HOA Directors and Officers

Introduction

Every homeowners association (HOA) has a board of directors and officers. If you have volunteered for either role, it's very important to understand the difference to avoid accidentally taking inappropriate actions which could get you in trouble.

Below is a description of what exactly are the board, directors, and officers, and how they work together. Some details, such as term lengths, hierarchy of officers, etc., are described as they typically are in most HOAs; how it works in your HOA depends on your HOA's by-laws and applicable state law.

The Board

The board is typically five or seven people, who are collectively the highest authority on what happens in the HOA. The board is responsible for pursuing the mission of the HOA, which is to maintain the property, establish and enforce community rules for harmonious living, and sustain financial solvency.

All of the board's work is expressed in the form of decisions made at meetings, which are published in reports called minutes. Decisions can range from major to the mundane. For example:

• Approving a major construction contract
• Ordering the firing of an employee
• Authorizing the filing of a lawsuit
• Setting the rates of assessments
• Creating a new community rule regarding parking
• Establishing standards for garden design
• Imposing a fine on a homeowner for spilling trash

Sometimes when the board makes a decision, it's formally referred to as an "action of the board". It's a little confusing, because no action occurs at board meetings; any action resulting from a decision happens afterwards, and is carried out by officers or agents.

The members of the board are called both board members and directors. These words are synonyms; there is no distinction between the two. The board directs the HOA.

Directors

Directors are individuals elected by the property owners to serve a specified term on the board, such as one or two years. If a director resigns or dies, the remaining directors can appoint someone to fill the seat instead of waiting for the next election. If a director is voted out mid-term by the property owners, the remaining directors cannot appoint the replacement; the property owners must elect a replacement.

To serve as a director, of course you need to be a homeowner in the community, and must not be delinquent in your dues. In newly built planned communities in some states, directors may for a time be outsiders chosen by the real estate developer, but such situations are outside the scope of this article.

Directors contribute to decisions of the board at meetings by making the proposals, debating them, ensuring all sides are heard, and then voting. So while a director has the power to push to implement whatever policies he thinks are best for the HOA, if a majority of the directors at a meeting disagree, the policy won't take effect. That is, no one individual can always have his way.

Outside of meetings, neither the board nor directors individually have a role in directing HOA operations. That is, it's inappropriate for directors to call the managing agent or onsite employees and give them orders or instructions. Only officers should be actively engaged in managing the HOA's work.

Directors are certainly free to, and should, gather information between meetings. This includes reviewing HOA documentation, reports, and minutes, and thinking about long-term plans or trying to pick up on any red flags such as accounting errors. And directors can certainly inspect the property and observe operations. This can help directors decide on what issues the director might ask the board to address at the next meeting, or even whether to call a special board meeting if something urgent comes up.

Officers

One to four of the directors will also be officers of the HOA. Officers do have a role–a big one—in operations between meetings. Specifically, officers have the power to take executive actions, which is why they're sometimes called executive officers.

Routine executive action means supervising the daily work of the HOA, which includes ensuring the managing agent pays the bills and keeps the books, contractors do their work, and maintenance employees do their jobs. It also includes negotiating with contractors to establish work requirements to get comparable bids for the board to approve, and handling unexpected events and change orders for work in progress.

Communications form a large part of this. Today most of this is handled by email, but it also includes making phone calls to deal with situations in real time, or meeting with service providers on-site.

Executive action also includes making policy decisions that the board hasn't reserved to itself. An officer, when the HOA's agents or employees request a policy decision that has not been addressed by the board, must use his judgment to determine whether it's necessary and reasonable for him to make the decision himself, or bring it to the board to decide at its next meeting.

The top officer is the president, also known as the CEO. In a typical for-profit corporation, the CEO and President are different positions, but in an HOA it's the same role.

The president of an HOA is responsible for what the HOA agents, contractors, and employees accomplish or fail to accomplish. He reports to the board at each meeting on all activities and what resources or decisions he might require. The board will guide the president's work by establishing directives. If a president cannot abide by directives of the board due to serious and intractable disagreement, the proper action for the president is to resign, whereupon the board will appoint a new president whose goals or philosophy align with the majority of directors. In the same vein, if the president wants to stay on but the board determines he is not capable of handling the job, the board can remove him from office and appoint someone else.

The president also sets the schedule and agendas for board and owner meetings, and presides over these meetings, ensuring adherence to parliamentary procedures and fair practices. So in a sense he is also chairman of the board. As you can imagine, the president must be someone with integrity, since he sets the agenda and runs the meetings wherein the board reviews his work and can override his decisions or even fire him.

The chief financial officer (CFO), also known as the treasurer, ensures that accurate financial records of the HOA are maintained and that money is deposited in accounts in the HOA's corporate name. The CFO may also develop and implement financial controls and money handling procedures, and take prudent actions as necessary to maintain liquidity and the value of any HOA investments. The accounting is typically done by a professional managing agent.

The secretary maintains the records of the HOA, and is responsible for the business of the board (sending out meeting announcements, distributing the agenda and compiling the meeting packet, creating minutes after each meeting, giving an orientation to new directors, etc.). Also, it is the responsibility of the secretary to ensure government filings such as corporate statements and tax returns are submitted on time. Many HOA secretaries do virtually none of this work, however, leaving it all to a managing agent.

Relationship between Directors, Officers, and the Board

Officers are appointed by the board, not by the homeowners. Candidates are nominated by directors and the board votes. In virtually all cases, only directors already on the board can serve as officers, but some HOA by-laws may allow for the CFO to be an outside professional, such as a CPA, which could mean he's not even a homeowner in the HOA. In such a case, that officer would report on his work at board meetings, but he would not be a director and would not have a vote on motions made at the meetings or in electing other officers.

The president and vice president will always be directors. That is, no non-owner can serve in these roles.

Being a director and officer at the same time doesn't give you any extra power at board meetings; all directors retain the same rights to make proposals, give their opinions, and vote.

We mentioned before that directors who are not officers have no management authority outside meetings, but a board may choose to put such a director in charge of certain tasks, so long as it's in accordance with the by-laws. This might be for a special major project, such as planning for construction of a new horse stable, or for something continuous like supervision and management of the cleaning crew. You don't typically see permanent committee positions or special function assignments in an HOA, though, as you might see in a charitable giving organization or a youth baseball league, where every member of the board has an assigned role (social media manager, fundraising chair, equipment manager, scheduling baseball games, etc.).

Directors who are not officers or otherwise assigned a function outside of meetings may be called members at large of the board, or directors at large. This term implies that such directors are not fully engaged, as if they're wandering about in the wilderness, but that is not the case. Each director is as responsible to be informed, attend every meeting, and participate in decisions of the board as any other, regardless of whether the director is an officer or has been assigned a special position.

Officers are the ones who officially speak for the HOA to outsiders, such as the managing agent, contractors, government officials, or (hopefully never) news reporters. Officers hold this authority by virtue of the board having elected them to their positions, and because they must answer to the board. Directors who are not officers should not speak on behalf of the HOA, the same as they don't give orders to employees, agents, or service providers.

When a construction or service contract is approved by the board, typically the service provider will require an HOA officer to sign it, not a director at large. The service provider doesn't see the board minutes showing what the board approved in the contract, and so he wants a signature from someone he knows has executive authority and is therefore authorized to interpret the board's will outside of meetings. If somehow there's a dispute between the board and the officer over the contract terms after it's signed and the work started, the service provider can count on the contract being enforceable. If the board eventually overrides the officer having signed the contract, that by itself will not invalidate the contract. The board will have to negotiate with the service provider for any changes they want, and, if it wishes, could fire the officer who originally signed the contract or even seek restitution if the board believes the officer acted wilfully against the board's directives.

If there are disputes between officers, a hierarchy applies. The president would have highest authority, typically followed by the vice president, CFO, and then secretary. If an outside agent or contractor receives conflicting directives from officers of the HOA, the agent would do well to follow the directive of the highest ranking. Ideally the HOA will get its act together so the officers are on the same page. But, if there were a dispute and it headed to court, the judge will look at the relative positions of the officers to determine who had the proper authority to take the actions they did.

Board Operations

An HOA board is more involved in the details of operations than the board of a for-profit corporation.

The board of a for-profit corporation typically only deals with foundational issues, and leaves everything else to the CEO. Issues managed by a corporate board include hiring the CEO and setting his pay, setting up pension and retirement plans, deciding how stock is issued, amending the articles of incorporation and the corporate mission statement, approving mergers and acquisitions, and choosing a financial auditing firm. And that's about it. The CEO meanwhile does everything not reserved for the board. He hires and fires his subordinate officers, sets their pay, arranges departments, leases office space, buys company cars, reallocates resources as necessary, approves contracts for services, approves marketing plans, sets product pricing, invests in research, and maybe even creates new products and pursues new markets. Much of this, of course, is delegated to subordinate officers or department heads.

An HOA board, however, sees most every decision. The HOA board, at its meetings, typically reviews and approves even routine repair plans, decides on competitive bids for all kinds of services, votes on every new community rule, decides on penalties for every reported rules violation, decides whether and when to impose a lien or foreclose on each delinquent owner, and decides whether to file insurance claims. A well-run board will delegate authority to officers or committees to make decisions without having to wait until the next board meeting (typically held monthly), except for decisions which by law must be voted on by the board at a meeting (such as filing a lien or foreclosure, imposing disciplinary fines, or approving a payment plan). Delegation can increase the chance a decision is made the full board might not particularly like; however, if managed sensibly, with competent officers and proper reporting at meetings, it can improve overall efficiency of operations and reduce costs.

Managing Agent

Unless your HOA only comprises a handful of homes, you likely have a professional property management company serving as your managing agent, often colloquially referred to as the "property manager".

Their role is to handle the daily administration of the HOA's work, mainly collecting dues, paying bills, and receiving communications such as complaints about rules violations or reports of a maintenance problem. But many managing agents take over the roles of the HOA officers, and pretty much run the HOA to varying degrees. We've seen situations where the homeowners named as directors and officers are mere figureheads. The account manager from the property management company schedules board meetings, sets the agendas, runs the meetings as if he's the HOA president, and then produces the minutes as secretary. This can be a dangerous situation, because the officers and directors retain their responsibilities, and possibly even accountability for economic damages should something go wrong, while most managing agents' contracts with their HOA clients absolve them of liability for losses. So it's a good idea for the officers of an HOA, if they wish to delegate all their work to the managing agent, to oversee the work closely.

The managing agent you hire may be a corporation with its own CEO, president, and CFO, but they are officers of the property management company only, and have no authority as officers over your HOA. Understanding this is the first step towards resolving the conflicts you might encounter with property management companies that may claim, as we have seen, that the orders of their officers control decisions that are the HOA's prerogative to make. When such conflicts arise, the terms of your management contract will come into play, and the solution will depend on the facts of the case. But knowing the true authority of the board and your officers will help you make the right decisions to protect your ability to manage your property as you see fit.

Call to Action

To ensure your board is up to speed on this and many other topics related to your HOA, contact J.D. Fox Exec.