Am I obligated to a CC&R change I disagree with?

Started by JamieL3 • 16 replies • 3086 views

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JamieL3 (California)
Posts: 8

Posted:

My Board made an amendment to our CC&R's after I already owned a unit which states that only 4 units can be rented at any given time (out of 24). The CC&R document that I signed at the time I purchased my home does not have such a provision in it.

Secondly, I believe my CC&R document protects me from amendments with the following Provision:

Mortgage Protection Provision:

Amendment: No Amendment to this declarationshall affect the rights of any Mortgagee under any mortgage that was recorded before the recordation of any such amendment. Unless a Mortgagee either joins in the execution of the amendment or approves it in writing as part of such amendment.

Do you think I can rent my property given the above information.

DonnaS (Tennessee)
Posts: 5,671

Posted:

Jamie,
Normally , any amendments to the CC&Rs go to the membership for a vote to change them. Is that not how your work?

RogerB (Colorado)
Posts: 5,067

Posted:

Jamie, only the owners may amend the CC&Rs, not the Board. With regard to the mortgagee's (and all other owners) rights with regard to rentals you may or may not have a case. It depends on exactly what the Declarion states in total with regard to rentals. You may want to consult with an experienced HOA attorney to determine if you chose to challenge this Amendment. Restricting rentals can be challenged; I have no statistics on how many times owners have won in court.

JamieL3 (California)
Posts: 8

Posted:

Hi Roger:

Thank you very much for your response, it is greatly appreciated:

There is a provision in the Declaration regarding rentals that goes like this:

Section 7.8 Right to Lease:

The ownersd shall be entitled to rent or lease their unit for a period of not less than 30 consecutive days, provided that any lease shall be made subject to all provisions of this declaration as well as the rules and regulations established by the association, copies of which shall be furnished to each lessee.

Thanks again!

JamieL3 (California)
Posts: 8

Posted:

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Here is my "Bad HOA President" opinion... I don't think a HOA can really prevent/limit rental property unless they actuall OWN the property. Otherwise, it's one of those "wishful thinking" rules that we wish we could enforce. YES, I've heard all the rules and laws people want to throw at me on this issue... However, I still believe a good lawyer (if necessary) can get an owner past any of the HOA's rental restrictions.

If the board did change the CC&R's they should have had a vote of the membership to change. Ours requires 90% of ownership to change our CC&R's and 75% for the other documentation. These do have to be filed at the local courthouse. It's NOT free and cost thousands of dollars in the end. My guess is that they didn't modify the CC&R's and maybe the By-laws. Either way, you should be able to go to your local courthouse RECORDS department to see what the latest and greatest copy they have on file.

My argument about rental property is the fact that ONLY a Lendee like a bank/mortgage company can limit if you can use your property as rental. There are also laws out there in some states on how long you have to own the property before selling it. This is usually regarding Condo's because of the high rate of bad flippers. There are also Renter's rights that is a factor in rental property. I believe you can limit the appearance/maintenance of a HOA property but not who the owner decides to have live in it.

Here's another point they are overlooking... What is the PUNISHMENT for renting out your property? I didn't see any punitive damages associated with going over the quota. Is there a monetary fee they charge? They can't sue you if your paying your dues on time or abide by the rules. Plus, if you have to hire a lawyer, it's tax deductible as long as it is "investment property". Which Rental property is...FYI...

Former HOA President

RobW (California)
Posts: 279

Posted:

Melissa, in California, HOAs can and do legally place restrictions and limits on rentals and leases. This one, limiting the overall number or percentage of units that may be rented or leased at any given time is perfectly legal and enforceable. CIDs are communities of homeowners - not apartment complexes - and when the number of rentals gets too high, banks and mortgage companies stop lending, insurance rates go up, and the property begins to deteriorate.

Also, you have to keep in mind that in the typical California CID (condos, townhouses, or some combination of the two), the Association does, in fact, own the property and all the improvements on it.

You might say that a good lawyer can get an owner past any HOA's rental restrictions, but not if the HOA faithfully enforces those restrictions, and they do not violate local, state or federal statutes.

All of that said, the Association may run into trouble if the board tries to retroactively enforce a new amendment to the CC&Rs. There's such a thing as grandfathering that would come into play. For example, let's say Jamie did not vote for this amendment, and her property was already rented out when the amendment was passed. If the board tried to enforce the new amendment by compelling Jamie to evict tenants from the property, or to prevent it from being rented out again when it became vacant, I think even I could win that particular case, and I'm not a lawyer.

But if Jamie is living in the unit, and decides to rent it out, the new restriction would be enforceable.

That's my decidedly non-lawyer opinion on it.

Rob

JamieL3 (California)
Posts: 8

Posted:

Hi Rob:

Thank you for your reply.

I don't agree with you however. The HOA does not own my property. I own the unit and I share ownership of the common areas together with all of the other mortgagees.

The HOA does not own anything, they are only here to administrate.

Jamie

RobW (California)
Posts: 279

Posted:

Hi Jamie,

You might want to carefully review your governing documents. If we are talking about a California condo or townhouse - a stipulation I made in my post - you don't actually own the property that defines your unit. You own a membership in the Association that owns the land and the improvements on it, and your percentage of ownership is defined by the number of units you own.

If we are talking specifically about a condo or townhouse in a California CID (a unit), you only own the airspace defined by the walls, floors and ceilings. You also own the fixtures, the interior surfaces (paint, floor covering, paneling, wall treatments, etc.), and the airspace of any particular parking spaces that are deeded to you.

Rob

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Yes, rental property can effect the type of loans the mortgages approve for that community. There is a form that is required to be filled out annually by "Housing and Urban Development" (HUD) detailing 25 aspects of the HOA. That form does ask about how many units may be rental or owner occupied. It asks other questions as well.

That form is used basically for statistical purposes. Those statistics feed into the mortgage loan business. Based on those statitics they decide what risks, rates, and types of loans. Which usually doesn't effect many people accept the type of loan they apply for. For Example, a potential owner may not be able to get a FHA loan. They could get a Freddie Mac instead. Each loan program has it's own restrictions and requirements. Which upon investigation of the potential homeowner may not select. Which may in turn limit the pool of potential purchasers.

I think there are other ways of dealing with renters than limiting having them. Especially with the rampant of foreclosed properties. HOA's instead should have stronger rules to enforce the owner's to maintain their property. Hold the owner's feet to the fire and to take interest in their property. Don't limit them to finding appropriate financial solutions to their situation. Many people have to rent their property out while they find employment out of town/state. Limiting rental property really can do more harm than good to the owners when it's this type of economy.

Former HOA President

RobW (California)
Posts: 279

Posted:

I admit this is a tough subject, and I'll have to think about it a bit more, but the percentage of rental units isn't just a statistic in some actuarial table. There's a direct link to the price of insurance premiums charged by carriers to HOAs, the availability of refinance and primary and secondary mortgage loans, and increased crime and abuse of facilities - and the associated increase of demands on resources that have to be considered.

We've had homeowners report having refinance loans denied here because we have too many renters, even though we are nowhere near our limit of 20%. And just on an anecdotal note. I can tell you that the worst situations we have in my HOA when it comes to damages, disturbing the peace, strangers violating the pool hours and trashing the facilities, hijacking homeowner parking spaces and general violation of our governing documents are invariably the result of absentee landlords who rent out their units because they are having trouble making ends meet, and then proceed to neglect the property, ignore complaints, and get behind on their association fees anyway, because they use the rent money to pay other bills.

Then what happens is that the association is forced to expend resources on both the out-of-control and un-managed renters, and the delinquent homeowner too. And if it then comes to foreclosing, now there are renters to evict as well as thousands of dollars in assessments to collect, and what often happens is that the absentee landlord gets to skate for months or years, all the while being carried by the rest of the homeowners who can't even bring peer pressure to bear on the scofflaw, because he's not around to deal with anything.

Here is some interesting reading on the subject of rental restrictions in California.

Rob

CaroleJ (Georgia)
Posts: 70

Posted:

Jamie, do you have a definitions list in your CC&Rs? I ask because in our definition list, a mortgagee is:

Mortgagee or Mortgage Holder means the holder of any Mortgage.

The definition list also defines an owner quite separately from a mortgagee:

Owner means the record title holder of a Unit, but shall not include a Mortgage Holder.

Other definitions of interest in our Declaration in this category are:

Mortgage means any mortgage, deed to secure debt, deed of trust, or other transfer or conveyance for the purpose of securing the performance of an obligation, including, but not limited to, a transfer or conveyance of fee title for such purpose. and Eligible Mortgage Holder means the holder of a first mortgage secured by a Unit who has requested notice of certain items as set forth herein.

There is a section called Mortgagee's Rights that guarantees rights that are vastly different from an owner's. That's how you know that an owner is not a mortgagee and a mortgagee is not an owner; because an owner doesn't have 'rights' like a mortgagee. According to the Declaration owners have 'responsibilities'.

Granted, this is in Georgia, but you should check it out.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

What I read in that description is the the owner/Mortgagee is basically the person who owes the bank/mortgage company. The Mortgage Holder is the actual bank.

Former HOA President

GlenL (Ohio)
Posts: 5,491

Posted:

Chances are Jamie's documents have a clause similar to the one we have which states:

No amendment shall have any effect, however, upon a bona fide first mortgagee until the written consent to such amendment of such mortgagee has been secured. Such consents shall be retained by the Secretary of the Association and his certification in the instrument of amendment as to the names of the
consenting and non-consenting mortgagees of the various Units shall be sufficient for reliance by the general public. If less than all mortgagees consent to an amendment to this Declaration and / or the By-Laws attached hereto as Exhibit C said amendment or modification shall nevertheless be valid among the Unit Owners, inter sese, provided that the rights of a non-consenting mortgagee shall not be derogated thereby.

Studies show that 5 out of 4 people have problems with fractions

JanetB2 (Colorado)
Posts: 4,219

Posted:

Hi Jamie:

I would like to clarify please. When you stated the "Board" amended ... here is my questions:

1) Is there an Amendment to the CCR's filed with the County Records regarding this issue? OR

2) Is this just a Rule and Regulation adopted by the Board?

There is a difference here regarding the potential enforcement of the situation depending on the answers to the above questions.

An actual amendment to the CCR’s as Roger stated above would require a majority vote of the membership. It is then properly filed and attached to the properties. Because the majority of the homeowners voted and agreed to the change, it generally will stand up in a court of law as binding upon all owners. In essence when you live in an HOA, majority vote rules regarding certain changes to the documents.

On the other hand if it is just a Rule and Regulation adopted by the board, there have been court cases where the homeowner’s have won. This is generally because rules are not voted by members and are potentially therefore not as enforceable. Rules are what just a few individuals choose to make as members of the board and put upon all other homeowners. Depending on what the rule is, what it covers, and reasonableness can determine how enforceable without everyone agreeing to the rule.

JamieL3 (California)
Posts: 8

Posted:

Hi Janet:

It is an Amendment to the cc&R doc. But was never recorded with the county.

So all of the people that purchased in the last 4.5 years did not receive a copy of this Amendment.

Jamie

JanetB2 (Colorado)
Posts: 4,219

Posted:

Hi Jamie:

Per Davis-Stirling:
http://www.davis-stirling.com/MainIndex/Statutes/CivilCode1355/tabid/858/Default.aspx

Civil Code §1355. Amending the CC&Rs.

(a) The declaration may be amended pursuant to the governing documents or this title. Except as provided in Section 1356, an amendment is effective after

(1) the approval of the percentage of owners required by the governing documents has been given,

(2) that fact has been certified in a writing executed and acknowledged by the officer designated in the declaration or by the association for that purpose, or if no one is designated, by the president of the association, and

(3) that writing has been recorded in each county in which a portion of the common interest development is located.

In essence if it was not recorded, it is potentially not legal and enforceable. It would need to again be voted on and agreed to by the majority of members and properly filed in order to be legal per the above referenced statute and probable other statute time frames allowed for filing of documents.

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