What Are Bad Actor Clauses in HOAs?

Homeowners’ associations (HOAs) rely on honest and effective governance to maintain community stability and trust. Unfortunately, not every board member upholds their fiduciary duties. Misconduct can cause financial loss, disrupt operations, and erode homeowner confidence. Individuals who engage in such behavior are often called “bad actors,” and many associations are turning to governance tools like bad actor clauses to prevent and address these issues.

A “bad actor” is typically a board member who acts in bad faith, abuses authority, or disregards governing documents. Examples include:

• Making decisions that benefit themselves or a favored group of homeowners.
• Mismanaging or embezzling association funds.
• Refusing to provide access to financial records or meeting minutes.
• Neglecting essential duties or making discriminatory decisions.
• Violating fiduciary obligations to the association.

Such behavior can expose the HOA to legal risks and create lasting divisions among homeowners.

What Are Bad Actor Clauses?

A bad actor clause is a provision in an HOA’s bylaws or covenants that restricts board participation by individuals who have acted against the community’s interests. These clauses are not laws but internal governance tools that proactively prevent misconduct.

A clause can:

• Block candidates from running for the board if they have a history of misconduct, have been removed previously, or are currently engaged in legal disputes with the association.
• Suspend rights immediately under a “heinous acts” provision for egregious misconduct, such as embezzlement or harassment.
• Prevent repeat issues by restricting previously removed individuals from rejoining the board.
• Establish clear conduct standards, including adherence to fiduciary duties, transparency in records, and compliance with governing documents.

By setting standards in advance, bad actor clauses help prevent conflicts and maintain board integrity.

Importance and Benefits

Bad actor clauses offer several key benefits:

• Build Trust: Homeowners feel confident that individuals with a history of misconduct cannot influence board decisions.
• Avoid Disputes: Clear rules reduce internal conflicts and potential lawsuits.
• Protect Finances: Restricting members who have misused funds safeguards community resources.
• Maintain Stability: Clearly defined standards allow boards to operate efficiently without repeated interruptions.

Legality and Enforcement

Bad actor clauses are generally enforceable if:

• They comply with the Maryland Homeowners Association Act.
• Their language clearly defines what constitutes a bad actor.
• They are adopted through the proper amendment procedures outlined in the HOA’s governing documents.
• They are applied fairly and uniformly to all members.

Legal guidance is crucial to avoid overly broad or vague language that could be challenged in court.

How Oliveri & Larsen Can Help

John M. Oliveri, Esq. hosts free annual seminars to educate HOA boards on governance best practices and legal tools, including bad actor clauses. These seminars help boards understand how to adopt and enforce protective measures while attracting potential clients.

At Oliveri & Larsen, we assist HOAs with drafting enforceable clauses, reviewing governing documents, advising on fair implementation, and protecting boards from potential misconduct. Our goal is to help communities maintain financial stability, homeowner trust, and effective governance.

Contact Our Annapolis HOA Lawyers at Oliveri & Larsen for More Information

Even a single bad actor can create legal and financial challenges. Our Annapolis HOA lawyers at Oliveri & Larsen help boards and associations protect themselves and their communities. Call 410-295-3000 or contact us online to schedule a consultation. Located in Annapolis, we serve clients in Ocean City, Anne Arundel County, Baltimore County, Baltimore City, Calvert County, Harford County, Howard County, Queen Anne’s County, St. Mary’s County, Worcester County, Kent County, and the upper and lower Eastern Shores of Maryland.