094 | Don't Breach your HOA Fiduciary Duty! - HOA Insights: Common Sense for Common Areas

Episode Transcript
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Kevin Davis (00:00):
Yeah, we should have gotten reserve study. We

(00:01):
should have we look at a newboard. New board comes in, goes
back to the old board, and said,Mr. President, did you get a
reserve study? Because we'reworried about, oh, no, we never
got one. And then look furtherdown the road, they go, Hey, we
found it. You lied to us. Now wewant to sue you past board
member, because guess what? Now,you lied about the about the
reserve study. You didn't fundit. You ignored it, and now, of

(00:25):
a sudden, we as the new boardhave to pick up for

Announcer (00:28):
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
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Robert Nordlund (00:44):
Hi, I'm Robert Nordlund of association
reserves,

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

areas. Well, welcome to episode 94 where
we're again speaking withinsurance expert and regular co
host Kevin Davis about how toprevent breach of fiduciary duty
claims at your association.
Kevin tells me that year in andyear out, breach of fiduciary
duty is the number one type ofclaim against Community
Association boards of directors.
So we want to share with ouraudience how that type of claim

(01:17):
arises and what you can do toprevent it from happening at
your association. We want ourpodcast audience that's you to
be well informed and to be wellprepared. This is a follow up to
episode number 92 with subjectmatter expert Mitch drummer from
Excella technologies, talkingabout his area of specialty,
which is collections and cashflow. I think I said 92 and that

(01:41):
should be episode 93 expensescontinue to increase, and you
want to make sure your budget isnot crippled by some non paying
or slow paying homeowners atyour association. So if you
missed that episode or any otherprior episode, take a moment
after today's program to listenfrom our podcast. Website, www
HOA insights.org or watch on ourYouTube channel, but better yet,

(02:05):
subscribe from any of the majorpodcasts, podcasts platforms, so
you don't miss any futureepisodes. Those of you watching
on YouTube can see that the HOAinsights mug I have here that I
got from our merch store, whichyou can browse through from our
HOA insights.org website, orfrom the link in the show notes,

(02:27):
you'll find that we have somegreat free stuff there, like
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this month. So go to the merchstore, download the free zoom
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like and email me at podcast, atreserve study.com with your

(02:48):
name, shipping address and mugchoice, mentioning episode 94
mug giveaway, and if you're the10th person to email me, I'll
ship you that mug free ofcharge. Well, we enjoy hearing
from you responding to theissues that you're facing at
your association. So if you havea hot topic, a crazy story, or a
question you'd like us toaddress, you can contact us at

(03:10):
805-203-3130, or email us atpodcast at reserve, study.com
one of those questions led us totoday's topic, and we had Regina
from Cleveland asking someoneaccused me of breaching
fiduciary duty, what did I do?
And now, what do I do? So,Kevin, what do you say to

(03:34):
Regina? Well,

you know, it's interesting, Regina, we handled
Director of Office of liabilityinsurance, and I've been doing
it for way too many years, andit is the number one claim that
we see year in and year round.
We always hear about this boardmembers preaching their
fiduciary duty, and as a result,I've been harmed. I've been
damaged in all kinds of ways. SoRobert, I think the first thing

(03:58):
we got to do is talk about whatfiduciary duty means, what it is
okay, as a board of directors ofa community association, you
have a legal obligation to docertain things. You have to act
in the best interest of theassociation. You have to make
sure you manage the associationproperly. You have to do there's
certain things you have to do,and if you don't do those

(04:20):
things, right, that's wherefiduciary duty comes in. Now
there are four parts tofiduciary duty. There are key
principles. Number one, you havea duty of care. That means you
got to act reasonable, diligentand be competent. Okay? Number
two, duty of loyalty. That meansyou have to be loyal. You can't

(04:44):
have any interest outside of theassociation. Can't you can't
focus in on anything. You can'tprioritize your own situation,
your own personal goals,

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

That's it. Okay, having conflict of interest,
that's perfect. Next one, theduty of obedience, okay? That
means you get must adhere to thegoverning documents, the laws,
legislations everything thatsays this is how you perform in
a that's how you manage yourcommunity associations, as
outlined, either the documentsand let the laws legislation.

(05:23):
They they have a duty oftransparency, okay, which is
open communication, but open andaccurate communication.

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

when we So, we say breach of fiduciary duty, all
we're saying is that you have toact in a reasonable manner. You
know you have to be careful, youhave to be loyal. You know you
have to just do your job. Itkind of outlines how your job is
done. And the question is, andfrom Regina, there is that when
somebody said you breached yourfiduciary duty, that means you

(05:55):
didn't do one of these fourthings. You didn't act
reasonably. You know, you didn'thave loyalty. That means you had
an outside interest. They hadconflict there. Maybe you, maybe
the landscaper was your friendor buddy. Are you getting Are
you accused of gettingkickbacks? You know you didn't
adhere to the governingdocuments. You know you didn't
give accurate information out.
So when we talk upreacher foryour share of duty, and this is

(06:18):
why this is such an importantquestion, because as a board
members of CommunityAssociation, it's a legal
obligation you have to do thesethings the right way. Okay?

I'm digesting that all. I'm thinking that it's
a little bit similar to what Ithink we've talked about in the
past, that we talk about thebusiness judgment rule, that's a
three part test, and I'm alsohearing Julie Adams voice in my
head, because she stresseseffective communication, and

(06:49):
just making sure that you areyou use the word transparent,
open communication. You're beingclear. You're not hiding
anything. Bad things happen whenyou're hiding things. Bad things
happen when you do a white lieand then it snowballs. I'm
thinking back to an episode wehad with George Nowak, long time
ago. Attorney George Nowak fromAtlanta, right? That's fine,

(07:13):
wonderful southern accent. Andhe's talking about, he was
talking in that episode, howhard it is to be perfect, and
how you can't expect to beperfect. So I want to relieve
you of that burden. You want tobe good, but it's hard to be
perfect. And Kevin, what you'retalking about here, that's

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

right? It means that you can be you can be
friendly with a long termprovider of services. You can be
friendly with the landscaperthat's served your association
well for 10 years. You want tohonor that provider, but it
doesn't mean that you give himtoo much of a competitive
advantage when it comes or itdoesn't mean that you slip him a

(08:08):
competitor's proposal if you'regoing out for bid exactly

and again, okay, that's why there's a nice
there's a line there as forboard members of community
association for Regina thereRegina basically, somebody says,
Look, They're accusing you ofbreaching one of these duties,
one of these things, they saidyou did wrong. Well, guess what?
They can say you did them allwrong. You know you didn't use
reasonable care. You know youyou didn't give me information,
accurate information about thebudget or reserve study. You

(08:33):
gotta, I got a reserve study,and guess what? And it says that
you have to invest this muchmoney every year and, yeah, put
much, much money away. Okay, youdidn't. You didn't share that
with me. You didn't, you weren'topen, and that's what you said.
Something really important isthat you're going back to past
podcasts that we did every allthe podcast equals to one thing.
If you didn't listen to thosepodcasts, and you said, You know

(08:55):
what? I like, what she saidabout open communication, but
it's not that important. Well,guess what it is, because,
again, it's one of the dutiesyou have as a board member,
called duty of transparency. Soeverything goes back, everything
we've talked about for the past92 webinars goes back to the
day. Is that if you don't do anythings that we've been talking

(09:18):
about over the past 93 thatmeans you have the potential of
breaching your fiduciary duty.

Yeah, okay, let me give you a hypothetical. And
I think this came up in a pastepisode. Also, let's say that
you have a 30 day board meetingnotice requirement, okay? And
you the power is off, okay?
We've had wildfires inCalifornia. We've had hurricanes
in Florida. Let's talk abouthail storms in Texas or

(09:47):
Colorado. Let's say there's goodreason you had no power. And so
the notice for the board meetinggoes 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. Howwould you manage that? Would you

(10:10):
defer the board meeting from thenormal first day of the month?
Or would you cross your fingersand go with a 25 because that's
pretty close, because you'rebeing honest.

Here's here's the interesting part about this is
why it's the number one claimthat we see. Because whatever I
if I'm a unit owner, whatever amI upset, I'm going to say, Guess
what, you breach your duty.
Because, guess what, you weren'treasonable, you weren't loyal,
you weren't obedient, youweren't transparent, one of
those four things. Now, what youjust said is a situation where,
guess what, we can't do 30 days.

(10:41):
So what we're doing is beingreasonable. You know, we're
being reasonable. We're beingcompetent. We did our due
diligence, okay? Because at theend of the day, do you have a
defensible position? That's thebottom line. I like you have
defensive position. And goingback 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

(11:05):
you preach it? Then you can say,Yeah, I did this 25 it's 30 days
to 25 days, I did breach myfiduciary dude, okay, but I have
a defense for it. I have adefense. This is my re This is
our reasoning. So it wasreasonable for what we did, you
know, and it goes back to theprudent man, did you act in the
best interest? Was no anyconflict there? Were you

(11:25):
reasonable? Okay? And that's thekey thing, because sometimes,
guess what? And you know, as aresult, when you do reserve
status, you give it to somebody,and guess what they do with it?
They do something that'sunreasonable. They go, you don't
know you talked about and andignore it. That's not
reasonable, okay? Thatreasonable. So again, duty of
care is so important, and itgoes back to one of those

(11:47):
things, yeah, were youreasonable? I'm

wringing my hands because you just brought
back a memory. We had one clientnot long ago that prepared a
reserve study, and it waschallenging, news as so many
Reserve says are, and theyburied it. And apparently
someone asked them if theyprepared a reserve study, and
they said no. And that wastrouble, because they were they

(12:12):
were inaccurate it. They werecovering something up. And then
there was a situation I hadforever ago where a board member
called us up and wanted toreserve, say, proposal. And it
was a simple thing. It was anupdate. And I remember the
number was like, $900 okay? Andthen the management company, a

(12:33):
management company, called acouple weeks later, a slightly
different named Association,slightly different number of
units, slightly differentdescription of the properties,
and we bid it at 1000 and themanagement company called me up
a few days later screaming,bloody murder, because they were
so embarrassed that it lookedlike we were doing a kickback, a

(12:55):
10% kickback, to the managementcompany for our reserve, say,
proposal For that association.
And I was like, What are youtalking about? We didn't do
that, but the circumstances weretwo proposals in the same period
of time, slightly differentnames, slightly different
descriptions, slightly differentnumber of units. And yes, it was
10% more work, but it made themanagement company look so bad

(13:15):
that they were, you know, ittook us a lot of effort to
unwind that. And boy, thetrouble. It amounted to nothing,
but to be honest, and that'swhat we're talking about here.

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 owninterest, not the other person's
interest. So it all goes. Andthen you just said the same
thing. It cost a lot of work anda lot of headache for it, and
that's where Regina is at right.
Now you think about Reginasituation, so my accused her of
doing one of these things, andRegina go, Wait a minute. I did
my job properly. I did my thingsI should do. Yeah.

How can they explain me? Yeah, yeah. And that
could be like for us. It wasjust accident. It was, yeah,
slight different descriptions.
It could be, you are going outto bid for the landscape
contractor, and someone sees youchatting friendly with the
landscape boss, who's there atone day, and they get the

(14:16):
contract, and they someone who'snot happy with you? Someone who,
well, people are entitled totheir opinion. Exactly. What
have we heard? People can suefor anything and

and this is what, this is why it's such an
important topic, because you seenow in those four areas, you can
sue for anything. Now, whathappened to you was a headache
for you, but you could unwind itpretty easily. What happens many
situations where you have morepeople involved, you have a
community association involved,you know, against the board,
because the board failed to fundthe reserves. Okay, can you

(14:50):
imagine, I unwind something likethat? That the time it takes the
lawyers that are involved. Andthat's where it comes into a
problem area, and that is now ofa sudden. I've been Sue. Regina
has been sued because shebreached her fiduciary duty to
take you in one example. Becauseguess what? It was 30 days you
did it until either you didn'tdo it in a timely manner, okay?
The breach judiciary because youdidn't do it in a timely manner.

(15:12):
Now let's say that she did it intime. Man, and she did it. She
was reasonable in it, but shestill had a lawsuit there that
she has to respond to, okay, andnow she respond to she has to go
to court and go back to GeorgeNovak situation, right? GEORGE
Novak said, how will you harm?
Remember that situation righthere in front of a judge,
because you didn't do it in atimely manner that you said you
want to do, how will you harm?

(15:35):
And all of a sudden, you knowwell. You know well. But again,
that may take how long a year,three months, six months a year.
And guess what? There's anattorney there who's spending
time and energy because guesswhat, as a board of directors,
you did not do the job you'resupposed to do. You there's
accusing of breaching yourfiduciary duty, but you as a

(15:58):
board member, are saying, well,guess what? It was reasonable.
So now you're battling back andforth 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 atthe end of it, it's over, and
there's no judgment. There's nodamages, you know, because a lot
of times you think, prettyfiduciary duty. There's millions
of dollars in damages. Because,guess what? I was hurt. I was

(16:20):
harmed. But it's not aboutdamages. Is about the energy you
just felt when you just saidpulling apart those two
situations took that much energyand how much you felt about it.
That's breach of that's whatRegina is feeling right now. And
nothing even started yet feelsyou know why they even accused
of anything? Yeah,

it may have been, well, let's flip it. Let's
say they put out the boardmember notice 30 days. And maybe
the accuser is the one who wasout 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 justan accident that it can all be

(17:04):
explained away. But Attorneyhours add up, and I keep there's
these more lights in my brainflashing that insurance is for
accidents. As a board member,you're trying your level best to
do these things, and I wrote himdown. Duty of care to be
reasonable, duty of loyalty, noconflict of interest, duty of

(17:24):
obedience, to follow yourgoverning documents and
legislation and duty oftransparency that open
communication. What's anotherway to open sunrise, Open Board
meetings, things like that?
Exactly different ways to saythat, but just, you know, being
honest, I'm a volunteer here. Weare happy Villa condominium

(17:46):
association, and I'm avolunteer. We're doing our level
best. It isn't going to beperfect, and that's why I love
there being insurance, becauseaccidents happen, yeah,

and somebody accuse you. And the difference about
this type of insurance, it's alittle bit different, because
it's not really even just youjust being accused of something.
You breach your but you couldhave actually breached it and
still have insurance. Let's sayyou need to slide like the
person who said they lie. Theysaid, listen, yeah, we should
have got reserve study. Weshould have we look at a new
board. New board comes in, goesback to the old board. We said,

(18:19):
Mr. President, did you get areserve study? Because we're
worried about, oh no, we nevergot one. And then look further
down the road, they go, Hey, wefound it. You lied to us. Now we
want to sue you past boardmember, because guess what? Now,
you lied about the board, aboutthe reserve study. You didn't
fund it, you ignored it, and nowof a sudden, we as the new board
have to pick up for it, soespecially

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

now insurance comes into play and go, Okay, now what
happens? Who's protected, who'snot protected? And then that old
board, that old board member,can say, Guess what, you
breached your fissure duty.
Because at the new board, youneed to do you know, duty of
care, duty of reasonableness,and all those different things
pop up, and this is the reasonwhy, when you say the word
breach of fiduciary duty, it isjust encompasses everything. As

(19:05):
a board members of communityassociation is such an important
thing, such an important topic?

Yeah, hey, Kevin, did you play football?
Yeah, yeah. Okay. If any of youhave met me in person. I'm not a
football sized kind of guy, butI'm thinking that, you know,
there was something thathappened, like a fumble, and
then you get a pile of bigfootball guys on it, and it's
the referee's job, which is, inthis case, maybe the the judge

(19:35):
just job to graduate one by oneby one, peel the people off,
yeah, find out what actually didhappen, yeah? And so there's all
these accusations going on,yeah? And that takes time for
the judge or whoever, or themediator or whatever to unwind
it, and that's why you needinsurance, because that kind of
a situation is expensive, andthat's

the key thing, because it could be so
expensive, because each one,each party, can have their own.
Lawyers, the association. Imean, it just it becomes and
when you see these things, thereyou go. All right, if the Board
did their job, if the boardunderstands, you know what the
breach of fiduciary do dutymeans, then guess what? It can
cost maybe 510, $1,000 you getthat board member at it, Regina,

(20:16):
right now, if she goes back andsay, Okay, I was accused of not
sending out a Tommy notice, butI didn't do it because guess
what happened? Last week, we hada major fire. I'm in California,
and that for one week we were wecouldn't do anything. Now that
unit owner doesn't understandthat, because you don't happen
to be captain lives inConnecticut right now, and they
come here just for the, youknow, the fight nice weather,

(20:39):
and they're not being they'rethe ones not being reasonable.
See the problem with Unionorders, they don't have to be
reasonable. They don't have afiduciary responsibility.

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

Hi, I'm Kevin Davis, the president of Kevin
Davis Insurance Services. Ourexperienced team of underwriters
will help you when you get thatdeclination. We provide the
voice of reason, someone whowill stand by you. Our
underwriters bring years ofknowledge to our clients that
can't be automated by technologyor driven by price as a proud
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(21:25):
association clients. We are yourcommunity association insurance
experts,

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

and that's the key when we start from that person,
that unit owner, the person wholives there, accusing Regina of
doing something that breachedher duty. What are the things we
talked about? It could bereasonable. It could be
unreasonable. That person couldbe dead wrong. Person could be
purely emotional, but Regina hasto do is act in a prudent
manner, you know, and do thething. Please. Let me know what

(22:09):
happened. Just ask thatindividual. What did I do? Why
do you think I breached my dutyand put it in writing? Because
what happens there? Most peoplewon't put it in writing. Most
people will just want to gripeand they move on. Okay, okay,
once they put it in writing, nowthey have a claim. And that mean
a claim is a demand. Stop doingthis. Stop, you know, sending

(22:33):
about notices in an untimelymanner, whatever it is, stop
doing it. Once they do that as aclaim made against that board
member, and once that claim ismade, okay, you have to notify
the insurance provider

for your own protection. Are you adding fuel
to the fire when you as theboard member are asking the
accuser to put it in writing? Orshould it be? Is that important
enough to you that you Excuseme? Do you instruct them to put
it in writing, or do you askthem if it's serious enough that

(23:09):
they want to put it in writing?
How would Regina, kindly andappropriately see if it's a big
enough deal, or if it's justsomeone blowing off steam.

Well, the problem to me, again, I'm not without
lawyers or without specializedright, speaking from an
insurance point of view, who seethis all the time? The question
is this, people have a right tocomplain all day long, but when
they put it in writing, thatmeans it's serious enough for
them. When you sell somebody,can you send me? Send me

(23:41):
notarize. Send me a note. Sendme something that really
explains why you believe Ibreached your fiduciary duty. So

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

Okay, exactly, because the key thing which you
want them to do, because mostpeople want to complain and they
walk away, and they want to beheard, too. When you when you
tell them, put it in writing,let me know what you mean. That
means they've been heard, andlife 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 knowwhat's going on once they put in
the writing. That means aserious set person. When

(24:16):
somebody puts the time and putsomething writing a dress to
Robert Nordlund, guess what? Yougot to pay attention to it. You
know, get that phone call fromthat manager saying you
embezzled my money, or you gotkickbacks. The difference when
you get in that letter inwriting saying it's still you
still had that same issue. Butboy, once that in writing, it's
in writing and that now you giveit more attention,

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

triggers that insurance. Okay? As soon as you
do that, it triggers theinsurance so they sure. And this
is the problem the manager, yougive to the manager, the manager
say, Ah, this person does it allthe time. Throw it away. Okay,
the boy, no matter what happens,you have to make sure your
insurance get it to protect. Toyou in the future. That's all
you're doing is protecting youin the future, because you don't

(25:04):
know what's going to happen whenthat person is upset enough to
put something in writing, thatmeans they're upset if you don't
do the right thing, the nextthing is calling that lawyer,
and that lawyer is going tostart easy. All he wants to do
is set up. Guess what? Theybreach it fiduciary duty. I'm on
this, because that board ofdirectors, they should know
better. Now, all of a suddenthat that lawyers on the on on a

(25:25):
dime, he's making money, andthat means you got to hire a
lawyer that makes money. And ifyou were to put them on notice,
guess what happens? That meansthe insurer, provider is the one
that gets in there, jumps inthere, and they're taking care
of it. They're taking a lot ofthe weight off your shoulders.
That's their job from theinsurance point of view. Okay,

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

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

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

Because what ended up happening is now, all of a
sudden, the association thatindividual, Regina, you know,
gonna say that they she reallydid breach their duty. Let's say
she did something that didn'tact reasonably, you know. Okay,
she gave misinformation. Now, goback to that first original one,
when a person lied about exactlywhat was going on in there,
about the reserve study. Okay,Regina, hi, hid that. Now, all

(26:40):
of a sudden, Regina is introuble because she breached
your duty, and association canbe named in a lawsuit too
because she's representing theAssociation, and the other board
members can be in trouble. Sonow, all of a sudden, that
individual, that unit owner,says, Listen, you lied, and as a
result of you lying, now of asudden, cost us millions of
dollars to make all the repairsthat is needed because you had a

(27:01):
reserve study and you failed tohonor it, failed to acknowledge
it even existed. So now, so I'mgoing to sue you. I'm going to
sue the board, all the boardmembers. I'm sue you, Regina,
the rest of the board. I'm goingto sue the old board too, who
who had reserve study and didnothing, too. I'm suing the
Association for millions ofdollars, because guess what? It
impacts me and the way I live,and it impacts me, my quality of

(27:23):
life. And now I'm suddenly, Ifeel like, you know you're
harassing me because I broughtit to your attention, you're
bullying me. And now all of asudden, one situation that
Regina went into could have beeneasy, that easily, again, you
could be named in the claim, butit goes into it can cost
millions of dollars in the longrun.

Okay, well, I'm also thinking that I've got so
many questions. And again, youknow this stuff, this is the
world that you live in. But Ican feel another episode coming
up that we need to follow up onsome of these loose ends about,
again, how to keep from making amountain out of a molehill, all
these different things. Whathappens if they elevate from a

(28:06):
written claim to a lawsuit,board member versus the
associate? All those kinds ofthings we don't have. We don't
have time for that today, butit's so

important, Robert, because those are things we see
all when we see breach offiduciary duty. That's what it's
like. It is about. It's likesomebody being tackled and
pulling the bodies off. And allthose bodies can have lawyers,
because they all wantprotection. 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'dbe a name in lawsuit. I want my
lawyer. You get your lawyer, andall of a sudden the treasurer,

(28:35):
wow, I would just, I'm just new.
I don't know what's going on.
You can have five individuallawyers in there. And guess who
makes that decision? Toinsurance company, the insurance
company. Other side, there's aconflict between each individual
board member, so we have to signeach we assign five board
members to individual boardmembers to each board of
directors, and the passport togets their lawyers.

Yeah, that's getting expensive, okay? And
that's the whole point, reallyexpensive. Yeah, I feel another
episode coming on. So we willfollow 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 soundslike a pile. How do you prevent
this?

Okay, and that's and this is why we, I love doing
these podcasts with you, becausenumber one thing, you have to be
informed. You have to understandthat you have a breach. You have
a responsibility. You have alegal obligation to act in the
best interest of the associationperiod. Forget the four things,
but you have it. You have alegal obligation. So when you
say that, we call it fiduciaryresponsibility, or fiduciary

(29:36):
duty, but that's what it means.
Just act in a professionalmanner, understand that these
four things are critical to you.
There's nothing more importantthan those four things. So when
you once, you do that, now,suddenly you're making
reasonable decisions, and whensomebody accuse you of it, all
you can do is go you have adefensible position now, which

(29:58):
helps you to have a defense. Aposition, more than anything
else, is to use outside experts.
That's the key. You don't takeit on yourself to say for now
on, this is what we're going todo. Have your lawyer give you
that advice, bring that lawyerin as part of the decision, just
like they bring you in Robert,when his reserve thing has to be

(30:19):
done. They're not sitting theresaying, guess what are we are
roofs going to last another 10years? Because I went up there
and I stepped on it. Guess what?
I would have lasted? Yeah,

yeah. And that I'm thinking an Inspector of
Elections hiring someone to atax expert to prepare your
taxes. Even though it should besimple, 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,

even the insurance expert. Because guess what?
We're talking about a specialtype of insurance, directors and
office liability insurance forcommunity associations. As you
can see, it's unique. We, youknow, which is not like a a big,
major corporation. It is anonprofit. But guess what? The
difference is, we live with eachother. We look at each other. We
see each other every day. Andwhen our issues are not

(31:09):
financially driven like they arein a corporate world, they
emotionally driven. So when theyemotionally driven, they have
different avenues. They havedifferent things. Because I can
sue you as a board member, but Idon't know what money. I just
want you to stop doing whatyou're doing, which is different
than if I'm suing my majorcorporation. If I lost money in
my stocks, or I lost money, orsomebody made a bad decision, it

(31:33):
impacted me economically in ourcondo world, I don't want money
from you, Robert. I just wantyou to do your job better. Go
out there and make sure you knowyou do things in a timely
manner. You didn't do it, so I'mmad at you. You know that's the
difference in our world, yeah,uniqueness about a world.

Well, we're talking to volunteers here, our
board members and Kevin. It'salways great talking to you.
What I'm feeling now is a littlebit of concern that, yes, the
the work that you've taken on asa board member is hard, but I am
so relieved that you keep sayingall you need to do is be

(32:13):
reasonable. So in closing, anyany final thoughts to add to
that,

I would say this duty of care, duty of loyalty,
duty of obedience, and duty oftransparency. That's your job.
If somebody might accuse you ofany of those four things, okay,
make sure you have an insurancepolicy. You know, just
everybody. Make sure you have adirect and Officer liability
policy designed for communityassociations. That's the most

(32:39):
important thing you have,because, if it's not designed
for community associations, is apolicy designed for economic
loss because I invested in themproperly, and because the board
is incompetent, and I lost moneyin

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

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

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

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

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

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

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

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094 | Don't Breach your HOA Fiduciary Duty!

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}094 | Don't Breach your HOA Fiduciary Duty!