation. Now, go back to that first original one, when a person lied about exactly what was going on in there, about the reserve study. Okay, Regina, hi, hid that. Now, all of a sudden, Regina is in trouble because she breached your duty, and association can be named in a lawsuit too because she's representing the Association, and the other board members can be in trouble. So now, all of a sudden, that individual, that unit owner, says, Listen, you lied, and as a result of you lying, now of a sudden, cost us millions of dollars to make all the repairs that is needed because you had a reserve study and you failed to honor it, failed to acknowledge it even existed. So now, so I'm going to sue you. I'm going to sue the board, all the board members. I'm sue you, Regina, the rest of the board. I'm going to sue the old board too, who who had reserve study and did nothing, too. I'm suing the Association for millions of dollars, because guess what? It impacts me and the way I live, and it impacts me, my quality of life. And now I'm suddenly, I feel like, you know you're harassing me because I brought it to your attention, you're bullying me. And now all of a sudden, one situation that Regina went into could have been easy, that easily, again, you could be named in the claim, but it goes into it can cost millions of dollars in the long run.

Robert Nordlund:

Okay, well, I'm also thinking that I've got so many questions. And again, you know this stuff, this is the world that you live in. But I can feel another episode coming up that we need to follow up on some of these loose ends about, again, how to keep from making a mountain out of a molehill, all these different things. What happens if they elevate from a written claim to a lawsuit, board member versus the associate? All those kinds of things we don't have. We don't have time for that today, but it's so

Kevin Davis:

important, Robert, because those are things we see all when we see breach of fiduciary duty. That's what it's like. It is about. It's like somebody being tackled and pulling the bodies off. And all those bodies can have lawyers, because they all want protection. And guess what if, all of a sudden we on the board, I tell you, Robert, I told you that to lie about that. Now I'd be a name in lawsuit. I want my lawyer. You get your lawyer, and all of a sudden the treasurer, wow, I would just, I'm just new. I don't know what's going on. You can have five individual lawyers in there. And guess who makes that decision? To insurance company, the insurance company. Other side, there's a conflict between each individual board member, so we have to sign each we assign five board members to individual board members to each board of directors, and the passport to gets their lawyers.

Robert Nordlund:

Yeah, that's getting expensive, okay? And that's the whole point, really expensive. Yeah, I feel another episode coming on. So we will follow up on this at some future point in time. But let me ask, how do you prevent this? Because it sounds like a mess. It sounds like a pile. How do you prevent this?

Kevin Davis:

Okay, and that's and this is why we, I love doing these podcasts with you, because number one thing, you have to be informed. You have to understand that you have a breach. You have a responsibility. You have a legal obligation to act in the best interest of the association period. Forget the four things, but you have it. You have a legal obligation. So when you say that, we call it fiduciary responsibility, or fiduciary duty, but that's what it means. Just act in a professional manner, understand that these four things are critical to you. There's nothing more important than those four things. So when you once, you do that, now, suddenly you're making reasonable decisions, and when somebody accuse you of it, all you can do is go you have a defensible position now, which helps you to have a defense. A position, more than anything else, is to use outside experts. That's the key. You don't take it on yourself to say for now on, this is what we're going to do. Have your lawyer give you that advice, bring that lawyer in as part of the decision, just like they bring you in Robert, when his reserve thing has to be done. They're not sitting there saying, guess what are we are roofs going to last another 10 years? Because I went up there and I stepped on it. Guess what? I would have lasted? Yeah,

Robert Nordlund:

yeah. And that I'm thinking an Inspector of Elections hiring someone to a tax expert to prepare your taxes. Even though it should be simple, it's not a board member's job. Use your experts. They're they're all around. They're there to help you. Okay, I like that,

Kevin Davis:

even the insurance expert. Because guess what? We're talking about a special type of insurance, directors and office liability insurance for community associations. As you can see, it's unique. We, you know, which is not like a a big, major corporation. It is a nonprofit. But guess what? The difference is, we live with each other. We look at each other. We see each other every day. And when our issues are not financially driven like they are in a corporate world, they emotionally driven. So when they emotionally driven, they have different avenues. They have different things. Because I can sue you as a board member, but I don't know what money. I just want you to stop doing what you're doing, which is different than if I'm suing my major corporation. If I lost money in my stocks, or I lost money, or somebody made a bad decision, it impacted me economically in our condo world, I don't want money from you, Robert. I just want you to do your job better. Go out there and make sure you know you do things in a timely manner. You didn't do it, so I'm mad at you. You know that's the difference in our world, yeah, uniqueness about a world.

Robert Nordlund:

Well, we're talking to volunteers here, our board members and Kevin. It's always great talking to you. What I'm feeling now is a little bit of concern that, yes, the the work that you've taken on as a board member is hard, but I am so relieved that you keep saying all you need to do is be reasonable. So in closing, any any final thoughts to add to that,

Kevin Davis:

I would say this duty of care, duty of loyalty, duty of obedience, and duty of transparency. That's your job. If somebody might accuse you of any of those four things, okay, make sure you have an insurance policy. You know, just everybody. Make sure you have a direct and Officer liability policy designed for community associations. That's the most important thing you have, because, if it's not designed for community associations, is a policy designed for economic loss because I invested in them properly, and because the board is incompetent, and I lost money in

Robert Nordlund:

a stock, yeah. And from the many times I've talked to you about it before, DNO insurance for board members is, can I say cheap,

Kevin Davis:

about 1000 bucks for you know what? That 100 units, 200

Robert Nordlund:

units, something like that. It's inexpensive, not a big deal. It's not like property insurance, yeah, that is, I don't swipe running away, but is expensive at this point in time.

Kevin Davis:

And a rate hasn't changed that much in the past. You know, whatever. I mean, it's going up 20% so instead of being$1,000 might be 1200 or 1500 is less than about two grand, you know. So

Robert Nordlund:

because the increases in cost of construction have nothing to do with asking you to stop doing what they want you to stop doing. Exactly

Kevin Davis:

yes, you know, inflation, none of that stuff has to have one simple thing. Just do your job in the best interest of the association and you will be okay.

Robert Nordlund:

I like that. Well, we hope you learned some HOA insights from our discussion today that helps you bring common sense to your common areas. We look forward to having you join us for another great episode next week.

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People on this episode

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Robert Nordlund, PE, RS

Host
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Julie Adamen

Co-host
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Kevin Davis, CIRMS

Co-host