Question: Last year, our board purchased stocks and bonds with association funds. The securities were sold earlier this year at a loss. The homeowners have been asking the board who is responsible, but have not received an answer. Finally, the board informed the homeowners that the stock broker was making up the loss, and since a confidentiality agreement was entered into with him, no additional information would be forthcoming. Is it legal to withhold this information? D.P. (via e-mail)
Answer: It is possible that governing documents could give the board the express, legal authority to invest association funds in stocks and bonds. But such authority is unusual. Most community association bylaws provide that association funds shall be held in a bank, with FDIC or similar insurance to cover all funds. But you should look to the provisions of your governing documents to confirm the limits of the board’s investment authority.
To meet its fiduciary duty, the board must handle association funds in the same way that a reasonably prudent person would handle the funds of another. While there may be an argument that inflation alone might justify taking some risk with principal, my advice is that an association board should not invest association funds in any manner that puts the principal funds at risk. Of course, any bylaw provision should also be followed.
As for the ability of the members to review documents that might explain what happened here, I am not aware of any provisions of the Florida Homeowners’ Association or Florida Condominium Act that would apply to preclude members from inspecting those documents. With the exception of any documents that may be subject to an attorney-client privilege, I doubt the relevant documents fit into any of the statutorily created exceptions to the general rule that members can inspect all official records of the association.
As for the alleged confidentiality agreement with the broker, absent a court order establishing that the terms of the settlement are confidential, it is my view that legal settlement agreements are not confidential as to the members of the association. When I prepare agreements involving associations that include a confidentiality provision, I will typically include a reference to the association’s statutory obligation to allow members to inspect records, so that the other party understands that the association does not have the legal authority to guarantee complete confidentiality. Your association’s counsel would need to review this issue in terms of how compliance with the HOA law must impact the validity of the settlement agreement, or create a potential breach thereof.