In the state of Texas, living in a Homeowners Association (HOA) or a Condominium Associtation (COA) means placing a large amount of trust in your elected Board Members. Those who have been entrusted in managing your community's finances, maintenance, and rules are bound by something called fiduciary duty. This isn't just a friendly suggestion; it's the highest standard of care under the law, an explicit legal and ethical obligation requiring the Board to act solely in the best interest of the Association and its members as a whole. For every homeowner, understanding this duty is the first step toward effective oversight and a well-governed community.
What is a Fiduciary Duty?
First, what is fiduciary duty is a high legal and ethical standard requiring one party (the fiduciary) to act solely in the best interest of another party (the beneficiary or principal). It's considered the highest standard of care under the law, applying whenever one party places trust and confidence in another to manage their affairs, assets, or well-being.
In the context of an HOA or COA, homeowners place their trust and confidence in the board to manage the community's financial health, maintenance, and overall health of the community. More on this later on.
Core Principles Guiding a Fiduciary
Fiduciary has two parts, the beneficiary and the fiduciaries. The community, COA or HOA, is the beneficiary and the fiduciary, which is the board of the community. The responsibilities of a fiduciary are guided by the following duties; loyalty, care, disclosure, confidentiality and good faith.
Duty of Loyalty: The fiduciaries must act with complete allegiance to the beneficiary and avoid any conflicts of interest or self-dealing. They must not use their position or confidential information for personal gain.
Duty of Care: The fiduciaries must make informed, prudent decisions using the degree of skill and caution a reasonably diligent person would exercise. This includes performing due diligence, asking questions, and seeking expert advice when necessary. A good example of this is seeking advise on experts on topics to be decided on, such as lawyers.
Duty of Disclosure: Fiduciaries must provide the beneficiary with all material facts and relevant information that could affect the beneficiary's decisions. An example of that is vendor contracts.
Duty of Confidentiality: Sensitive information about the beneficiary must be kept private and not used for personal advantage.
Duty of Good Faith: All actions must be carried out with honesty, integrity, and a genuine intent to further the beneficiary's interests.
Who Holds Fiduciary Duty in Texas Associations?
The legal specifics of who holds this duty depend on the type of association in Texas: Here is a small chart regarding those duties.
| Role | Association Type | Fiduciary Duty Status | Key Responsibility |
| Board Members (Directors/Officers) | COA (Condo Owners Association) | Yes. Texas law, property code, and corporate law impose a strong statutory fiduciary duty to the association and its unit owners. | Must act with loyalty, care, and good faith in the best interest of the association. |
| Board Members (Directors/Officers) | HOA (Homeowners Association) | Yes. Texas property code mandates HOA board members to uphold fiduciary duties to the association and its members. | Must make informed decisions and manage the community's finances responsibly. |
| Management Company | HOA/COA | Generally, No. The duty rests with the Board). Their duties are primarily defined by the ( management agreement (contract). | While they are an agent and have contractual duties (like accounting and disclosure), the ultimate fiduciary responsibility rests with the elected board. |
Note on HOAs and COAs in Texas: While both manage common property and enforce rules, Texas law generally imposes a strong statutory fiduciary duty on COA board members, but the concept of fiduciary duty is still upheld for HOA board members through general corporate law and practice.
Consequences of a Breach
A breach of fiduciary duty occurs when a fiduciary fails to meet their legal and ethical obligations. This is a serious matter that can lead to:
Legal Action: A lawsuit can be filed against the board or individual board members.
Damages: A court may order the fiduciary to pay damages or return profits that were ill-gotten, or a host of other outcomes.
Removal: The fiduciary can, and is usually, removed from their position.
If a management company acts improperly, they may be liable for breach of contract or negligence. In this scenario, the board members themselves could also be liable for a breach of their fiduciary duty if they failed to properly oversee the management company.
As a Homeowner or Board Member, What Should I Do?
Whether you are a board member or a homeowner, understanding this duty is vital for a healthy, well-governed community:
- For Board Members:
- Always prioritize the association's best interests
- Disclose any potential conflicts immediately
- Perform due diligence on major decisions
- Ensure financial transparency.
- Remember that seeking expert advice is also apart of the Duty of Care
- For Homeowners:
- Elect board members you trust,
- Attend meetings
- Hold the board accountable to these high standards of loyalty and care.
Key Takeaway
To summarize, the fiduciary duty imposes the highest standard of care under the law on your HOA and COA Board Members. This means they must prioritize the association’s well-being above their own, adhering strictly to the Duties of Loyalty, Care, and Good Faith. The Association and its members as a whole are the direct beneficiaries of this duty. By demanding transparency, making informed decisions, and avoiding conflicts of interest, your board ensures the financial stability and integrity of your neighborhood. Remember, the strength of your community rests on the integrity of those who govern it.
