Fiduciary Duty Basics for Michigan Board Members

Why Michigan boards owe a fiduciary duty at all

Nearly every homeowners association and condominium association operating in Michigan is organized as a domestic nonprofit corporation under the Michigan Nonprofit Corporation Act. That single fact matters more than most new board members realize: it means directors of a Michigan association are held to the same basic fiduciary standards as directors of any Michigan nonprofit corporation, not to some looser, informal "volunteer committee" standard. Once you accept a seat on the board, you are legally a corporate director, and Michigan law treats you accordingly.

In practice, this fiduciary relationship runs to the association and its owner-members collectively, not to any single homeowner, faction, or the board president personally. A director who acts in the interest of one owner, a personal friendship, or a private vendor relationship at the expense of the association as a whole is not meeting that duty, regardless of how well-intentioned the decision felt in the moment.

The three duties every Michigan director should know

Duty of care

Directors are expected to make informed decisions — reviewing financial reports, reading vendor contracts before signing, and asking questions rather than rubber-stamping a manager's recommendation. Michigan nonprofit corporation law generally allows directors to rely in good faith on information and reports prepared by officers, employees, accountants, attorneys, or the association's management company, provided the director has no reason to doubt their reliability. That reliance protection is valuable, but it is not a substitute for basic diligence — a director who never opens the financials cannot later claim reasonable reliance on reports they never read.

Duty of loyalty

A director cannot use the position for personal financial gain, steer contracts to a family business without disclosure, or use insider knowledge of an upcoming special assessment to their own advantage (for example, selling a unit before the assessment is announced). Conflicts of interest should be disclosed to the full board and, where the conflict is material, the conflicted director should abstain from voting on that matter.

Duty of obedience

Directors must act within the powers granted by the association's governing documents — the bylaws, master deed or declaration, and articles of incorporation — and within Michigan statutory boundaries. A board that ignores its own bylaws, even with good intentions, is exposing the association (and potentially itself) to legal risk.

The business judgment rule offers real protection — if you use a real process

Michigan courts, like most states, generally extend a business judgment presumption to nonprofit directors who make decisions in good faith, on an informed basis, and in the honest belief the action serves the association's interest. This is why documentation matters so much for Michigan boards: minutes that reflect the board actually discussed options, considered vendor bids, or consulted counsel or the association's manager before a major decision are what allow a court, or an angry owner, to see a defensible process rather than a snap judgment.

This protection is especially relevant in Michigan associations facing tough calls unique to the state's climate and housing stock — approving a mid-winter emergency roof repair before storm damage worsens, or deciding how aggressively to pursue collections against a delinquent owner during a slow local real estate market. Boards that document their reasoning at the time of the decision are in a far stronger position later than boards that decide informally and only write minutes after the fact.

Putting it into practice