This summary outlines ten critical governance and financial issues involving a property management company (PMC) and an HOA board, alleging breaches of fiduciary duty, misrepresentation, and violations of Washington State's RCW 64.38. Key concerns include failing to correct financial records, misrepresenting contract authority (e.g., non-existent "Appendix B"), unauthorized use of funds for donations, and conflicts of interest. These actions may constitute professional negligence and bad faith, violating the duty of candor and loyalty to the association
Single Issue No 1: Failure to correct the record
Single Issue No. 2: Single Issue No 2 vs Board Resolutions
Single Issue No. 3. Appendix B
Single Issue No. 4 Illegal Donation
Single Issue No.5 Ultra Vires Acts
Single Issue No. 6 Conflict of Interest
Single Issue No. 7 Breach of Fiduciary Duty of Loyalty
Single Issue No. 8 Breach of Fiduciary Duty and Unauthorized Practice of Law or Agency.
Single Issue No. 9 - Failure to Follow up
Single Issue No. 10 - withholding information
Single Issue No 1: Failure to correct the record
When a property manager repeatedly ignores attempts to correct the record regarding a financial audit's scope, the legal and professional "error" expands from simple misrepresentation into breach of fiduciary duty and bad faith conduct
1. Breach of Fiduciary Duty
A property manager owes a fiduciary duty to the Association. By following an illegal request, they may be guilty of
2. Bad Faith and Willful Neglect
Ignoring repeated calls for correction is often legally classified as bad faith.
• Bad Faith: This occurs when a party willfully refuses to fulfill a known duty.
• Willful Blindness/Neglect: By ignoring the correction, the manager is choosing to remain "blind" to the truth to avoid accountability.
3. Professional Misconduct and Disciplinary Grounds
In Washington State, real estate professionals and managing firms are subject to disciplinary action by the Director of the Department of Licensing for "unprofessional conduct".
• Misrepresentation: Knowingly or negligently misrepresenting facts about an audit's scope can lead to license suspension or fines.
• Failure to Supervise/Manage: Repeatedly ignoring a client's request to correct a financial record is a failure to provide "competent services within the scope of their licensing".
4. Violation of Records Access Statutes
Under RCW 64.38.045, homeowners and board members have a right to inspect and copy association records.
• Refusal to Correct: If the "record" (the audit report or the manager's representation of it) is false, the manager's refusal to correct it effectively denies the Board its right to accurate records.
Statutory Liability: Violating these transparency requirements can entitle an "aggrieved party" (the HOA or an individual member) to legal remedies, including reasonable attorneys' fees
Joseph Lewis Aguirre
When a property manager repeatedly insists that a process is dictated by a contract, only to later admit it was actually a board resolution, they have committed several specific legal and professional errors.
1. Negligent or Fraudulent Misrepresentation
The most direct legal term for this error is misrepresentation.
• Negligent Misrepresentation: Occurs if the manager failed to exercise reasonable care to verify the source of the authority (the contract vs. a resolution) before asserting it as fact.
• Fraudulent Misrepresentation: If the manager knew the process was not in the contract but lied to induce the Board or members to comply, it is fraudulent.
2. Breach of the Duty of Candor
As an agent of the Association, the manager owes a fiduciary duty of loyalty and good faith to the Board.
• Lack of Candor: Intentionally or carelessly providing false information about the Association’s governing authority is a breach of this duty.
• Failure to Disclose: Under Washington law (RCW 64.38.045), members and directors have a right to accurate records. Falsely attributing a resolution to a contract misleads the Board regarding their own legal liabilities and powers.
3. Violation of Professional Ethics
Professional property managers are held to standards that prohibit unethical practices.
• The National Association of Residential Property Managers (NARPM) Code of Ethics specifically requires managers to protect the public and clients against fraud and misrepresentation.
• Asserting a false legal basis for a collection process—which has financial consequences for homeowners—is a significant violation of professionalism.
4. Constructive Fraud
In some jurisdictions, this "bait-and-switch" of authority can be termed constructive fraud. This applies when a party in a position of trust (the manager) gains an advantage by misleading another, even if there was no "intent"m to deceive. By claiming contract authority, the manager may have avoided the scrutiny a board resolution might otherwise receive.
Why this distinction matters: A contract is a binding agreement between the HOA and the manager that usually requires a higher threshold to change. A board resolution is an internal policy that can often be challenged or overturned more easily by the membership if it conflicts with the CC&Rs.
Joseph Lewis Aguirre
Sent Items
Single Issue No. 3. Appendix B
When a property management company (PMC) like Blue Mountain8 makes false claims about a contract's contents—such as asserting that "Appendix B" is part of the agreement—the error is legally described as misrepresentation.
In Washington, the specific legal classification depends on the management company's intent and knowledge:
1. Types of Misrepresentation
• Fraudulent Misrepresentation: This occurs if the manager knowingly makes a false statement or acts with reckless disregard for the truth to induce the Board to act. If they are intentionally lying about the existence of Appendix B to hide the lack of authority or to justify an action, it falls under this category.
• Negligent Misrepresentation: If the manager failed to exercise reasonable care to verify the contract's actual terms before making the claim, it is considered negligent. Washington courts recognize this as a tort independent of the contract itself.
• Innocent Misrepresentation: This applies if the manager genuinely believed the appendix existed but was simply incorrect.
2. Professional Negligence and Breach of Duty
Because a PMC is a professional agent for the HOA, this behavior also qualifies as:
• Breach of Fiduciary Duty: PMCs have a duty of good faith and candor to their clients. Ignoring repeated requests for clarification while misrepresenting the contract is a failure to act in the Association's best interest.
• Professional Malpractice/Negligence: Failing to provide accurate information about the governing contract is a violation of the standard of care expected of a licensed or professional property manager.
3. Breach of Contract
Regardless of the "Appendix B" claim, the management agreement itself typically requires the PMC to provide records and information to the Board upon request. The act of ignoring repeated inquiries is a failure to perform a contractual duty, which constitutes a Breach of Contract
Sent Items
Single Issue No. 4 Illegal Donation
The legality of an HOA expenditure is determined by its purpose, not just the number of votes in favor.
• Assessments are for "Common Expenses": Under RCW 64.38.020, boards have the power to collect assessments specifically for "common expenses". Charitable donations do not qualify as a common expense unless the governing documents (CC&Rs) explicitly list "charity" as a legitimate use of member funds.
• Breach of Fiduciary Duty: Board members have a fiduciary duty to act in the best interest of the entire membership. Using mandatory dues for a non-profit donation—even if the Board loves the cause—can be seen as a misappropriation of funds because it diverts money away from the community's actual needs (like roof repairs or landscaping).
The Manager's Liability (Blue Mountain)
A professional management company has a duty of obedience to the law and the Association's documents.
Nonprofit Association of Washington
• If the BOD votes for something clearly illegal, the manager is expected to advise against it.
• Executing an illegal check "because the Board told me to" is generally not a valid defense for a professional manager. They can still be held liable for professional negligence or breach of contract for failing to protect the Association's assets from unauthorized use.
Legal Distinction: Mandatory vs. Voluntary
• Illegal: Using mandatory dues/assessments for a donation without specific CC&R authority.
• Legal: The Board setting up a voluntary fund where owners choose to give extra money specifically for a charity
Joseph Lewis Aguirre
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Single Issue No.5 Ultra Vires Acts
When a property management company (PMC) like Blue Mountain obeys an illegal or unauthorized request from an HOA President, they may be liable for several legal "errors." These typically fall under breaches of their contractual and fiduciary obligations to the Association as a whole, rather than to the individual President.
1. Breach of Fiduciary Duty
A property manager often owes a fiduciary duty to the Association. By following an illegal request, they may be guilty of:
• Failure to Act in Good Faith: Managing funds or rules in a way that does not serve the best interests of the entire membership.
• Self-Dealing or Collusion: If the manager knowingly assists a Board President in a "self-serving" act (like an unauthorized donation), they are failing their duty of loyalty to the homeowners.
• Misappropriation of Funds: Cutting a check for a donation that is not authorized by the governing documents can be legally described as a conversion or misuse of HOA funds
2. Ultra Vires Acts (Acting Beyond Authority)
When a manager enforces parking on city-owned streets without legal permission, they are committing an ultra vires act—an action taken without the legal authority to do so
• Jurisdictional Error: Generally, HOAs and their managers have no jurisdiction over public roads.
• Trespass or Harassment: Unlawfully ticketing or towing on public property can lead to claims of harassment or even civil rights violations if done "under color of law".
3. Professional Negligence
A property manager is expected to meet a certain standard of care.
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• Failure to Advise: A competent manager should know (or research) that an HOA cannot typically regulate public streets or make charitable donations with member dues unless specifically permitted by the CC&Rs.
• Aiding and Abetting: By executing an illegal order, the manager may be "aiding and abetting" the Board President's own breach of duty.
4. Breach of Contract
The management agreement between Blue Mountain and the HOA requires the PMC to follow all applicable laws and governing documents. Obeying an illegal order is a direct violation of this contractual obligation
Joseph Lewis Aguirre
Single Issue No. 6 Conflict of Interest
A property manager or in-house coordinator refusing to disclose project budget details to the Board of Directors (BOD) constitutes a breach of fiduciary duty and a violation of Washington state law.
1. Legal Description: Breach of Fiduciary Duty
A property management company acts as a fiduciary agent for the HOA Board. Under this relationship, they have a legal and ethical obligation to act in the best interests of the association. Refusing to disclose cost breakdowns ("internal subcontractor rates") when those costs are being paid with association funds is a direct failure of several core duties:
• Duty of Full Disclosure: Fiduciaries must lead with transparency and disclose all material factors that influence financial decisions.
• Duty of Care: The Board cannot fulfill its own duty of care—which requires making informed and reasonable decisions based on thorough research—if the manager withholds the data needed to evaluate those decisions.
• Duty of Loyalty: If the management company uses an "in-house" coordinator or related entities (like NWPW or Riparia) without full transparency, it creates a potential conflict of interest.
2. Violation of Washington State Law (RCW)
Under Washington law, the association's records are the property of the association, not the management company.
• RCW 64.38.045 / RCW 64.90.495: These statutes mandate that an association must keep financial records sufficiently detailed, including invoices and contracts, and make them available for examination.
• Ownership of Records: A managing agent is required to deliver all original books and records to the association upon demand. Claiming that internal rates are "none of their concern" contradicts the fact that the Board is the ultimate legal authority responsible for these funds.
3. Analysis of the Manager's Response
The response ("This is an odd question, and frankly, none of their concern") is legally and professionally problematic:
• Corporate "Internal" Defense: While a private company might keep its profit margins secret from the general public, a management company cannot legally withhold the breakdown of how HOA member dues are being allocated to subcontractors from the Board that hired them.
• Board Authority: The property manager reports to the Board, not the other way around. The Board has the right and responsibility to "question everything" to avoid personal liability for negligent management of funds
Joseph Lewis Aguirre
Single Issue No. 7 Breach of Fiduciary Duty of Loyalty
In a two-member board, a single director does not have the individual authority to issue "orders" to another director
• Decisions regarding vendor management and official communication typically require board majority consent. In a two-member board, this necessitates a consensus.
• Breach of Fiduciary Duty of Loyalty:
• Board members must prioritize the association's interests over their own personal convenience or "capacity" to vet new vendors.
• If a vendor (Blue Mountain Property Management) is allegedly breaching its own fiduciary duty, a director's duty of care and loyalty requires them to investigate and address the issue, rather than suppressing the investigation to avoid the personal burden of finding a replacement.
• Placing the management company’s "support" above the legal obligation to address potential financial or management breaches can be viewed as a conflict of interest or a failure to act in the community's best interest.
Washington State Specifics (RCW 64.38):
• Under RCW 64.38.025, board members must exercise the degree of care and loyalty required of a corporate director.
• If a board is deadlocked (as is common with two-member boards), a single member cannot take "board action" by themselves to silence another member
Joseph Lewis Aguirre
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Single Issue No. 8 Breach of Fiduciary Duty and Unauthorized Practice of Law or Agency.
In Camas, WA, the actions of a property manager from Blue Mountain Community Management unilaterally editing a message from a
Windust Meadows HOA
director constitute a breach of fiduciary duty and unauthorized practice of law or agency.
Under Washington state law, specifically the Homeowners’ Association Act (RCW 64.38) and the Uniform Common Interest Ownership Act (RCW 64.90), management companies function as agents of the Board. They do not possess independent authority to "veto" or qualify board communications unless specifically authorized by the governing documents or a board vote.
• Breach of Fiduciary Duty: In Washington, a property manager owes a fiduciary duty to the Association. By inserting a disclaimer that distances the manager from the Board's official stance, the manager may be prioritizing their own corporate liability over their duty to facilitate Association business as directed.
• Exceeding Scope of Agency: A management company's authority is strictly derivative. Under standard management contracts used in Clark County, the manager is tasked with distributing communications, not modifying them. Adding a disclaimer without approval is a violation of the Agency Agreement.
• Tortious Interference: If the manager’s disclaimer undermines the director’s ability to govern or implies the director's statements are "non-official" or "unsupported," it could be viewed as interfering with the director's fiduciary obligations to the members.
• Violation of RCW 64.38.035: This statute requires that certain notices and communications be handled according to specific procedures. Unilateral edits by a vendor can compromise the legal validity of the notice itself.
Joseph Lewis Aguirre
Single Issue No. 9 - Failure to Follow up
In Washington state, HOA board members and management companies like
Blue Mountain Community Management are bound by specific fiduciary and statutory obligations under RCW 64.38 (Homeowners' Associations) and the Washington Uniform Common Interest Ownership Act (WUCIOA).
Refusing to expand an audit's Scope of Work (SOW) to include potential conflicts of interest or breaches of fiduciary duty during a governance deadlock may constitute several legal "errors" or liabilities:
1. Breach of the Duty of Loyalty
• Personal Interest Over Association Interest: Board members must prioritize the association's welfare over personal gain.
• Potential for Restitution: Courts can void board actions or order restitution if the Duty of Loyalty is breached.
2. Breach of the Duty of Care
• Informed Decision-Making: The duty of care requires directors to act on an informed basis and perform due diligence.
• Willful Blindness: Refusing to investigate credible allegations of financial mismanagement or "conflict of interest" in an audit may be viewed as gross negligence or willful misconduct, which can bypass the protections of the Business Judgment Rule.
• Failure of Oversight: Boards are required to exercise effective oversight of financial reporting and maintain robust internal controls.
3. Management Company Liability (Blue Mountain)
• Contractual Breach: If Blue Mountain is aware of financial irregularities or conflicts but assists in blocking their investigation, they may be in violation of their management contract.
• Professional Standards: Management companies are often held to a standard of professional care; assisting a deadlocked board in "hiding" information can lead to claims of professional negligence.
4. Violation of Transparency Requirements
• Audit Refusal: In Washington, HOAs with annual assessments of $50,000 or more cannot waive certain audit requirements under updated WUCIOA standards.
• Record Access: Homeowners have a statutory right to inspect financial records. Blocking the scope of an audit to hide conflicts may be seen as an unlawful restriction of this right
Joseph Lewis Aguirre
Single Issue No. 10 - withholding information
Single Issue No. 10 - withholding information
