HOA Board Member Mistakes That Are Well-Meaning and Still Illegal

The HOA board member mistakes that get Nevada communities in trouble are rarely the product of bad actors. They are usually the product of someone trying to help.

A handy board member fixes something instead of hiring out. A board looking to hold assessments flat trims a line item.  Neither one wakes up intending to break the law.  But both may have.

Paying a Board Member for Work

This is the one issue Nevada HOA attorney Troy Isaacson raises first, and the one he has seen go badly.

“I have seen board members pay themselves for doing work on behalf of the association, which is absolutely prohibited,” he says.

The logic that leads here is easy to follow.  A board member happens to be a contractor, or a bookkeeper, or a landscaper.  He/She can do the job for less than an outside bid.  The association saves money.  Everyone at the meeting agrees it is sensible.

It is still prohibited, and the reasoning is not about the quality of the work.  It is about the position the board member occupies.  A director who stands to be paid by the association is on both sides of the decision to hire, and no amount of good faith removes that conflict.  The savings do not cure it.  Disclosure at an open meeting does not cure it either.

If your board has a member whose trade is genuinely useful to the community, get advice on how that can be structured, if at all, before any work begins.  Not after the invoice has been issued.

Skipping Insurance to Save Money

The second mistake Isaacson names is more consequential and, in his framing, less ambiguous.

“I have seen associations try to save money by skipping out on getting insurance, which is absolutely illegal,” he says. “And if you face a claim and don’t have insurance, then the association is paying for it out of its own pocket.  And you could be facing claims as a board member for making that decision.”

That final sentence is the part boards tend to miss.

A board that declines required coverage may not just create exposure for the association, it may also lead to exposure for the individuals who voted for it.  Insurance is what stands between a claim and the association’s operating account, and frequently between a claim and the personal assets of the people on the board.

Removing insurance to save a few thousand dollars a year is not a cost reduction.  It can be a transfer of risk onto the volunteers and, ultimately, onto the members. The insurance obligations that apply to your association are set out in NRS Chapter 116 and in your governing documents.

An Outcome That Should Not Be Relied On

Isaacson describes one case involving a board member being paid for work, and the surprising part is not the violation.

“The shocking part was that the board member was not required to repay all of the money that was paid to the board member,” he says. “The reason being is that the Commission did say, well, the work being performed would have had to have been performed by someone else if they had hired somebody else.”

That sounds like a break, and for that board member it was.  His follow-up is the important half.

“That certainly could happen.  If the Commission sees a different board member on a different day and is not as accepting, then they could certainly face much steeper fines and penalties.”

One favorable outcome is not precedent.  A board that hears this story and concludes the exposure is manageable has drawn exactly the wrong conclusion from it.

What Actually Protects a Board

The common thread across both HOA board member mistakes is that a board acted on its own judgment in an area where judgment was not the relevant input.  The requirement existed regardless of what the board thought was reasonable.

Isaacson’s guidance is to route those decisions through people who do this professionally.

“Knowing and understanding the association’s obligations and following up with professionals such as your landscaper, your general contractor, your accountant, or your lawyer is what is going to best protect not only the association, but the individual homeowners from risk and liability,” he says.

There is a legal benefit beyond getting the right answer.  When a board relies on professional advice, its decision carries a presumption of good faith, and that presumption is a meaningful layer of protection for board members individually even when a decision later proves wrong.

A board that makes a bad call on its may be exposed.  A board that makes the same call after consulting with the right professional is in a substantially different position.

Frequently Asked Questions

Can HOA board members be paid for work they do for the association? Troy Isaacson describes paying board members for work performed on behalf of the association as absolutely prohibited.  If a board member has a trade the community needs, get legal advice on whether any structure is permissible before work begins.

Is HOA insurance optional in Nevada? No. Isaacson describes associations skipping required insurance as illegal. Without coverage, the association pays claims from its own funds, and board members who voted for that decision could face claims personally.

What happens if a board member has already been paid improperly? Outcomes vary.  In one case Isaacson describes, the Commission did not require full repayment because the work would have had to be performed by someone regardless.  However, he is explicit that a different board member on a different day could face significantly steeper penalties.

Does consulting a professional protect board members personally? It helps considerably. Decisions made in reliance on professional advice carry a presumption of good faith, which protects board members individually even if the decision turns out to be wrong.  The association itself may, however, still be liable.

Talk to a Nevada HOA Attorney

If your board is about to approve something because it seems reasonable and saves money, that is precisely the moment to check whether it is permitted. Contact Isaacson Law, learn more about Troy Isaacson, or review our Nevada HOA rules, regulations and resources.

This article is provided for general informational purposes and does not constitute legal advice. Every association’s governing documents and circumstances differ. Contact Isaacson Law to discuss your community’s specific situation.