Generic, downloaded forms can have a downside

Question: Our board downloads forms from a variety of industry-related websites for use in our association. I asked the directors who told them to do this and was told that an attorney directed them to a website, but in general the directors themselves “chose� to use the forms because they were free and “said what needed to be said.�

Don’t board directors have a responsibility to understand what they are doing?

Answer: Every association board director has a responsibility to understand the fiduciary duty to perform due diligence. Fiduciary duty means a duty to act for someone else’s benefit while subordinating one’s personal interest to that of the other person. It is the highest standard of duty implied by law.

Viewed in this light, your board’s statement that the forms were free of charge and stated what needed to be said suggests an ignorance of their duty, which amounts to a breach of fiduciary duty.

Providing forms at no charge to the public is a well-known method of solicitation. This tactic is used to entice consumers to Internet websites where visitors may be asked to subscribe or pay for additional services. Subscriptions are usually required so the Web masters can accumulate a free database of e-mail addresses that may be used to distribute newsletters, other material or spam.

Due diligence would require any board director to understand it should not rely on generic forms made available on websites.

Aside from forms provided by governmental departments or Internal Revenue Tax forms, the only approved forms for use by homeowner associations should be those located under the state Civil Code, Title 6, Common Interest Developments.

But even those forms may be inappropriate for a given purpose.

In this instance, due diligence requires each board director to recognize that “one-size-fits-all� forms can be harmful to the association. Boards utilizing generic forms, whether borrowed from other associations or copied from a book, do so at great risk to the association.

Part of the board’s due diligence includes determining what actions must be taken in regard to association management. This requires familiarity with those management problems and making such inquiries as would be reasonably needed to determine whether to use a particular form.

Diligence means more than merely accepting oral representations from legal entities or licensed attorneys. The board has an obligation to establish whether its decisions are appropriate or whether another action would better serve the association and its members.

Generic forms do not fulfill that obligation.

Any board director who fails to perform his obligations under the law may be held liable for his actions, and the steps taken by the board based on that failure may expose the association and all its members to liability. Diligence means more than simply making decisions because one sits on the board or because the president says so.

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