Limiting Rentals

There are several forums on this subject but they are years old so I am starting a new one....

The builder sold his remaining units (12 in total) to one investor and the way they structured their homes are not in line with the new Fannie & Freddie mortgage rules. (only 10 percent of one entity can own). Our total rentals is at 42 percent (with 16 homes in total being rented). The total amount of homes in my development is 40. Also, the builder sold these homes for 1/2 the price of the original homes sold $150,000. Most homeowners in the development paid 250-350,000 for their homes.

The issue is the homeowners cannot obtain loans to refinance their homes and have brought this to the board attention. We have consulted with our attorney and there is a clause in our bylaws that the board can amend the bylasw/ccr's without membership vote if it affects Federal loans.

Our board is in discussions about limiting rentals or at least cap what is already being rented (which is 16 homes). These homes would be grandfathered and we would write a hardship clause into our bylaws.

The investors have agreed to restruture their homes to abide by F&F rules, however, they have not done so yet and in the meantime no bank will refinance a loan or a mortgage for the existing homeowners. One of our board members is a township manager and know many bank officials and all have told her that they would not issue a mortage or a refinance to our development with the amount of rentals and investors. Bank officials told her that a homeowner selling at this point would need to find a buyer who would pay cash. The original builder had his own mortgage company so many residents obtained mortgages from him when other banks turned them down.

My question is...can the board approve rental restriction since it is affecting mortgages per our bylaw/CCR provision and if we cap rentals when the grandfathered homes are sold would that restrict the new owners from renting? or will these homes always be allowed to be rented per the grandfather clause.

Any and all advice would be appreciated.

Honestly, you can't limit rental as the HOA does NOT own the property. That's the hard truth of the matter. Only California has any type of law that allows rental so far and that just went into effect last year and from that year on. No gradfathering.

It doesn't mean you can't write it into your documents. It's just not going to be enforceable. What type of punishment would you even have for that #11 person who rents if only 10 can rent? It may be worth it to them to pay the fine or suffer the punishment. Considering that many states don't allow for fines to be the basis of liens/foreclosure even a fine doesn't hold much threat. IF push came to shove.

All is NOT lost. What has happened is that your HOA can no longer recieve loans backed with Federal money. Meaning that FHA/VA/Fannie Mae/Freddie Mac loans can not be offered to potential buyers. Which are the most popular of loan packages and most qualify under. However, there are more loan types out there than those. They don't use the PUD form the other use for HOA assessment your getting the data from. Those other loans can come at a higher price such as a higher interest rate and more stringent qualifications for approval. Meaning that the loans offered would be of more "Premium" type. Which isn't that bad if you think about it. That means that people with more money and better credit will qualify. There are probably less of those type of people but those are the kind of people you want in your HOA. Good credit, money, and more likely to take care of their property.

Nothing much you can do as a HOA as a HOA can't interfere with the contract between and owner and their tenant. However, you all can educate yourselves and find out what other loan options are out there so you can make it easier for potential buyers to be warned.

Thanks for the responses so far...I have read so many forums on limiting rentals on this website. I live in PA and need advice for my state. It must be able to be done if other HOA's have done it.

I just had a meeting today with our city council woman and some other HOA leaders. We talked briefly about establishing rules limiting rentals. I pointed out that technically you can't really ban/limit rentals because of it being private property and basically she said that most associations do it because they're counting on homeowners not having the money or energy to fight in court.

But, more than likely, if an owner took you to court over telling them they can't rent, they would win. Do most homeowners know that? No, not at all. I am not saying anything about California. I am not familiar with their law.