Are rental properties beneficial to an HOA?

Good morning to all,

I just received a forward warning me and all Georgians of a bill that is trying to be passed this morning. I personally don’t see it happening, but then again I’ve been proven wrong, before.

“If” this was to pass it, wouldn’t be long (I’m sure) before other states may try to pass the same bill as well.

I have enclosed the article below. I would appreciate if someone could provide the link to the article, I can’t seem to find.

Help me to stop this now!

Chuck W.

LEGISLATIVE ALERT
AND
CALL TO ACTION!

March 14, 2007

Re: Legislative Effort to Prevent Leasing Restrictions in Georgia

Dear Clients, Managers and Friends:

We are writing to WARN you about House Bill 261 (“HB-261”) which would allow unrestricted leasing of Lots in subdivisions and to CALL YOU TO ACTION.

HB-261 would effectively require 100% approval for any leasing restriction or limitation adopted by associations submitted to the Georgia Property Owners Association Act. That means every subdivision could lose its character as a primarily owner-occupied community! The Bill is so broad that other common restrictions included in leasing amendments, including minimum terms for leases (6 months/1 year) or requiring the tenant to abide by the association’s rules and regulations would also require 100% approval.

HB-261 is sponsored by Representatives Judy Manning (Marietta), Bob Smith (Watkinsville), Bobby Reese (Sugar Hill), and Martin Scott (Rossville). The Bill is backed by the Georgia Real Estate Investors Association. They have hired a lobbyist who was successful in getting the Bill passed yesterday by a House Subcommittee. The Bill is now scheduled to be heard TOMORROW, March 15, 2007 at 10:00 a.m. by the full House Judiciary Committee. If adopted, Georgia would be the only state that would require unanimous approval of an amendment imposing leasing restrictions.

The elimination of the right to restrict or impose limitations on leasing could have a detrimental effect on property values in every subdivision in Georgia. Also, if leasing restrictions are accorded special status, this may very well be the first step by the Legislature to dictate other specific restrictions and activities which associations can control. We do not think that you and your association want this to happen.

Why can’t leasing restrictions be added like any other amendment by a two-thirds (2/3) vote of the members? Why should leasing restrictions and limitations be carved out and given special protection? Because investors want it! The wishes of two-thirds of the owners of a subdivision, a super-majority, should not be made subservient to the desires of non-resident landlords which would be the result of this Bill.

We urge each of you to contact your local Representative TODAY and express your firm opposition to this Bill. TOMORROW WILL BE TOO LATE!

Please help us help you protect your rights and investments in your communities by doing the following:

Find your Representative

To locate the name of your local representative, go to http://www.congress.org/.
The home page for the Georgia House of Representatives is at http://www.legis.ga.gov/legis/2007_08/house/# and complete contact information for each Representative can be found in the Legislature’s current picture book at:
http://www.legis.ga.gov/legis/2007_08/house/downloads/2007pictureBook.pdf.

What to say?

When you contact your representatives tell them that you are a constituent calling or writing to oppose House Bill 261 because of the detrimental impact it would have for your community association and you personally and the rights of homeowners to protect their number one investment: their home. Let them know that there is already a process established for adopting restrictions in covenants, which is by a two-thirds vote of the owners and that the investment of residents in the community should not be made subject to the special interests of non-resident investors.

Call the Sponsors too

We encourage you to contact the sponsors of the bill as well to show the strong opposition to this effort to erode rights of associations across our state. The sponsors’ contact information is as follows:

Judy Manning, R-Cobb, District 32 Bob Smith, R-Watkinsville, District 113
404-656-7868 (office) 404- 463-2247 (office)
404-463-2044 (fax) 404-463-2249 (fax)
[email protected] [email protected]

Bobby Reece, R-Sugar Hill, District 98 Martin Scott, R-Rossville, District 2
404-656-0254 (office) 404.656.0254 (office)
404-651-8086 (fax) 404-651-8086 (fax)
[email protected] [email protected]

********
While we track pending legislation each Session of the Legislature and do our best to represent our clients’ best interests, there are times when many voices must be heard, not just ours. Please do your part today in the effort to defeat House Bill 261 for the benefit of your neighborhood and contact your representative stating your firm opposition to this bill.

Thanks very much for your assistance in this important effort. We value your business and our relationship with you.

Sincerely,

The Community Association Team
Weissman, Nowack, Curry & Wilco, PC

They haven't posted this press release to their web site yet, so I would guess that it's not on the web, but was simply e-mailed out to their client and/or other list. Why is limiting the number of rentals of concern to an associations? Typically, and for financing purposes, no more than 30 percent of units should be rented, and 70 percent should be owner occupied.

The 70/30 rule isn’t arbitrary. Conventional financing (mortgages that are sold to Fannie Mae and Freddie Mac on the secondary loan market) requires that no more than 30 percent of the units in a association be rented at any one time to conform to the secondary loan market requirements.

This was put in place to restrict the number of investor-owners, who, they had found, had an overall negative impact on the surrounding real estate. This was often in associations where investor owners had gained control of the association, and created long-term problems (deferring maintenace, not funding reserves, etc) in order to achieve short-term profits. If Fannie Mae won't purchase mortgages in a specific association, anyone purchasing there will probably pay a higher mortgage interest rate.

Over the years, a large number of associations have adopted, through amending their documents, limitations or restrictions on the number of rentals, and on the type of leases (i.e. no short-term leases to prevent transient rentals). Usually there was an exception clause for emergencies, i.e. deaths, transfers, job loss, etc. Although the associations often cited the above Fannie Mae issue, the main reason was often that they were just tired of dealing with absentee owners and renters. Absentee owners, as a group, care less about the association, than residents do, and board's have enough problems without getting into a long-distance fight with an absentee owner over what his renters are doing or not doing. So you get restrictions and limitations.

JoeW1 is right that the legislation can't affect the requirement that the renters abide by the association rules, those run with the land. But no new amendments relating to leasing would be allowed without 100% approval, effectively eliminating the ability to have any, unless they were already in the documents, which they rarely are, because developers usually want to have the ability to lease any unit they can't sell.

By removing the ability of the association to restrict or control rentals, and then requiring 100% of all owners to impose any such restrictions, would effectively prevent them permanently. In our state, most of the documents written in the '70's had the 100% requirement to amend some portions of them. This proved so disastrous in trying to fix badly written docs that the legislature changed that to 75%. Not even the US Constitution requires 100% for amending.

Joe

They don't, they just don't buy any more mortgages on homes within the association, which usually makes it a little harder for someone trying to buy a unit there to get good financing, which makes it a little harder for an existing owner to sell. I have no idea whether they actually enforce this, but it's their policy.

Joe

I fail to see why HB-261 would allow unrestricted leasing of Lots in subdivisions? If anything, doesn't it raise the bar by making 100% of the owners decide something that MAY directly impact their property value?

How is it the fault of legislature that an association may experience owner apathy?



Baloney. all resident's, tenants or otherwise, must abide by the rules and regulations. 100% of the owners, their guests, or tenants, must abide by this by acceptance of a deed.[/quote]

JoeW1,

I’m not following what you’re saying at all here, “I fail to see why HB-261 would allow unrestricted leasing of Lots in subdivisions? If anything, doesn't it raise the bar by making 100% of the owners decide something that MAY directly impact their property value?” I’ll continue to re-read your post (sometimes I’m a little thick, for that I apologize)

From what I keep reading they would like to pass a bill that wouldn’t restrict renting within a community (POA), unless approve by 100% of the members, and landlords are members (owning property in the community) and they will not approve it, you will no longer have 100%. In other words the community would need 100% of homeowners to say “yes we agree that there should be rental restrictions within this community (in which I own a home in)” It is more likely than not, that the landlords will not agree to limit the amount of rental properties, because they would be “cutting their own throat” So for this bill to pass, it would ultimately affect every homeowner in my and other HOA communities. IMHO

I apologize, I may have misinterpreted, what you posted. I’m not sure if you think that the bill is unreasonable or do you think it’s a good bill to have pass, I’m confused! Sorry

Chuck W.

I’m sorry I couldn’t address each of you on an individual basis. I have received information pertaining to the HB-261 Bill. I have listed it below:

Congratulations – Great News!

“House Bill 261 has been defeated! At today's hearing on House Bill 261, which would have interfered with community association rights to regulate leasing, WNCW Partners Julie McGhee Howard and George Nowack convinced the House Judiciary Committee to defeat the bill. The members of the Judiciary Committee all were swayed by the vast numbers of emails, phone calls and other communications from community associations. Your fantastic efforts paid off!

We encourage everyone to send a thank you email or note to the legislator that you contacted.

Thanks for all of your hard work! We couldn’t have done it without you!”

Thank you all for your replies.

Chuck W.

To Joe W,
I wonder if you would mind printing some justification for declaring this
70/30 ratio you refer to. I have heard this several times and so far have not had any luck in looking at a document making this a fact. My state, S.C. has been no help and other places I have checked seem to agree it would be a good idea, but offer no documentation. I am begining to suspect it may been a part of another document that lenders are required to satisfy prior to approving loans. Certainly with the electronic age allowing electronic transfer of settlement papers and people no longer can walk into a savings and loan to finance, the whole business is fast moving away from stopping in the local bank and talk to my cousin Jake that runs the mortgage branch at the bank. I predict this is trouble waiting to happen for the real estate business and am not alone in this summation. S.C. for one; has new legislation that assigns oversite of Mortgage fraud to the State Consummer Affairs Office. Of course this office has no information on what is required by the lenders to justify the loans they make, these electronic lenders are administratively handled by the MERS Group. All very exotic to me, but I am trying to learn. I Have also learned that some idenity theif is involved at times and the targets seem to be seniors that for the most part have good credit ratings. This is also worthy of passing on.

Found another article that explains a little more:

"Here is where lender protection comes into the picture. Most mortgage loans are sold in the secondary market, through such organizations as Freddie Mac or Fannie Mae. And these entities have established pre-sale requirements that originating mortgage lenders theoretically are required to follow. Pre-sales should ensure that the developer has some money coming in.

For example, the Fannie Mae guideline for conversion projects states, "At least 70 percent of the total units in the project must have been conveyed (or must be under contract to be sold) to owner-occupant principal residence or second home purchasers."

For new construction projects, Fannie Mae says, "We do not have a standard presale requirement. . . . Instead, we establish varying presale requirements based on local market conditions or the developer's track record. Generally . . . the presale requirement can be satisfied if [at least 70 percent of the units] have been conveyed to the unit purchasers or if the units are under contract for sale."

The Fannie Mae guideline goes on to state that this "70 percent requirement applies in most cases, although we will determine a specific presale requirement for each project based on its feasibility and marketability."

This requirement looks like it applies mainly to condos, and is somewhat flexible. Scroll down to page 3 of this document from Freddie Mac:

http://www.freddiemac.com/learn/uw/pdfs/qrefs/condo.pdf

Joe

HB-261 appears to be stalled - most of the sponsors have removed their names from it after the negative reactions from homeowners. Details here: http://www.caionline.org/govt/news/georgia_leasing.cfm