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Are Board Members Liable for Association Debts?

By December 21, 2016 No Comments

If you serve on a COA or HOA board, can you be held responsible for any of the Association’s debt?

Except for very limited circumstances, board members are not personally liable for Condo Owners Association (COA) or Home Owners Association (HOA) debts. Debts incurred by the Association are the responsibility of the COA or HOA itself, not individual board members. As long as Board members don’t misrepresent themselves, act outside their authority, or intentionally take on the Association’s debt, the Association is responsible for its debts – not individual board members.

As a Board member, you have a financial responsibility of trust to all other property owners, also known as a fiduciary duty. A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other asset for another person or persons. Having a fiduciary duty means that you will act in the best interest of the development as a whole. A Board member’s personal liability for Association actions is usually limited to cases where they violate their fiduciary duty to the Association. Examples would be acting negligently, engaging in willful misconduct, or acting outside the Association’s authority.

There are circumstances where personal liability for COA or HOA debt is possible. A Board member could be personally liable for an Association debt if:

  • Deliberately assumes personal responsibility for a debt by personally guaranteeing a promissory note.
  • Puts up personal collateral for a loan to the Association.
  • Personally signs a contract without disclosing that they are signing on behalf of the Association.
  • Signs a contract without the authority to do so.

Potential liability can be avoided if you always act carefully. Although it is possible for a board member to face personal liability for an HOA debt, this liability is. Follow the advice above, and especially be sure that:

  • Don’t extend a personal guarantee.
  • Make sure your (and the Association’s) actions are authorized.
  • Always disclose that your signature is on behalf of the Association.

LM Funding provides funding solutions to condo and homeowner associations (COAs & HOAs) to recover delinquent association dues and guaranty future association budgets using proprietary technology.