QUESTION: I am the president on our board, and we have gone through management companies quite a bit lately. Our treasurer is a CPA. He and I have been thinking of taking over the management and the books to save the HOA money. We would require compensation. We'd get board approval first, of course, but what are the legal implications?

ANSWER: Many small associations self-manage. However, it’s done with volunteers. Paying directors for management services is not illegal provided (i) there is full disclosure, (ii) the fees charged are at or below market, and (iii) the benefited directors recuse themselves from discussion and votes on this and related issues.

Protections Lost. However, many protections are lost if a director becomes a paid director. To maintain their protections, directors cannot receive compensation for their service on the board as a director. In addition to potential conflicts of interest, any time you have a disgruntled owner he/she will go after you and make a myriad of claims involving self-dealing, conflicts of interest, incompetence, over-charging, and so on. It gets very personal. To reduce potential conflicts, you should resign from the board—it reduces the large targets on your backs. Another consideration is insurance. Will you be carrying your own insurance? You won’t be covered by the association’s D&O policy for paid services in the event you are sued. If it were me, I would continue using an outside service.


QUESTION: Our board president for the last nine years has also been the manager of our HOA. He RULES the board and claims the board appointed him as manager. He gets $30,000 a year. Since we are a nonprofit corporation I thought directors are not supposed to get a salary.

ANSWER: Undoubtedly his salary is earned as a manager, not as a director. However, the two roles are hard to separate and this creates significant conflicts of interest. It is not "illegal" for the president to also be the paid manager but it is an unhealthy arrangement. If the membership were smart, they would end the arrangement by (i) removing the manager from the board or (ii) replacing the manager with an outside management company.