Conversion from Condos to Town Homes

Started by DebbieS5 • 6 replies • 2627 views

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DebbieS5 (Georgia)
Posts: 5

Posted:

I am new to this forum and also a new board member. I am currently the president of a condo association with 48 units in Georgia. The problem we are having is not qualifying for FHA or convientional financing due to our covenants not restrict short term rentals. We have several owners that advertise their units for short term rentals and several other owners that rent their units out to friends and family for weekends. One owners is trying to obtain a mortgage and he is being denied for the above reason. His mortgage broker has recommended that he petition to have the covenants changed read "rentals will be restricted to no less than one month in length". The brokers other recommendation was to convert from Condos to Town Homes which will cost around $24k. One of the board members suggested that we take the $24k out of the reserve which I don't think we can legally do. Does anyone have experience/recommendation in this process? I have googled this question and can't find anything.

GlenL (Ohio)
Posts: 5,491

Posted:

The brokers only interest is to sell the home and make their commission. I would suggest you discus your concerns and options with the HOA's attorney. Depending on how many people rent their homes, you may be unable to get the required number (usually 67-75%) to change the rental covenant. To change from condo to townhome may take an even higher number including the mortgage holders. They granted the mortgage to one type of dwelling and may not be willing to change.

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

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Debbie

Do not, never, never, never, ever, ever, ever, take legal advice from a real estate agent, especially concerning something of this magnitude nor take it from this forum either.

First discuss the issue with your association attorney and even then be sure it is within their area of expertise.

The FHA rules/guidelines, whatevers, are not that difficult to meet and some say that in general they are ones an association might just want to follow especially concerning rentals and reserves.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Debbie

As I undertsnad it, these are the FHA guidelines:

1. Is the association involved in litigation, other than foreclosure proceedings involving unit owners? If so, HUD will need to review this issue at the time of approval.

2. Is there currently an active special assessment, collection or associated work, or is a special assessment planned within the next 2 fiscal years? If so, HUD will need to review this issue at the time of approval.

3. Does your current fiscal year's budget reflect a minimum of 10% of the standard assessment value being deposited into reserves?

4. Does any unit owner own more than a single unit? No entity may own more than 10% of the units within any association. The developer of a condominium is exempt from this calculation IF AND ONLY IF the turnover to the association has not taken place.

5. How many units are in your association and how many of them are more than 30 days behind on HOA dues? Must not exceed 15% of units.

6. What is the current owner occupancy percentage (non- renters) ? Must be greater than 50%.

7. Does your association maintain Fidelity Bonding equal to no less than the sum three (3) months' standard assessments PLUS the sum of the current balances of all reserve accounts, combined.

I would say any association not able to meet them should start looking inward.

Hope this helps.

DebbieS5 (Georgia)
Posts: 5

Posted:

Johnc

1. Is the association involved in litigation, other than foreclosure proceedings involving unit owners? If so, HUD will need to review this issue at the time of approval. NO LITIGATION

2. Is there currently an active special assessment, collection or associated work, or is a special assessment planned within the next 2 fiscal years? If so, HUD will need to review this issue at the time of approval. "NO"

3. Does your current fiscal year's budget reflect a minimum of 10% of the standard assessment value being deposited into reserves? "YES...15%

4. Does any unit owner own more than a single unit? No entity may own more than 10% of the units within any association. The developer of a condominium is exempt from this calculation IF AND ONLY IF the turnover to the association has not taken place. "NO"

5. How many units are in your association and how many of them are more than 30 days behind on HOA dues? Must not exceed 15% of units. "NO"

6. What is the current owner occupancy percentage (non- renters) ? Must be greater than 50%. Ours is 70%

7. Does your association maintain Fidelity Bonding equal to no less than the sum three (3) months' standard assessments PLUS the sum of the current balances of all reserve accounts, combined. "YES"

We meet all of the above. The only issue we are being told is that a few owners are advertising their units as short term rentals and Fannie Mae says no to short term rentals and considers this as a condotel.

DebbieS5 (Georgia)
Posts: 5

Posted:

Agree Glen...was just trying to find out if any other association had done this. I don't believe we would get the required 2/3s vote to restrict short term.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Debbie

As you said:

"""""""We meet all of the above. The only issue we are being told is that a few owners are advertising their units as short term rentals and Fannie Mae says no to short term rentals and considers this as a condotel."""""

You are "being told".....

If you have no knowledge, then answer to the question is no.

Do not be "scared" by the FHA Rules.

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