Fiduciary Responsibility

A Homeowners association is a non-profit corporation, which makes it a business and should be treated in business-like manner.

To retain non-profit status, with the IRS, a HOA is required to enforce the Covenants.

The IRS defines a non-profit homeowners association as a membership organization formed to own and maintain common green areas, streets, and sidewalks and to enforce the covenants to preserve the appearance of the development  and may be exempt as a social welfare organization if it is operated for the benefit of all the residents of the community.


One of the most important responsibilities that the Board has is to manage the financial responsibilities of the Association.

A homeowners association board has a fiduciary responsibility to make disclosures to homeowners. The entire budget is required to be open and available to every homeowner, at all times. Homeowners have a right to open records. If the association is incorporated Oklahoma law provides for an INSPECTION OF BOOKS AND RECORDS Oklahoma General Corporation Act Section 1065 – Title 18.


In most states, if a board member does not carry out their fiduciary duties, they can be PERSONALLY be sued (along with the entire board).

Violation of fiduciary duty may not be covered under the HOA’s insurance for officers, thus a director could be responsible for his personal attorney fees.



Covenants should spell out exactly how assessments are to be used. Board members have a Fiduciary Duty to make sure that they follow what is stated in the Covenants. (All money the HOA collects is to be deposited to serve the common community property, such as for beautification. The Board has no authority to fund anything else outside the cause of the association, such as parties, unless the Covenants specifically state otherwise.) To do so, would be a misappropriation of HOA funds.

Covenants usually state what action can be taken should anyone, including members of the board, violate the Covenants. Covenants should include on what assessments are to be used. (EX: Maintenance assessments are called that because they are for just that–maintenance.)

Money cannot be spent unless it is allocated for in the budget or by a vote. (By-Laws should state the dollar  limit that the Board can approve, before it goes to the homeowners to vote.)


Most by-laws require that there be an accounting given at the annual meeting and also an audit of the books and records of the corporation by an independent public accountant and a copy sent to each member within a certain period of time after it is completed.



All voting done by the board of directors is to be representative of homeowners (constituents) wishes and not just a personal desire of the board member.



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