The Hidden Legal Engine Behind Every HOA Board: Fiduciary Duty Explained

Board members rarely join an HOA planning for legal trouble. Most step in with a simple goal in mind. Help the neighborhood. Keep things orderly. Maybe improve a few processes. But the moment someone takes their seat at the table, the law hands them a set of obligations that carry real consequences. That set of obligations is known as fiduciary duty, and it is the overlooked force that shapes nearly every important decision an HOA makes.

Attorney Cang Le of Le Firm spends his professional life untangling the fallout when that duty gets mishandled. His conversations with board members follow a predictable pattern. A decision that felt casual at the time ends up under a microscope months or years later. The board insists they acted with good intentions. The law responds with a much sharper question. Were those decisions made with the care and judgment required of someone overseeing a corporation's assets?

That framing is where many boards get caught off guard. An HOA is not simply a community. It is a corporation. The moment board members realize that, the entire landscape shifts.

The Corporate Reality of HOA Leadership

Cang puts it plainly. When homeowners raise their hands to serve, they enter the world of business management, even if the role feels neighborly. They are responsible for money that is not their own and property that belongs to everyone. The law expects them to act like directors of any other corporation would. That means understanding financials, relying on qualified experts, documenting decisions, and staying grounded in what serves the long-term stability of the association.

This is where the gap often widens between intention and execution. Board members sometimes approach decisions as residents trying to keep peace, not as directors stewarding a multimillion-dollar asset. They want to avoid conflict. They want to keep dues low. They want to accommodate a vocal neighbor or a frustrated homeowner. Those instincts are human. They are not business instincts. And that mismatch is where some of the biggest risks begin.

The Three Pillars Every Board Decision Gets Judged On

Cang breaks fiduciary duty into three pillars the court reviews anytime a decision gets challenged:

1. Good faith
Did the board act honestly and reasonably, with reliable information?

2. Best interest of the association
Did they put the corporation’s interests before their own preferences?

3. Prudent decision-making
Would a reasonable person in the same situation have acted similarly?

If a board follows those three guideposts, the business judgment rule protects them. It’s a legal shield that says the court won’t second-guess decisions made responsibly and without bias.

But that protection vanishes the moment a board slips into neglect, ignores expertise, or prioritizes personal interest over community interest. And once it vanishes, every individual director becomes exposed.

The Danger of Relying on Assumptions Instead of Experts

Cang sees one pattern repeatedly in litigation. Boards try to solve technical problems with personal opinions instead of expert verification. It might be a plumbing leak someone thinks they understand. It might be a budget assumption based on last year’s expenses. It might be a reserve component they assume will last longer than the report indicates.

Any time a board makes a decision in isolation, they weaken their legal footing.

The safest decisions come from leaning on professionals. Management. Attorneys. CPAs. Engineers. Reserve specialists. Landscapers. Pool contractors. The list varies by topic, but the principle does not.

If a decision ever ends up in court, Cang needs to defend the board by showing they relied on legitimate expertise. He can’t put Google on the witness stand. He can’t put ChatGPT on the witness stand. He can’t defend “my neighbor said.” But he can defend a board that consulted qualified professionals and documented why their recommendation guided the outcome.

That difference often decides whether a case is dismissed or becomes an expensive and public fight.

When a Delay Turns Into Liability

One example Cang points to involves a board that spent nearly two years avoiding a decision about a common-area leak. Consultants were called, estimates were obtained, and meetings were held. But no action was taken.

Nineteen months later, the issue had escalated into major water damage and mold. The case went to the California Court of Appeal. The board attempted to use the business judgment rule as a defense. The court rejected it. The judges concluded that the board failed to act, even after receiving clear expert guidance. That failure constituted gross negligence.

The fallout was significant. The association lost the case. Legal fees soared. Insurance coverage had limitations because gross negligence is not something D&O policies protect. And every director involved faced theoretical exposure to personal liability.

The lesson was stark. A bad decision is often defensible. No decision rarely is.

The Subtle Conflicts of Interest Boards Miss

When people think of conflict of interest, they imagine something obvious. A board member hiring their relative’s company. A director steering a contract toward a business they own. Those scenarios certainly count, but Cang explains that some of the most common conflicts are far more subtle.

A board member who refuses to raise assessments because they want to keep their own costs low.
A homeowner-director who wants to sell soon and avoid acknowledging the reserve deficit.
A board member who brings their personal professional expertise into decisions, exposing themselves to unnecessary liability.
Even just being in the room during a discussion where they have a connection can create perceived bias.

The law does not require bad intentions for a conflict to exist. Appearance alone can undermine credibility and weaken the board’s position.

The Budget Season Trap

Right now, many associations are experiencing their toughest budget season in a decade. Insurance premiums have surged. Utility costs continue to rise. Inflation has pushed nearly every service contract upward. And at the center of it all sits the reserve study.

This is where Cang sees one of the biggest risks. Boards want to avoid upsetting homeowners. They want to keep monthly assessments flat. They want simplicity. But the math does not care about comfort. When expenses are climbing, holding assessments steady creates a widening gap between reality and revenue. Cang calls that gap the zone where liability lives.

Each year a board fails to adjust dues responsibly, the association drifts further from financial stability. And the larger that drift becomes, the more likely it is that future homeowners will face special assessments, deferred maintenance, or even property value impacts.

For boards planning to move out soon, the temptation to kick the issue down the road is real. But it is also short-sighted. Escrow packets include reserve funding levels. Buyers and realtors notice. Underfunded reserves affect home value today, not simply years from now.

The Most Overlooked Number in HOA Financials

The reserve percentage remains one of the industry’s most misunderstood metrics. Many board members have been told that 70 or 80 percent funded is “good enough.” The truth is more nuanced.

The percentage simply measures how close the reserve balance is to the total amount needed for upcoming component replacements. It is a long-horizon financial projection. Less than 100 percent means something important. It means the association does not have enough money for what it knows it will need.

If reserves are funded at 80 percent, the association is not in crisis. It just means the board must continue consistent increases to avoid falling behind. But 20 or 30 percent funded is a completely different situation. Climbing out of that deficit requires increases so steep that many associations hesitate to make them.

That hesitation is what creates the future emergencies.

Why HOA Governance Needs a Business Mindset

Cang’s view is simple: If boards approached the association the way they would approach any other business, far fewer associations would end up in legal trouble. A business mindset focuses on:
• documentation
• financial discipline
• planning instead of reacting
• listening to experts
• evaluating long-term outcomes
• keeping personal interests out of decisions

Those habits reduce conflict, improve maintenance, strengthen reserves, and ensure decisions can hold up under scrutiny.

Board members do not need to be experts in every subject. They simply need to be willing to learn, ask questions, rely on professionals, and recognize that the association is larger than any single opinion.

The Real Takeaway

Most board members join wanting to help their community. The law simply asks them to do that through the lens of responsibility. Act in good faith. Put the association first. Make informed decisions. And when in doubt, consult someone who knows the terrain better.

Good governance is attainable when boards treat the HOA like the business it is.

The community benefits. The finances stabilize. And board members sleep easier knowing their decisions rest on solid ground.

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