A breach of confidentiality in HOA communities is a serious offense, and one that can come with significantly dire consequences. If you encounter such a problem in your association, it is important to know how to proceed.
Breach of Confidentiality in HOA: Understanding Your Fiduciary Duty
In homeowners associations, the subject of confidentiality is something that gets tossed around every once in a while. As a member of your HOA board, you deal with all kinds of confidential matters, from delinquent accounts and health conditions to other sensitive information. Upholding confidentiality simply comes with the territory and is a part of your fiduciary duty.
What is considered a breach of confidentiality? Say, your board members are discussing in a closed-door meeting which of the owners in your community have become delinquent. That information should stay in the room. Once you reveal that information to other owners, though, you have breached confidentiality as well as your fiduciary duty.
You must not disclose any privileged or confidential information that you acquire while acting as a board member. That duty even extends after your term as a board member expires.
Preventing a Breach of Confidentiality in HOA Communities
To ensure confidential information remains confidential, you must start from the beginning. It is imperative to have your attorney draft a document detailing the obligations of the board, including keeping sensitive information and matters discussed while in an executive session confidential. Then, have each board member read the document and sign it. Although you can’t legally enforce this document, it can serve as proof that all board members are aware of their obligations and duties.
In addition to adopting such a standard, it is a good idea to develop a code of ethics that board members must adhere to. Include a provision saying board members can’t use privileged information for their own gain or as leverage against another member. As with the previous document, board members should sign the code of ethics.
How to Deal With Confidentiality Breaches
While you can orient board members and have everyone sign a document explaining their obligations, confidentiality breaches can still happen. When it does, what steps should you take?
Issue a Letter Addressing the Breach
First off, you can start by sending a formal letter to the board member who revealed privileged information. The letter should remind the member of their fiduciary duty and explain in clear terms that they are not allowed to reveal confidential matters. This is otherwise known as a censure. If that does not get their attention, you can follow up with a cease-and-desist letter.
Check Your Governing Documents for Penalties
If the breach is not too severe, then perhaps you can levy a fine or take some form of disciplinary action. You will typically find provisions for such breaches within your governing documents. More often than not, though, there are only a few options available.
Of course, if your governing documents remain silent, it is time to consider amending them. In your amendment, make sure to include confidentiality breaches in your fine schedule. Check with your attorney to see what you can do.
Remove the Person from the Board
If worse comes to worst, you can remove the member from the board. Though, this can get tricky because of certain state laws. For instance, in California, the board does not have the ability to remove a fellow board member. If the membership elected the director, then the owners must be the ones to vote to remove them.
Still, your board does have other options. You can call for a special owners meeting where you can explain to members what happened. Then, you can ask the members to remove the board member from their position. Of course, there is a possibility that members will vote not to remove the director. In that case, at least your board took proper measures to protect yourself.
If you are worried about the problematic director participating in future meetings and continuing to disclose information, your board can form an executive committee. An executive committee consists of only board members, and you can exclude the problematic member from committee meetings where you discuss sensitive matters. That way, they can no longer gain access to confidential information.
The process differs for non-executive committees, though. Committee members are typically not elected into committees, so you can easily just remove them from the committee if they reveal privileged information.
The Aftermath of the Breach
You might think, “What is the big deal anyway? It is not like a breach in confidentiality in the HOA will affect the community as a whole.” That is where you are wrong. Confidentiality breaches can have a domino effect, and all paths lead to the slow yet sure destruction of your association.
A problematic board that constantly discloses confidential information can negatively impact the reputation of your community. No one in their right mind would want to associate with an association with a bad image. That includes HOA managers, vendors, and even homeowners who will live in fear that their board will reveal their information at any time.
Eventually, residents will start moving out one by one. And the association won’t be able to attract any more new buyers because of its bad reputation, considerably lowering property values in the process.
Is the Board Member Personally Liable?
A board member who reveals confidential information without the approval of the board is, in essence, acting beyond the extent of their authority. Therefore, they can be found personally liable for their actions. They can face legal repercussions under claims of invasion of privacy, defamation, negligence, violations of statutes, and more. Moreover, the association’s D&O insurance likely will not cover the damages associated with the suit.
After Your Term Ends: Continuing Duty as a Former Board Member
Board members must uphold their fiduciary duties while they serve as part of the HOA board. While these duties only apply until the expiry of their term, such is not the case for the duty of confidentiality. Even after your term ends, you must still keep privileged information you obtained as a board member to yourself.
A Natural Aspect of HOA Leadership
HOA board members deal with a lot of privileged and sensitive information — information that should never leave the board’s circle without prior approval. Confidentiality is not only a part of your fiduciary duty but also an expected courtesy. A breach of confidentiality in HOA communities is an act that carries a lot of weight and consequences. As such, you must do your best to keep yourself and fellow board members in check.
Is your HOA board having trouble staying on top of the day-to-day operations of your community? Clark Simson Miller offers a variety of HOA management solutions designed to make your life easier. Call us today at 865.315.7505 or contact us online to learn more about our services.
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