Setting a Penalty Amount

Me again, asking about a rental restriction amendment.

Let me start this by saying that I am now in agreement with those people who are recommending against a rental restriction amendment. I like the goal of trying to restrict the amount of units that can be rented but the more I learn the less I like the idea of having to enforce it. But all that being said I still have questions about details of what is being proposed.

The final paragraph of the rental restriction proposal says that any unit that is rented or leased in violation of the rules will be subject to a $250 penalty per month with a 10% per annum interest for unpaid fines. It states the Board may record a lien against the unit to enforce payment. And it says that the cost of levying and collecting of fines and the lien and attorneys fees are to be paid by the owner.

Keep in mind that this is in an expensive area of California and the rents are quite high in our neighborhood. The three units that are renting now are probably paying $2000-2500 a month. Two of the three owners that are renting bought the units many years ago and probably have costs (mortgage, prop tax and HOA dues) of less than $1000/month. That is to say that for some owners that would decide to break the rental restriction rule the $250 fee would not be a disincentive. They could pay the penalty and still be making a nice income.

- is it useful to define a penalty amount in the CC&Rs? Does that give more enforceability?

- if it is useful to define a penalty amount should the penalty be a fixed amount or should it be stated as something that could hopefully track inflation, like stating it as a factor of the dues (which would sort of track inflation), like the amount would be equal to the monthly dues, or twice the monthly dues?

- is there an issue of the reasonableness of the amount that would be taken into account? It seems to me that in order to discourage some owners that have low costs it might take $1000/month penalty as a penalty. If a case went to court to collect would judges be inclined to say the whole thing is invalid because the penalty amount is ludicrous?

Donna,

Thank you. I figured as much. But how about the other aspects? Is there such a thing as too high a penalty to be considered reasonable? While $250/month seems high to some it might be too low to be effective so I would be inclined (if I even was going to vote to pass it) to make it much higher.

and secondly, with the potential for runaway inflation, putting in a fixed dollar amount could be out of date very soon. Our dues are currently $320/month. That could be the cost of a loaf of bread in a hyper inflationary period. Wouldn't it be better to tie the penalty to something that might have a chance of growing like the dues? (that's assuming that the state laws limiting dues increases might need to change too). Maybe make it something like the penalty is set at three times the current monthly dues - not a defined amount in dollars? Is this done in CC&Rs?

Tino

I would not put any amount in the CCRs. Instead, just say the board will set the penalty annually. (to be set by the board . . .)

What if it's too low, too high? You will have a difficult time adjusting it.

(PS - of course in this economy, you really don't think you are going to tell people they can't rent their properties?? What's wrong with renters? As long as they abide with the rules, what's it to the board? Just be sure you have your rules and regulations and CCRs up to date and enforceable)

Steve,

I have absolutely nothing against renters. I was talking about investors. It was the greedy investors who drove the home prices sky high and we all know what the consequences were. I know they didn't cause the whole problem but they were big contributors. How many people who are now losing their homes bought at those ridiculously high prices?

Did you read the other portion of my response about the FHA restictions? It's our fed gov that is putting restrictions on rentals and that is what is causing so many condo BODs to adopt rules to limit rentals.

Snake,

I didn't say investors caused the problem, only that they contributed to it.

Yeah, I see a major problem; but, leave it up to the Fed govt to be the cause of it!!! I can understand that many condo BODs are in a quandry as to what the best thing to do is.

SnakeP: Neither your language nor tone are allowed on this website. Our posting rules state: " Post any relevant topic you like, but please keep it clean, helpful, positive and friendly."

Also, you signed up under a false name which is also not allowed.