Q&A: Addressing a Possible Conflict of Interest Within a Board

Q. I am a relatively new board member at-large to our HOA board in a small community with 44 homes. I recently learned that our previous treasurer was also receiving a “management” fee of nearly $4,000 a year for several years. I have further been informed that this fee was approved by board vote in which it is believed that the treasurer participated; not by a vote by or disclosure to all homeowners. 

My concern is multi-fold: Was this board member receiving compensation in violation of state law? Are we as homeowners entitled to seek reimbursement by this previous board member who also acted as a paid vendor? If so, what steps should be taken to seek recovery as homeowners? Criminal complaints, civil action and/or by way of claim against the association’s director and officers (D&O) liability insurance policy which should cover such errors made by the previous board in allowing such payments and financial relationship to take place with the previous treasurer? 

As a board member, what actions should our current board (inclusive of some previous board members) be taking, first to record and disclose these recent findings to the entire community and to then ultimately try to take action to correct any inadvertent breaches of fiduciary responsibility by the previous board in allowing those payments to be made to the treasurer?

                —How Should We Fix This?

A.  “In New York State, a transaction entered into by an HOA board member is not automatically voided or voidable simply because such board member receives financial gain,” says Margery N. Weinstein, Esq., a partner at Ganfer & Shore, LLP in Manhattan.  “In order to evaluate the questioner’s rights, and the rights and obligations of her HOA board members, the questioner should begin by examining the state’s laws that govern the establishment of her HOA.  It is also crucial for her to carefully review her HOA’s particular governing documents, including its declaration, certificate of incorporation and by-laws, as these are the unique rules that establish the obligations of her particular HOA’s board.  


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