AI and Community Associations: Legal Risks, Fiduciary Duties, and Best Practices for Condo and HOA Boards

AI and Community Associations: Legal Risks, Fiduciary Duties, and Best Practices for Condo and HOA Boards

Artificial intelligence (AI) is no longer a futuristic concept for community association board members and property managers. Whether it is asking ChatGPT to provide a section of the condominium act, using Microsoft Copilot to summarize board meeting notes, or relying on AI tools to manage finances, the use of AI is becoming common, even for those that operate condominium and homeowners associations. A recent survey from Elon University found that 52% of all adults in the United States now use some form of AI, and AI use is growing exponentially. Between November 2023 and February 2025, ChatGPT’s user base quadrupled from 100 million to 400 million users. The use of tools like ChatGPT, Microsoft Copilot, and Google Gemini will continue to increase exponentially for businesses and volunteers who serve on community association boards.

Community association board members are understandably drawn to AI to help manage their communities. AI promises convenience and the automation of time-consuming tasks such as letter writing, note taking, research, summarizing contracts, and generating financial reports.  While AI is a powerful tool, it certainly comes with several risks, especially as the law and governing documents for community associations are slow to adapt to new technological changes. As discussed in my previous article, while AI may be a useful tool, further development is needed before it can truly be relied on.

Given that AI use cases continue to rapidly evolve, this article addresses the potential legal ramifications of AI use in condominium and homeowners associations. Specifically, the article will address the following topics that community associations should consider before using AI:

• • Potential Uses for AI in community associations
  • The impact of AI on fiduciary duties of community association board members
  • Best practices for board members or property managers when using AI

Potential Uses for AI in Community Associations

Before using any AI, board members and community association managers should first determine whether AI is open-source or closed-source, which are defined as follows:

• • Open-source AI makes its underlying code and model freely available to the public, allowing for customization and community-driven improvements. However, this can increase the risk of data exposure if not properly secured.
  • Closed-source AI is owned and controlled by a specific company. It does not publicly share its internal code or data, which offers stronger safeguards against leaking confidential information.

Boards and property managers should not input confidential information into open-source AI platforms, as there is no guarantee that unauthorized individuals will not access the information. This is not to say that open-source AI can never be used, but appropriate safeguards should be put in place before using it. Closed-source AI is much safer and would be advisable for AI use involving any type of private or confidential information.

While no use of “AI” could be classified as absolutely safe, specific use cases for AI in community associations will make operations more efficient, without posing a high degree of risk. For example, many community associations have used AI for the following items:

• • Using AI to create meeting agendas using ChatGPT, Microsoft Copilot, ai, or Otter.ai.
  • Using AI to record and transcribe board meetings to create meeting minutes using programs like ai or Otter.ai.
  • Using AI to research vendors for a community association by using ChatGPT or Google Gemini.
  • Using AI such as ChatGPT, Google Gemini, or Perplexity, as a strategic thought partner for non-confidential items.
  • Using AI tools such as Microsoft Copilot with Excel, Google Sheets with Duet AI, or ChatGPT to create a preliminary budget after analyzing financial information from prior years.
  • Using AI tools such as Grammarly to edit letters or emails, assuming non-confidential information is not utilized, or any confidential information is only used in the closed-source enterprise version of Grammarly.

Other uses of AI by community associations may pose a high degree of risk at the present time. For example, the following AI use cases could be problematic for homeowners associations:

• • Drafting legal documents, such as contracts, master deeds, declarations, condominium liens, rules & regulations, which may be incomplete, contain illegal terms, or have errors.
  • Obtaining legal opinions from ChatGPT, where confidential information is disclosed, and there is the potential to receive an opinion based on hallucination and made-up cases that do not exist.
  • Using AI in hiring practices, as evidenced by the recent Workday lawsuit, as it may discriminate based on unconscious bias.
  • Delegating board decisions that require a vote by the board of directors without properly documenting a vote at a board meeting.

While AI has the potential to be a great tool, it is not a substitute for thinking. It is important to remember that hallucinations and incorrect answers are still common.  In the words of Ronald Regan, you must “Trust, but verify” when it comes to evaluating the ultimate output of AI, as it is risky to simply trust AI, without verifying whether its output is accurate.

The Impact of AI on Fiduciary Duties of Condo and HOA Board Members

The board of directors of a community association has a statutory and common law fiduciary duty to act in the best interests of the association.  For example, in Michigan, MCL 450.2541 provides the following standard of care for a director:

• • A director or officer shall discharge his or her duties as a director or officer, including his or her duties as a member of a committee in the following manner:

(a) In good faith.
(b) With the care an ordinarily prudent person in a like position would exercise under similar circumstances.
(c) In a manner he or she reasonably believes is in the best interests of the corporation.

In discharging his or her duties, a director or officer is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by any of the following:
…
(b) Legal counsel, public accountants, engineers, or other persons as to matters the director or officer reasonably believes are within the person’s professional or expert competence.

The fiduciary duty of a director of a condominium or homeowners association requires each director to adequately inform themselves before making business decisions.  Specifically, in Illinois, the Courts have stated as follows:

One component of due care is that directors must inform themselves of material facts necessary for them to properly exercise their business judgment. To that end, if a board seeks legal advice before reaching its decision and relied on that advice in reaching its decision, it will be found to have properly exercised its business judgment.

Palm v. 2800 Lake Shore Drive Condo. Ass’n, 2014 IL App (1st) 111290, ¶ 111, 10 N.E.3d 307, 334, 381 Ill. Dec. 222, 249 (citations omitted).

It is important for board members to rely on experts to demonstrate that they fulfilled their fiduciary duties. In Fountain Square on the River Condo. Ass’n, Ltd. v. First Am. Bank, 2024 IL App (2d) 230076-U, ¶ 27, 2024 WL 4783946, the Court of Appeals held that board members could rely on the advice of a professional reserve study company in determining the amount to fund into reserves and how to address water leaks, and stated as follows:

The business judgment rule shields directors who have been diligent and careful in performing their duties from liability for honest errors or mistakes in judgment. Provided that the defendants exercised due care, adequate information, and good faith in making business decisions, the business judgment rule would “fully protect” defendants’ decisions…

As such, officers and directors need to review the governing documents and obtain opinions from experts, such as attorneys, accountants, engineers, insurance professionals, or reserve study specialists, before making important decisions.

In contrast, relying on ChatGPT, instead of an expert, may result in a breach of fiduciary duty, as no court has yet to recognize “AI” as an expert on which a community association board can rely.  Similarly, even ChatGPT acknowledges its shortcomings and does not recommend using it as a substitute for a professional, such as a lawyer, in responding to the following prompt:

Can my homeowners association use ChatGPT to replace our lawyer?

ChatGPT said:

In short: no, your homeowners association (HOA) should not use ChatGPT to replace your lawyer.

Here’s why:

1. ChatGPT is not a licensed attorney

ChatGPT can:

• Explain legal concepts
• Help draft basic documents
• Provide general information

But it cannot:

• Give legal advice tailored to your HOA’s situation
• Represent you in court
• Interpret state-specific statutes or governing documents with authority
• Maintain attorney-client privilege

Relying on AI alone can create legal liability for the board.

2. HOA laws are complex and vary by state

HOA legal issues—like amending bylaws, enforcing restrictions, interpreting the Fair Housing Act, or handling developer turnover—often involve:

• State-specific statutes (e.g., the Michigan Condominium Act or Illinois Common Interest Community Association Act)
• Case law
• Recorded governing documents

ChatGPT does not replace a lawyer’s ability to:

• Apply legal precedent
• Defend the association in a lawsuit
• Navigate nuances in your declaration or bylaws

3. AI doesn’t provide confidentiality or privilege

If your HOA uses ChatGPT for legal issues:

• Communications aren’t protected by attorney-client privilege
• Sensitive details could potentially be exposed

Final takeaway:

Think of ChatGPT as a legal assistant, not a legal replacement. Always have a qualified attorney review anything that could affect your HOA’s legal rights or obligations.

As such, given that ChatGPT, and many other forms of AI would admit to not being experts, or a substitute as a professional, HOA board members should still “Trust, but verify”, and not use AI as a substitute for expert advice when fulfilling their fiduciary duties.

Best Practices for HOA and Condominium Boards to Safely Use AI and Avoid Legal Liability

The rise in the use of AI in community associations is inevitable.  As Ginni Rometty, the former CEO of IBM, said, “AI will not replace humans, but those who use AI will replace those who don’t.” While AI has great potential to make community associations more efficient, it is not without risk.  As such, for community associations that are going to embark on the AI journey, the following practices will help them along the way:

• • Adopt an AI Use Policy. In most cases, the declaration, HOA bylaws, or other governing documents do not contemplate AI use by the board or property manager. If your condominium or HOA uses AI, it should adopt an AI Use Policy as part of its rules and regulations.  The AI Policy should identify approved uses for AI, address privacy concerns, address whether open-source AI is allowed, require human verification or review before using AI answers for specific items, and include any appropriate liability disclaimers.
  • Consult Experts. While it may be tempting to rush out and start using a free open-source AI, that is the best way to expose the association and directors to liability.  It is best to consult experts, obtain legal opinions regarding the potential liabilities associated with AI use, and begin implementing AI in small ways while it continues to evolve.  As the saying goes, “Slow is smooth, and smooth is fast!” It is important to ensure that you are using AI correctly and have appropriate safeguards in place before jumping in.
  • Review Insurance Coverage.  Community associations should consult with their insurance agent before implementing AI to determine if they have appropriate insurance coverage.  Many insurance policies exclude claims for black box or algorithmic errors that result from AI use, which could determine whether coverage exists under a community association’s D&O insurance policy.  Similarly, many associations have not yet obtained cyber insurance, which may provide coverage for claims resulting from AI use.  As such, it is important to understand if adequate insurance coverage is in place before using AI.

If your condominium or homeowners association needs help implementing AI tools, Hirzel Law is available to help!

 

Kevin Hirzel is the Managing Member of Hirzel Law, PLC, and concentrates his practice on community association law, condominium law, Fair Housing Act compliance, homeowners association law, and real estate law. Mr. Hirzel is a fellow in the Community Associations Institute’s College of Community Association Lawyers, a prestigious designation given to less than 175 attorneys nationwide. Mr. Hirzel has been recognized as a Michigan Super Lawyer in Real Estate Law by Super Lawyers Magazine, a Leading Lawyer in Condominium & HOA law by Leading Lawyers Magazine, and as a Best Lawyer in Real Estate Law by U.S News and World Report’s Best Lawyers Publication. Hirzel Law, PLC represents community associations, condominium associations, cooperatives, and homeowners associations in Michigan and Illinois. He may be reached at (248) 450-0339 or kevin@hirzellaw.com.