Believe it or not, the risks of AI in HOA platforms are real. As artificial intelligence takes the forefront of technological advancements, an increasing number of communities are shifting to the use of AI-powered programs. Before taking the plunge, boards must understand the legal implications associated with the use of AI.
What are the Legal Risks of AI in HOA Platforms?
The use of AI is becoming more prevalent in the HOA management industry. AI-powered tools, such as ChatGPT and Google Gemini, can assist boards with a wide range of tasks. These include drafting documents, analyzing budgets, and researching possible vendors. They can even create meeting minutes and prepare meeting agendas.
Although these tools can boost efficiency and reduce administrative burdens, they do come with legal drawbacks as well. Boards must remember that convenience doesn’t mean they can ignore their responsibilities. Without proper safeguards, integrating AI into HOA operations can create serious challenges for volunteer boards.
Here are the legal risks of AI in community associations.
1. Data Privacy and Confidentiality Risks
One of the most prominent risks of AI in HOA platforms is data privacy. AI platforms often ask for input from the user, which can include sensitive homeowner data or financial details. This can create authorization problems, especially for open-source AI.
It is advisable to use closed-source AI, which private companies control. This type of AI offers more protection. Still, even these tools can pose risks if the association misuses them. Once a board member enters the information, there’s no guarantee that it will remain confidential.
2. Drafting Legal Documents or Policies
AI can help associations draft documents, amendments, contracts, and even rules in a matter of seconds. Still, this speed isn’t foolproof. AI can still make mistakes, include illegal terms, and have omissions.
Association boards should still refer these drafted documents to an attorney for review. An attorney can identify loopholes and conflicts with state laws or the governing documents. While AI can be beneficial for navigating legal issues, it is not a substitute for actual legal counsel.
3. AI-Based Decision-Making and Fiduciary Duty
Board members have a fiduciary duty to act in good faith and make informed decisions. This means they are expected to consult professionals for advice. If the board relies solely on AI for recommendations and decision-making, courts may consider this a breach of fiduciary duty.
4. Liability for AI Errors and “Hallucinations”
Inaccurate information is another risk associated with AI in HOA platforms. Referred to as “hallucinations” in the tech world, these are fabricated information passed off as correct. AI tools are pretty well-known for generating these hallucinations.
When boards rely on inaccurate information, they can make a wide range of incorrect decisions. The HOA could then face lawsuits or disputes from homeowners.
While fact-checking is an easy way around this, it’s not a solution for interpreting legal documents. For instance, if the board requests AI to interpret its CC&Rs and it provides an inaccurate answer, this could result in improper enforcement.
5. Bias and Discrimination Concerns
Finally, bias and discrimination concerns are also risks of AI in HOA operations. Some AI tools unintentionally discriminate against people, which can violate the Fair Housing Act or state-level fair housing laws. It is still best to have a human expert review any enforcement or employment issues to ensure legal compliance.
Fiduciary Duty and AI Use in HOA Governance
Board members have a fiduciary duty to act within the association’s best interests. This includes practicing due care, turning to qualified professionals for help when necessary, and making decisions in good faith.
Right now, AI can’t meet this standard. No court recognizes AI as an expert or qualified professional. Simply referring to AI tools for guidance may be deemed a breach of the board’s fiduciary duty.
AI is better used for administrative work. The board can use AI-powered tools to streamline operations and automate repetitive tasks. For professional advice, it is best to rely on an experienced, certified, and qualified expert.
Best Practices for Safe AI Use in HOAs
Some boards may feel anxious about using AI in their operations, but it is entirely possible to adopt AI safely. The key to this is to establish safeguards and ensure that AI doesn’t replace human oversight.
Here’s how to reduce the legal risks of AI in HOA platforms.
1. Create an AI Use Policy
First, the HOA board should establish and enforce clear guidelines for the use of AI within the association. The policy should indicate what the association can use AI for in specific terms. It should also outline privacy protections to ensure that no confidential information is leaked.
2. Require Human Oversight
Boards should require human verification for all AI-generated work or advice. While AI can help analyze large datasets and provide recommendations, the board shouldn’t blindly follow. Board members and relevant professionals should still double-check AI output before implementing it.
3. Consult Legal and Industry Experts
AI can’t replace attorneys, accountants, and engineers. If the board needs advice from these experts, it is best to consult their human equivalents.
4. Review Insurance Coverage
To better protect the HOA from liability, boards should invest in proper insurance coverage. Board members should consult their insurance agent to determine if their D&O insurance or cyber liability policy covers AI-related errors or breaches.
5. Train Board Members on Responsible AI Use
Boards don’t stay the same forever. New volunteers are elected every year, and it is imperative to pass on knowledge on responsible AI use to each new set of board members. The HOA should offer training sessions on the use of AI, its limitations, and its legal risks.
The Future of AI in HOA Platforms
As tech giants continue to invest in and improve AI tools, AI will likely take a larger role when it comes to HOA management. That said, states will also start to catch up on these advancements and develop clearer regulations on how associations can use AI.
Since laws have yet to incorporate the risks of AI in HOA communities, boards should attempt to strike a balance between embracing AI technology and proceeding with caution. Responsible AI use is paramount to reduce the risk of legal liability for both the association and its board members.
The Good and the Bad
There is no denying that AI offers efficiency, productivity, and convenience. While the use of AI continues to grow, boards shouldn’t discount the risks of AI in HOA platforms. It is essential to enact policies that will help safeguard the association from potential liability.
An HOA management company can help navigate the use of AI and avoid legal risks. Start looking for the best one in your area using HOA Explore!
