HOA board of directors conflict of interest: Key tips to identify and resolve conflict

What is a conflict of interest?

An HOA board of directors conflict of interest happens when a board member’s personal interests could affect, or appear to affect, their decisions for the association. Board members are expected to act in the best interest of the community as a whole. A conflict does not always mean wrongdoing, but it does raise questions about whether decisions are being made impartially. Identifying and addressing conflicts early protects both the board’s credibility and the association’s stability.

This article is not intended to and does not constitute legal advice or create an attorney-client relationship. Board members should consult their association’s attorney to discuss the legal implications of their decisions or actions prior to proceeding.
 

Examples of potential conflict

Common examples of an HOA board of directors conflict of interest include:

• Business contracts: If a board member owns or has a financial stake in a company bidding for landscaping, snow removal, or maintenance work.
   
• Nepotism: When a board member advocates for hiring a vendor who is a relative or close friend, this can create a conflict of interest within the association.
   
• Paid HOA work: Board members are typically unpaid volunteers. Accepting payment or reduced assessments for board service can shift the focus from community service to personal gain.
   
• Loans: Using association funds for personal loans or for the benefit of related parties is a serious conflict.
   
• Rulemaking: Decisions about community policies should always be based on what benefits the association overall. A conflict may arise if a board member pushes for rules that primarily serve their own household or personal situation rather than the broader community.
   
• Confidential information: Using non-public board details, like upcoming bids or contract negotiations, for personal gain is an inappropriate use of a board position.

How to identify HOA board of directors conflict

The best way to identify a potential HOA board of directors conflict of interest is to look for financial or personal benefits that a decision could bring to an individual board member. Ask whether the board member or their family stands to gain from the decision, whether financially, socially, or otherwise. If the answer is yes, that situation may involve a conflict. Regular disclosures, annual conflict forms, and open discussion at board meetings also help uncover issues before they escalate.
 

How to avoid HOA board member conflict of interest

1. Evaluate yourself

   When performing your board duties, ask yourself:
    
   • Are there any influences (personal or outside) that might impact how I handle a particular transaction?
      
   • Do I have any relationships or knowledge that I should be disclosing?
      
   • Do I have outside responsibilities that might conflict with my board duties?
   
   If you can honestly answer “no” to these questions, then you probably aren’t facing any HOA board conflicts of interest.
    

2. Never exploit privileged board information

   Board members sometimes have access to privileged information. You should never use that information for your own personal gain. Consider the following scenario:
   
   A homeowner is having difficulty keeping up with assessments and approaches the board about selling the property. As is often the case with HOAs, the board has a legal first right of refusal under Missouri HOA laws. At the same time, however, one of the board members is interested in buying the property but does not disclose this. This is now a conflict of interest because the board member has a personal interest in the board declining to buy the property. A similar situation could occur if a home goes into foreclosures. The board member must reveal the interest up front and allow the board to make the best decision for the community.
    

3. Apply the rules equally

   Board members are not above the rules. In reality, they should set an example by following them diligently. Ignoring parking or pet restrictions, for example, sends a message to other homeowners that it’s okay for them to ignore the rules, too. This can lead to unenforceable HOA rules and even create liability issues for the entire association.
    

4. Do the right thing, even if the developer appointed you

   Board members who are appointed by the developer during a community’s development phase may feel split in their allegiances. However, if you are in this situation, you are still obligated to look out for the community’s interests, not the developer’s.
   
   What happens if a developer wants assessments to be unrealistically low in order to attract buyers? Or what if the developer did not follow through on a payment or a contractual obligation? As a board member, you cannot side with the developer at the expense of the HOA. Apply a moral compass and make your decisions with the HOA’s best interests in mind.
    

5. Be transparent

   Being candid about potential conflicts of interest is key to avoiding them. Transparency should involve:
    
   • Documenting those transactions that could benefit a board member
      
   • Reviewing bids openly and honestly
      
   • Voting on contracts only after careful evaluation of all material



6. Hold your property managers to the same standards

   Of course you should expect your property manager to be guided by strong ethics. Remember that you are the management company’s client. As an employee of the company, therefore, the property manager must put the HOA’s best interests ahead of the interest of any individual board members.
   
   If the property manager has any business dealings with a homeowner, the board needs to be aware of it. Additionally, managers should refuse gifts or favors from board members or from anyone who does business with the HOA.

How to resolve conflict of interest

Resolving an HOA board of directors conflict of interest starts with disclosure. A board member must state their potential conflict openly, ideally in writing and in the minutes of a meeting. From there, the board decides whether the person should recuse themselves from discussion and voting on the issue. When the situation is more complex, the board can seek guidance from its attorney or management company.
 

Role of property management companies

A professional management company can help a board navigate potential conflicts by providing neutral advice and administrative support. Managers can keep track of disclosures, prepare meeting agendas that note recusal requirements, and connect boards with legal counsel when needed. This partnership helps the board maintain focus on serving residents rather than becoming distracted by conflict issues.

Learn more about successfully navigating conflicts of interest. Contact FirstService Residential, the leading HOA property management company in Missouri and Kansas.