As an agent serving the HOA Insurance sector, you understand the unique challenges these communities present. One difficult situation arises from a homeowners association with no serving board members. This problem can stem from apathy among the community’s homeowners or a dispute with the developer. Either way, you confront this question: What happens if an HOA does not have a board?
The Myth of an Empty Board of Directors
When it comes to HOA board membership, just as the 1960s pop song recounted, breaking up is hard to do. In the bylaws of most associations, a board member’s term does not end with their resignation but upon the election or appointment of a successor. Furthermore, most states recognize HOAs as non-profit corporations. If directors resign as a group, these individuals may mistakenly believe that they have exited the board. Instead, the law sees a group of directors failing to honor their fiduciary duties. This failure can bring severe repercussions for the directors and the broad community.
The Consequences When Board Members Refuse To Serve
Without a serving board, an HOA’s difficulties can quickly snowball. Invoices requiring an officer’s signature go unpaid. Necessary maintenance in community areas may linger, raising safety issues. As problems mount, homeowners may seek a court-appointed receiver as a short-term solution. While a receiver can make all the decisions typically handled by the HOA board, this move is no panacea.
The Downsides of Receivership
Dropping problems into the lap of a receiver may seem appealing to an HOA’s frustrated owners, but taking that step brings these consequences:
- The receiver’s compensation comes from an extra assessment imposed on all of the community’s owners.
- Unlike the owners, the receiver does not have a personal or financial stake in the community.
- The receiver may sue board members for breach of fiduciary obligations.
- Receivership mars the HOA’s reputation, making the community less desirable to prospective buyers and damaging property values.
These and other drawbacks are a powerful incentive for maintaining a full-strength board of directors.
The Solution to Short-Handed HOA Boards
Dysfunctional HOA boards create a lose-lose situation for both developers and homeowners. Much as with plumbing issues or cracks in the parking lot, the best move for associations is to nip a problem in the bud. Serving board members should frankly communicate the consequences of a short-handed board. Committees are one way to broaden owner participation and lessen the burden on directors. Many HOAs thrive by using owner committees for planning while directors focus on short-term nuts and bolts issues.
As you touch base with your HOA insurance clients, keep an eye on their board membership issues. Your tactful advice on maintaining healthy board participation can steer these clients away from a sea of avoidable calamities.
About Kevin Davis Insurance Services
For over 35 years, Kevin Davis Insurance Services has built an impressive reputation as a strong wholesale broker offering insurance products for the community association industry. Our president Kevin Davis and his team take pride in offering committed services to the community association market and providing them with unparalleled access to high-quality coverage, competitive premiums, superior markets, and detailed customer service. To learn more about the coverage we offer, contact us toll-free at (855)-790-7393 to speak with one of our representatives.