Mortgage Loan Market impose restrictions on number of rentals in HOA?

Started by MargoT • 3 replies • 1429 views

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MargoT (Georgia)
Posts: 80

Posted:

We have 16 owners and 10 landlords that rent their properties.

Does anyone have any knowledge of mortgage loan market imposing restrictions on the number of rental Units in a HOA?

We are a new and legal HOA and just selected a date Special Meeting of the Members to review and approve Bylaws written by the Board. After this happens, the Board will be in a position to make resolutions or policies or rules.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Margo,

It's not the mortgage loan market (although I suppose it may be seen that way) that is imposing the restrictions. It was done through the U.S. DEPARTMENT OF HOUSING AND URBAN Development as required by the laws enacted when the housing bubble burst.

Basically, FannyMae and FreddieMac are the main purchasers of mortgage notes when the initial lender sell them. Fanny and Freddie must compy with the requirements outlined by HUD. Therefore, lenders will base approval for most of their loans on the HUD requirements so they can be easily sold to Fanny and Freddie.

Here is a link to the requirements by HUD: Mortgagee Letter: 2012-18

Here is a link to all the Mortgagee Letters published by HUD.

Note, not qualifying under HUD does not mean loans can not be gotten. It just makes it harder and the prospective buyer may have to pay a higher interest rate.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

What Tim stated is correct. I just wanted to take it further by making sure you also understand it is a catch 22 situation when it comes to rental. Yes, having a high amount of rentals does effect the ability to get certain kind of loans to offer potential buyers/refinancers and paying higher interest rates. That is the real effect rentals have and not just the "disturbing the peace" type issues.

The catch is that many states do not allow for HOA's to limit or restrict rentals. You can write them in your HOA's documents all day long but they aren't legally enforceable. The HOA's CC&R's can't supercede local/state/federal laws. You also have to consider that a HOA does NOT own the property itself and can not interfere with the contract between a renter and tenant. This also extends to the fact renters do have rights that even the owners who are renting have to abide by.

I'd recommend not going down the road about rental limitations/restrictions. It is a good and valid idea. However, sometimes even the best ideas can't be pursued. Concentrate on other things instead. Just expect to have lots of questions on the matter.

Former HOA President

LauraR5 (Tennessee)
Posts: 220

Posted:

A further catch 22: if someone can't rent their place and can't pay for it, they get foreclosed on. Foreclosures are even worse than rentals on your chances of getting an FHA mortgage.

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