The Challenges of Being a Self-Managed HOA


Having occasionally served on a few Boards of Homeowners’ Associations (HOAs), it is probably reasonable to say that volunteer Boards of new HOAs initially lack the knowledge, objectivity and self-discipline needed to respond to the needs of the HOA in a manner that benefits common interests of all of the HOA's members. That is, insufficient knowledge can lead to absence of objectivity for a Board's directors who may decide that the majority opinion of the Board determines what is best for all of the HOA's members. The absence of self-discipline refers to a disorganized approach to decision making, in part caused by the Board's limited time available for meetings and/or the time available to prepare for the agenda of the Board's meetings. The Board's responsibilities are usually described in detail in an HOA's Bylaws; but sometimes a clause is added that suggests the Boards can do whatever they think is necessary. Therefore, some Boards decide that such a statement is very appealing because they can circumvent a process that may require dealing with the members. For example, amending an HOA's governing documents is or should be considered a major event; and any Board that treats an amendment to a governing document, as if it is a Board-approved rule, should realize in advance that it could be creating huge problems if the HOA's members have not been advised and have not been given an opportunity to weigh in on the amendment.

As a check against subjective and/or undisciplined decision making, an HOA's Board should become familiar with the State's laws that take precedence over an HOA's governing documents. For example, in the State of Washington, RCW64.38 imposes requirements on HOAs one of which is RCW 64.38.025(2) that states “The board of directors shall not act on behalf of the association to amend the articles of incorporation, to take any action that requires the vote or approval of the owners,...". The Board should also check for conflicting language in the HOA's governing documents that cover who has the authority to amend specific governing documents. In the state of Washington, its Hierarchy of an HOA’s Governing Documents indicates that the language in the CC&R overturns conflicting language in the HOA's other governing documents. Finally, in cases that appear in Court as a dispute between an HOA's member and the Board, the Court in the State of Washington will usually apply the Business Judgment Rule that defers to the judgment of the Board, unless there is hard evidence of wrongdoing. For example, WA's Business Judgment Rule states that Courts should not defer to the judgment of an HOA's Board if the Board's decision was not that which a reasonable person in like position would have made, if the Board acted in bad faith, or if the Board's actions were self-serving. The WA Supreme Court has also ruled that judicial deferral should be denied if the Board's decision-making process was unreasonable.

Among all of the challenges that face a self-managed HOA, amending an HOA's governing documents can be the most challenging activity that can be undertaken; and if a Board undertakes this activity without the authority to do so, the consequences can be enormous because some amendments could be very expensive to implement. Other amendments could have unanticipated adverse impacts that are expensive to correct. Therefore,if the Board's authority to amend a governing document is unclear, it has a responsibility to obtain support from members before it launches into changing the HOA's governing documents. Depending on the purpose of the amendment, a Capital Improvement Plan and major funding may be necessary in order to implement the amendment properly; and this should be presented to the members at the appropriate time (i.e., prior to adopting the amendment).

The other challenges facing a self-managed HOA can be consolidated in one phrase, "the Board's professionalism". Poor communication with members, absence of transparency, unfair rule-making, or selective enforcement of the Board's rules usually occur due to insufficient training or personal issues. For example, if one director routinely behaves rudely or bullies members,it could become a pattern for the other directors' behavior. Therefore, it may become necessary to petition for the removal of one or more the directors. An HOA's governing documents usually state how to remove a director on the Board by petitioning the President or Secretary to call a special meeting of the members who can remove any director with or without stating the cause. As uncomfortable as this event may be, bullies do not actually add value to serving on any Board of Directors when the pros and cons are considered completely because bullies are primarily interested in control, which does not require objectivity, self-discipline or professionalism.Therefore, the removal of a bully if one serves on an HOA's Board can improve how the rest of the directors treat each other and the members.

In Closing, this article explained why the Boards of Directors for self-managed HOAs have to be aware that the most important challenge facing them is recognizing the limits of its authority that should never circumvent the voting rights of members. The other challenges facing self-managed HOAs can be tackled over time; but, clearly these challenges can be addressed by ensuring the Board's professionalism.