Restricting # of Leased Unit in Condo Community

Cindy,

As you know the rental restrictions are so the complex qualifies for FHA certification.
Per the HUD Mortgagee Letter: 2012-18 this certification now allows up to 50% rentals.

Most problems with rental restrictions come when there is that one more owner wanting to rent than the restrictions allow. Typically, most Associations don't have a policy in place on how to allow owner A to rent this year but not next year because it's owner B's turn to rent.

From my research it's my opinion that anytime you enter court, even if the law is on your side, at best you have a 50/50 chance of winning.

Overall I garre with Mel. My experience says it near impossible and maybe illegal to try and limit the amount of rentals (except CA) no matter what the BOD/owners might want, agree, or the amendments they pass.

I've done the research and California is the only real state with the ability to do any kind of restrictions. It just happened in the last 2 or 3 years. Still only applies to those HOA's formed in that year and beyond. There are no grandfathering. Surprising as you think this would be possible and in existence. Even the 2 year restriction is kind of self-imposed and a reflection of what many restrictions the mortgage companies have. It works because mortgage companies who lend the money have such restrictions. So if a majority of owners qualify for these type of loans, then there is no problem with HOA's for having this written in without much fuss or enforcement. It is up to the mortgage companies then.

Now Florida is a different animal altogether. It's not exactly a "rental" issue. The problem there extends from those investors who buy up condo's who do shotty work. They then sell these properties to unsuspecting buyers who find serious issues with nothing they can do about it. However, the law finally did catch up and many don't know about this. It makes these investor's in the flipping business hold onto the property for over a year and thus limiting the number of units one can buy/sell. It does not mean one can not own multiple properties. They just can't sell them off as fast and can face penalties for selling off bad property. Some of these investors have gone to prison for 10 years for ripping off buyers.

This is not exactly a "rental" issue than a con-man's game. This is a good thing for those who have been ripped off buying one of those bad condo's everyone has heard stories about. It is a way to get justice from those out to make a quick buck. So even though NOT a rental restriction per se, one should be aware of that type of situation out there. It may confuse the issue for those who think they found a rule of their state allowing rental restriction. It may not be for a "HOA" but a law in general about the number of units you own as investment. Something one should be aware of when trying to translate what intent a law they may find.

Cindy,

I would suggest defining the term "rental" very narrowly. I would consider it to be a rental if the only relationship between the owner and the occupant was that of landlord and tenant.

Here are some real-world examples where a lack of definition can cause problems:

1. Mom and Dad buy a condo for Muffy and Johnny to live in while they attend a nearby college. Mom and Dad live elsewhere.

2. Grannie owns a condo but has moved into a nursing home. Her granddaughter moves into the condo while Grannie's situation is being sorted out.

3. Dick and Jane own a condo and place the condo in the family trust. Technically, Dick and Jane are no longer the owners.

4. Bob is the president and only director of a small corporation. The corporation purchases a condo and Bob lives in it.

Some would consider all four of the above scenarios to be rentals as the occupant is not the owner. I would not be so narrow-minded. In each of the above cases, there is some other relationship besides landlord and tenant between owner and occupant. There is no offer to rent to the general public nor does there seem to be an intent to make the units available to anyone other than those identified above.

As Tim's citation of an AZ legal newsletter points out, some states do permit rental limitations in HOAs. I believe, but am not sure, that MD is another one and perhaps DC. The newsletter, however, is dated 2010, and since then CA legislation, eff. 1/12, no longer permits rental limitations except if in place in HOAs prior to the effective date:

" . . .the California Association of Realtors (CAR) inserted itself in the HOA industry and sponsored legislation that became Civil Code §1360.2 which exempts owners in a common interest development from rent restrictions unless the restriction was in effect prior to the date the owner bought into the development. The statute took effect January 1, 2012." Read more: Rent Restrictions http://www.davis-stirling.com/tabid/1322/Default.aspx#ixzz2S9J3S8Rf.

I am uncertain where Melissa's "research" comes from. Citations always are a good thing.

Again, I don't know about MI, which is Cindy's topic.

As aside to Matthew & John46's asides, our HOA also has at least two units owned by parents, occupied by adult offspring. Now I don't count them as rentals and, in fact, don't know if the residents pay rent to the parents. I don't know how FHA or lenders classify these units.

If the HUD guidelines are now 50% rentals, I'm not even worried about restricting it. We have people self-report rentals and that number is 14%, but I would guess the number is a lot higher than that, but it's definitely not half.

Our HOA attorney told us the only real option that survives legal challenge is to make a provision that the house has to be owner-occupied for a certain period of time. Now, I am in Tennessee, so that may make a difference.