Rental information

Started by RobertR1 • 9 replies • 1805 views

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RobertR1 (South Carolina)
Posts: 5,164

Posted:

To anyone but more to Property Managers or Board Members,

I believe:
1. When folks want to purchase Condominiums, one of the facts to be established is the rental/non-rental figures of the entire association. When the buyer selects a lender, then the lender needs these figures to evaluate such things as risk factors.

2. The Lender will contact the Regime Office and either submit a form to be completed or inquire certain information, among this information is the rental/non-rental figures.

3. The Regime office can answer the lenders over the phone if requested and supply these figures to whoever calls. I suspect it is some kind of Fannie Mae approved form, or Freddie Mac.

4. My manager tells me this information (the rental/non-rental figures) changes daily, is never the same and the same information is never given to all lenders.

4. I am further advised that these rental/no-rental figures are confidential information of the lenders and the owner involved if they ask for it.

5. Of course my legitimate concern is the current real estate picture, the proclamations in the press and government documents about Mortgage Fraud.
If the rental/non-rental ratio exceeds 30% to 40% rentals, then lenders may label the property "rental property" and only sub-prime lender are likely to finance or prime lenders will put restrictions on the loan, shrinking my market if I desire to sell.

6. What to do?

This is my understanding, anyone like to stir up the pot.

JM2 (Oregon)
Posts: 439

Posted:

Hi Robert:

you are correct in stating that Fannie Mae/Freddie Mac will not finance loans if the percentage of rentals is too high; they then consider the property an investment property rather than residential.

The best thing to do is to work with the HOA's lawyers to either amend the documents or pass a resolution (depending on what they recommend) that limits the number of rental units to 30% or so (your lawyer will make an appropriate recommendation, that's the common percentage that I've seen).

The important thing is to make sure that the resolution/amendment is crafted in such a way as to protect homeowners, rather than discriminating against renters or rental owners - so that you don't violate the Fair Housing laws.

If you have less residential owner-residents than the percentage required in your documents to change the declaration, then you will face a hard uphill battle in getting a change through, and it may not pass (for instance, if you require a 75% "yes" vote of members to pass an amendment but have 35% rentals already). You would have to sell the idea to the rental owners that it is in their best interest to vote against their own self-interest.

Most proposals will include (if it's over the percentage) a restriction on rentals, granted that those currently renting will be allowed to do so until their lease expires, at which point they go onto a waiting list for renting out, and that continues as long as you're over the percentage... you can see why the rental owner would not be in favor of this, since it may mean that his/her condo cannot be rented for a number of months until the percentage shrinks sufficiently that he/she is at the top of the list again.

This all works until there's a court case where the HOA loses; chances are such a situation will go on appeal as far as it can. A loss on this issue would spell disaster for a huge number of homeowners who live in their own homes and need to preserve their ability to sell.

J. Patrick Moore, CMCA

RobertR1 (South Carolina)
Posts: 5,164

Posted:

To Jm2,
A great reply to an interesting problem. Your logic seems dead on until, let's say, me and my wife. My wifes health is slowing deteriorating to the point she can no longer navigate the stairs, and needs close by medical attention. She is legally disabled. Over the past ten years I have implored the Boards to scrutinize the rental/nonrental picture and provide protection for the non-renters. During this time the Regime had about twenty percent rental units. Very little long term, resort area. The President told me during this time the issue is dead and he will not address it. Most of our owners are absentee, no full time rentals on the board....yet. The Board as individuals seem to line up behind the president as they are never heard from.
The closer is the Manager will not give our hypothetical owner any figures as to rental/non/rental and he writes that he doesn't have exact figures, says the information he gives the lenders is privledged. He says the only time he has heard it mentioned is when our owner made an estimate of at least 50%. Then the manager states he don't want to get involved, never heard of a second home rider, and then asks me if I know any owners that have been here since the place was built that would know how many rental we had in 1981. The Board ignores our Master Deed Clause that reguires all owners renting to send a copy of the rental agreement to our Regime Office ten days prior to the contract being instituted..

Our example has lived here for 17 years, has no desire to drag this through the courts and sue himself. What now, my wisemen and wise ladies?

HaroldS1 (Arizona)
Posts: 314

Posted:

That is precisely why I would never vote to implement rental restrictions. Who knows down the road what your situation will be? If your job moves, and you want this home for retirement, but will be forced to sell in a down market because you can't rent. The medical reasons cited by Robert. So you not only need to convince the existing owners who are renting their property, but you will need to convince owners like me who could be put into a situation where we would have to rent our property. I vote no. Harold

RobertR1 (South Carolina)
Posts: 5,164

Posted:

HaroldS1,
Good evening,
Well Harold, your post could be seen as opening the Worm Can in regard to Condominiums. You mentioned voting as the end all of a Condo proposal, and I take it to mean if the majority votes a certain way, that is the Law, and all are constricted to the provisions of the proposal.
I really don't think that is spelled out or even referred to in the Governing documents. The test for establishing or changes in condo law or rules is does it protect the real property. Unless it has a favorable effect on the entire property it can not be done. It took me years to get my mind set off the "majority" rules and really understand what the Documents and Laws are saying about condominiums, not necessarily HOA. Of course now I feel I understand and all should understand what I think I know, but I feel I was wrong before so that does not mean I am right now.
It is an acccepted fact that Rental Property does not fair over the long run as well as non/rental property, er go, non rental property is more valuable
property. Meets the test of the CC&R's.

JM2 (Oregon)
Posts: 439

Posted:

Hi Robert:

There is one way to check on the percentage, and that is to re-finance your loan (or go through the motions of doing so); if it's paid off, or you might be able to find out by setting up a home equity line of credit. Any re-fi requires the same questionnaire as a first mortgage. The manage would have to disclose.

Another way (expensive) is to have your lawyer request it for you.

Unfortunately, this issue tends to fly under the radar until the percentage has risen sufficently that either buyers can't get a prime mortgage, or there are sufficient rental owners that won' agree to a change that the rest of the owners can no longer pass an amendment. An astute board would be interested in protecting their investments as well as the investments of the rest of the owners - in other words, exercising their fiduciary duty.

I'm not sure if your state protects this information. I would find it unusual to protect this information if it is, in most cases, publicly available (with a certain amount of work involved at the county records dept.). I would suggest - if you really want to know - to write a formal letter to the management company requesting the information and offering to pay the reasonable cost for them to check it out. If no answer, get a lawyer to write a letter for you.

J. Patrick Moore, CMCA

RobertR1 (South Carolina)
Posts: 5,164

Posted:

JM,
My respect for the opinions of those that have chosen Property Management, might not be the correct description, as a Profession, grows daily.
What I am trying to get at requires re-thinking old ideas and developing new ones. Property management, large or small, is complicated and cannot be covered by most of our government processes, especially constitutional rights, especially in Condos. I know lots of folks don't agree, and it soothes them to use words; such as "majority" and "rights" and "will of the people'. Even as they defend these premises, they skip over such things in the CCR's as, "a vote of two thirds is required" or "75%", or even, "100%'. "The right to sell
my property" is another, or rent my property or put a fence around my property.
Now someone else may have this right given the right set of circumstances, but you signed your name to become a part of a group of people living within a limited community in specified real property. The CCR's rule. And therein lies the power of Good Management. The professional manager is fast becoming the driving force in Property Management. And "No" I am not one that believes all of them are saviors or saints.

JM2 (Oregon)
Posts: 439

Posted:

Hi Robert:

All CC&R's are restrictions on rights. You buy a condo/lot/home/etc. with certain rights and responsibilities, but they are not unlimited.

The ability of the community to amend their documents is usually restrained - typical declarations that I've seen require a 75% affirmative vote (a yes vote by 75% of the membership, not of those voting) in order to amend, so that an overwhelming majority of members have to agree to amendments to what they agreed to (and courts in some states are not even allowing changes). In these situations, a pretty large effort is required in order to change the documents to add rental restrictions; it's not something that a majority of a bare quorum can force onto a whole membership. While it's not impossible to pass amendments, it typically takes a lot of work to make it happen.

Your right to sell as a owner-resident may be diminished by other people's right to rent their units, if the percentage of units is not limited by the documents to keep it under the permissable levels mandated by Fannie Mae & Freddie Mac in order to allow purchsers to finance at the best rates.

In the meantime, the covenants continue in force, with all the existing restrictions. Good management will take the steps necessary to enforce the restrictions and make sure that the HOA is kept in good running order, to the extent possible within the documents and state law, in accord with the policies set by the Board.

However, if rental owners manage to get control of the Board, they may choose to diminish the enforcement of the covenants, to the detriment of resident-owners who want rules enforced and the maintenance done in a timely manner and done correctly. That does happen. Some resident-owner boards want to be "Nice" and choose not to enforce covenants. These situations are disasters either waiting to happen, or that have found a place to happen.

My advice to owners considering renting their units is to procure the services of a reliable and experienced property manager who will screen renters and stay on top of the rental situation in order to preserve their client's asset (home/condo/etc.), which keeps the neighborhood safer and the neighbors happier. It doesn't take long for an HOA manager to figure out which rental managers are good and which ones are not. I only recommend the best of the good ones when an owner contacts me for a referral.

J Patrick Moore, CMCA

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Hi Jm2,

Neglect, self serving interests, "don't bother me attitude", ignorance, not enough interest, poor leadership, attempting to govern from 1000 miles away, not spending enough time on your investment, "let someone else do it", a board that does not understand the CC&R's, because they don't read them, a manager who is not really qualified to know what his job is but is smart enough to be able to manipulate people to achieve his personal convictions, a President that just refuses to understand, sympathetic legal advice, not informative legal advice, etc, etc, etc. All matters that can combine in various degrees to spell disaster to a condominium.

You are damn right it is hard enough to govern a condominium, it is double hard to take one that has strayed down the path to a total rental property, and turn it around. Nearly all owners old and new alike don't know how to run the operation, how can they? A good guy, a bad guy, a tyrant, someone on an ego trip, and to top that off, elect a mix of these people to serve on the Board and spend the property resources is plain insanity to begin with.
Then have them live 1000 miles away and come visit for two weeks and attend the annual meeting, spend two hours at the meeting, a couple hours at the golf outing and maybe two hours at a cook-out getting to "Know" your neighbors defies all logic. It's been said before and if proof is needed, read the posts on this site. If you can understand, "it's not your money," and "it's not your
property", and you can convince enough of your brethern to believe this and care enough to get involved, your association will not be successful. Not rocket science here, few can fix their cars anymore, you take it to the professional. Good advice there, good advice here.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Correct my last paragraph to read, "will be sucessful" vice "will not be sucessful."

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