Rental Restrictions

Our community has between 20-30% rentals. It may be true that all renters are not destructive and can be good neighbors, but it is not the case here. We are contemplating changing the CC&R's to restrict the number of rental properties. We would like some feedback on this idea and also some sample verbage to use in the CC&R's.

We're in Arizona, but that is interesting information. Our management company first suggested rental restrictions and hopefully they are aware of the legality. Not that I have a great deal of confidence in them.

I am on the CC&R committee and have been nominated to fill a vacancy on the board (only nominee).

This is a frequently asked question and issue with HOA's. The simple answer is "No" you may not restrict rental property. (Unless all property is owned free and clear). Restricting Rental property lies with the MORTGAGE/BANK/LOAN companies. They are the ones that can put restrictions on the use of property.
If you have renter issues, your best bet is to hold the OWNER responsible. The HOA legal recourse is to hold the OWNER feet to the fire. Keep in mind, renters do have rights and the owner's may not be able to make the renters move in a timely manner. It can take 6 months to a year in some states to get renters out. So be careful to assume the owner isn't doing something.

Our attorney told us that we can put an amendment in our documents limiting rentals, however, if it was ever challenged in court it wouldn't hold up. He suggested doing it as a scare tactic with the understand we would have to fold if it was challenged.

BradP - fire your attorney.

Mary:
JM2, has great advice as concerns Freddie Mac.
We are located in Maryland. The Maryland Homeowners Association informed us when we inquired about this issue that mortgage companies are no longer required to write mortgages in our community, once the rentals exceed 30%.
You can bet the home values will decline once the rentals reach this point.
We have "forced" a landlord to evict his renters by the end of this month. We were able to do so because, they have terrorized the community for the past ten years (as the boys have grown older, they have gotten worse)
We had called the owner before the board on several occasions, and finally told him we would fine him for EVERY violation committed by his tenants. Rather then pay the fines, he consented to having them evicted.
We do have some decent renters, but will not permit comming anywhere close to 15%.
Good luck
Jim

My experience.
Currently we have about 60% rental in a 65 condo unit in SC. We are on the coast and considered a resort (what ever that means) I don't think a resort means anything pertaining to Condo laws.
Anyway, more than one has posted that Fannie Mae and Fredddie Mac will not approve loans if rentals get above 30%. Don't know if this is a state thing but I know for sure that numbers of buyers of condos in SC go to bank or someplace and use a Multi-state Femae and femac forms to mortage property. They get all kinds of high risk mortgages such as interest only, etc. Then they attach a Condo Rider and a Second Home Rider (which states they can not rent, imho, close the deal and put the property on the rental market. I called a Bank and asked if I was applying for a mortgage in a condo that had high rental numbers, could I get a Fanie Mae loan. They told me not to worry, if I am qualified, they will get me the loan no matter what the rental # were. I called a Real Estate Office and said I was just looking at condos where I live and asked the same thing of them that I did the bank. They replied, don't worry about it, we will get you the money.
I have been contacting Federal Agencies, State, and County government.
I can not get a definitive answer from any of them. I am still trying.
Has anyone else run into this? I get a real sense that this happens all the time and it is something no one wants to deal with.
Our Board sees it as a non-problem.

Robert, there are already laws on this effecting condo's mostly. It started in florida. The history behind the law is that developers/flippers/professionals whatever you want to call them were buying run down condo's. They would quickly repair the condo's and resale them in a matter of months. Often times the materials used were shotty or caused damaged to other units. Lot's of stories on bad plumbing issues that flood the downstairs condo making the new owner responsible for the repairs for BOTH units etc...
In order to stop this, a law was created. Sorry I can't quote it directly. I am not an "internet lawyer wannabe". However, with enough research you may be able to find it or ask a mortgage company. This law limits the number of rental units a purchaser can own within a time period. From my own experience, I know that I could only purchase 1 rental property a YEAR and keep my own home. However, to do this I must have a 1 year lease signed on the rental property for that first year.
The new law has sent people to prison already. I read that one person in florida got almost 10 years for purchasing multiple condo's and selling them with serious problems. The new owner's were stuck with the problems and couldn't sell the property.
So if your so concerned about this issue of rental property, you should know the laws and regulations of owning rental property. Do the research from the point if you were to rent your home out and got bad renters. You will find another whole world out there. I know I found out the hardway about rental property. I don't assume owner's using their homes as rental property have any intentions of doing so at the risk of devaluing their property or the ones around them. Owners can get behind laws that aren't in their favor.

For Linda and Lance,
To get back on point, let me ask both of you these questions?
1. Do you believe if you sign a second home mortgage and rent out the property are you doing anything wrong.
2. If you follow this practice and enough people do the same thing are you putting the Condo Regime on shaky ground.
3. Is it legal to get a Fanie Mae Mortgage in a Condominium without obtaining information from the regime.
4. Should the BOD care about any of this?
5. Is there a standard Fanie Mae form to be filled out by condo and who determinees what goes on that form.
6. Our CC&R's state all deeds have to be General Warraanty Deeds. What does this mean? What should it mean to our regime?

Anyone fell free to chip in or e-mail me direct. Click on RobertR1

1. Do you believe if you sign a second home mortgage and rent out the property are you doing anything wrong.

IMO Answer: It depends on the situation. Are you doing this because of personal financial reasons? Signing a second mortgage on a home and then renting it out could raise some financial alarms. Usually, second mortgages are taken out for items such as major remodeling or repairs. Nothing wrong with taking out a second mortgage but using the rental proceeds to pay it off seems like an attempt at some "financial wizardy". To me I wouldn't do it. However, there's really nothing wrong with it if you can get away with it. My rule of thumb is if I have to ask myself several times if it is questionable, then it usually is...

2. If you follow this practice and enough people do the same thing are you putting the Condo Regime on shaky ground.

IMO answer: Renters don't vote Owner's do. What your putting at risk is having to many "No show" owners running the place. This is the problem with rental property when you have a large group of "hands-off" owners. Things get neglected or broken and then the bill for repairs comes in. Guess who pays that bill? The owners. If you notice a raise or special assessments coming your way, then you know this is an issue. Renters aren't responsible for repairs or paying the dues. They are only obligated to the owner to follow the rules and pay their rent on time. The owner is obligated to the Condo "regime".

3. Is it legal to get a Fanie Mae Mortgage in a Condominium without obtaining information from the regime.

Answer: It isn't the responsibility except the BUYER's to get information on the HOA/Condo. The CC&R's are filed at the court house records department. Realtors should inform the buyer of the HOA/Condo board existance and dues rates but aren't required. Mortgage companies must know about the HOA's/Condo dues rates but NOT the rules. The former owner as a "courtesy" should provide the copies of the paperwork at closing but aren't required as well. The condo board may be contacted by the buyer to get a copy or the seller could be nice enough to get a copy for the buyer at closing. It's a BIG misconception that Realtors, mortgage companies, HOA/Condo's or seller are responsible for the buyer's being informed of the rules.
Fannie Mae, Freddie Mac, or other type loans aren't guaranteed to be offered in your area or your condo. This may sound "crazy" but in some cases certain areas don't qualify for certain loans. It may depend on the growth, price, or type of housing in the area. A fannie mae/Freddy mac loans are more for high credit risk or low income families. You may want to consult a mortgage broker to see what loans qualify in your Condo.

4. Should the BOD care about any of this?

IMO answer: Yes and no. It depends on the situation. If your renters are good and provide no major issues then no problem. However, if there are groups of renters who don't obey the rules and the owner's have been notified several times, then the BOD should be concerned. Limiting rental isn't going to effect this situation. No one knows how good or how bad a renter is going to be. Plus add on that it can legally takeup to 6 months to a year to kick a tenant out. All the BOD can do is keep the owner's feet to the fire and notified.

5. Is there a standard Fanie Mae form to be filled out by condo and who determinees what goes on that form.

Answer: There is a form. However, it is not just for Fannie Mae loans. It is mostly any loans that funds are partially government subsidized. HUD does have a 25 question form that is filled out at closing by a HOA representative/Board officer. This form includes information about things such as dues collections, rate of non-payment, Fee-simple classification, how many units and possibly any units in debt collection by the HOA/Condo? Not every loan requires this form. It mostly used for statistical data by HUD.

6. Our CC&R's state all deeds have to be General Warraanty Deeds. What does this mean? What should it mean to our regime?

Answer: Ask a real estate agent on this one. I am not sure what it means for sure. It's probably part of your closing papers. There are several different "warranties" involved in the closing of one's home. I don't think it has anything to do with the condo association as much as it does with the owner's contract. It's in the rules so that homes meet certain standards as far as I know.