Requiring Owner to Reside in Unit for Specified Time Before Renting

Hi Jen:

Actually this is potentially one of the better ways to control investors purchasing a bunch of units to flip or just rent. This method you mentioned would be easier to control and is more equitably distributed to everyone. You may need to grandfather current owners (especially if already rented), but with this in place all new purchasers would be aware before buying they cannot rent for first year and maybe eliminate flippers.

If you limit the number of units which can be rented you can run into issues with regards to not everyone can rent, so how do you determine who can, claims of fairness, etc., also it is more difficult to control overall.

Jen,

They don't necessarily have to occupy them. Just do as Donna suggested and require ownership for 1 or 2 years prior. Perhaps she can provide the verbage of the amendment they use.

Tim

This is something that the bank's typically control when purchasing the property. Despite the wishful thinking of many HOA member's, limiting rental property is really impossible unless the HOA actually owns the property. The ultimate decision is the mortgage company that loaned the money out IF the resident can rent the property out.

There are laws in some states like Florida, that investers/flippers can face significant fines or prison time for purchasing multiple properties in a short time limit. This is a direct result of those flippers/investors who purchased property, did crappy renovations, and then stuck the owners/members with a lemon.

I believe the typical rule is 1 property purchased per year. It has to be used as either main residence or dedicated rental. If it is the main residence, the other rental property must have a signed 1 year lease before the bank will loan out the money. (My bank did this to me). Some type loans like FHA have rental property restrictions written in the loan. My ex had a stipulation of he couldn't rent out his home for 5 years after purchase.

So limiting rental I am sorry to say, is really up to the mortgage companies in what they allow more than any restrictions a HOA may want to stipulate. I hate to say it. However, if your HOA does have these rules regarding rental limits, a good lawyer could easily fight it in court despite the HOA's best intentions. A HOA can get away with rental restrictions as long as they can, but until a owner catches on they can easily fight it, it doesn't hurt to have it on record.

Jen, it's not a bad idea but IMHO you can't do it by changing the By-Laws, it would require an amendment to change the Declarations. If the declarations allow renting without restriction, you can't modify them with a rule.

This is an issue that is becoming more of a problem. A lot of buyers now, acording to local realtors, are investors and not people looking to buy a home to live in.
It is difficult to get owners to change the declartion to limit the number of rentals because they are afraid that they will be caught some time down the road unable to sell or rent their property.
As you probably are already aware, the FHA won't loan money if more than 50% are rental properties. A bigger problem if you are a small community. Many buyers want FHA loans because they can't afford the higher downpayments of a conventional loan.
Ohio laws governing condominiums gives the board authority to change the documents to limit rentals at 50% without owner approval to conform to the FHA requirements. That is still too high but at least it provides a stop gap. You should check what your state allows.

Tim,

Here is the rental clause in our Restrictive Covenants.

LEASES>
"Each lease entered into by an Owner shall provide, and if it does not provide, it shall be deemed to provide that: (i) the leasee thereunder shall be subject to all of the Whi....Sou....Documents and shall abide by and be obligated to maintain the Lot and Dwelling unit to the same extent as the lessor and that failure to abide by the foregoing shall be deemed a material default under the terms of the lease:

and(ii) the Association shall have the right to enforce the terms of the lease as the agent of the lessor. Notwithstanding the foregoing, an Owner who leases his Lot and or Dwelling unit shall remain liable for all of the obligations set forth in the Whis.Sou...... Documents.

In addition, an Owner who leases his lot and or Dwelling Unit must submit to the Association, an age verification form for the intended occupant (s) as more set forth in (paragrapf xxx)

AFTER THIS AMENDMENT IS RECORDED IN THE PUBLIC RECORDS OF XXX COUNTY, ANY OWNER WHO ACQUIRES AN INTEREST IN PROPERTY OF (XXXX Assoc) MAY NOT LEASE, RENT OR LEND OCCUPANCY OF THAT RESIDENTIAL PROPERTY FOR A PERIOD OF 2 YEARS from the date of legal purchase."

Then there is more legal blah, blah.

I have done a HOA foreclosure. It was a complicated rent-to-own situation in addition. The owner had a second-mortgage and was having the renter pay that off while they maintained the title to the property. Yes, there were parts of it ILLEGAL which the RENTER was able to WIN their case...It taught me a few things in the process.

The amount of rental basically limits the TYPES of loans available to buyers. I used to fill out the paperwork each year in regards to what everyone is talking about. It's about 25 questions long and asks various questions about the HOA business. There is a place on that questionaire on the amount of properties that are Owner occupied and how many are rental. Plus how many deliquencies and other financial questions.

I believe this form is put out by HUD - Housing and Urban Development. A GOVERNMENT agency. It is this form that lets the Mortgage companies the status of the HOA. The form seems to be used for the loan programs such as FHA that the government is involved in. There are many loan programs out there that the government don't have their hands in. They may use this data from HUD to limit their loan programs.

Certain areas are approved for certain type loans. Not all areas qualify for FHA loans. There is a limit on Freddie Mac homes. You usually won't find a Freddie Mac loan in a Million PLUS dollar suburb. The loan companies recognize this and base their lending policies in reflection of this.

All this means to a HOA is that their property may not sell to certain approved buyers. This just limits the options of potential buyers. Less pool of buyers means harder to sell the existing property. Harder to sell property keeps sellers displeased. This in turn increases the likelyhood of them turning their property into rental... Hence the circle begins...