Rental Restrictions

BACKGROUND: I am a homeowner in an Ohio condo development which opened in 2004. The initial condo drawings provided for 72 units which included some single family, duplex and quad structures to be built. Currently only 20 units have been constructed of which 10 are homeowner occupied and 10 are developer owned. The developer missed the window of opportunity to build out the development due to bad management, poor marketing/prospecting and weak customer service. When the real estate market collapsed, the developer began cutting back on services and subsequently filed for Chapter 11 bankruptcy protection in 2010. It appears that the developer will reorganize and emerge as a new corporation with most of his assets intact and remain in control of the HOA.

The developer now wants to convert the condominium to a 'planned community, replat the remaining space in the development to all single family homes, and petition the city to take over control of the streets; all in an effort to improve the marketability of the property.

Part of the developer's dilemma is that as a condominium, home buyer prospects are unable to obtain financing underwritten by Fannie Mae/Fredie Mac because condo guidelines require that 70% of the contructed units are homeowner owned. The developer is currently renting all of the units he controls (even though the condo declaration contains a strict prohibition on renting). Now we realize that allowing the developer to rent created this problem. Nevertheless, the current homeowners are agreeable to a conversion to a "planned community" but we want to make sure there are rental restrictions in the new CCRs if we go for the planned community.

My question is can we restict rentals in a "planned comunity"? And are those provisions generally enforceable? I assume that we would probably grandfather existing rentals to some extent, but we don't want the developer to build and rent anymore units.

I know this is primarily a legal question, but if anyone out there has any similar experiences I'd like to here about them.

Jeff

you will not stop people from renting their homes

you 'may' be able to stop a rentee ('tenant') from using the common elements

? fine point ?

maybe, but a point none-the-less

the FHA has NO rules about 'renting', merely about 'occupancy'

(who would want a FHA 3% down buyer anyway ?)

it is possible to BOTH occupy AND rent out a 'unit'

READ IT AND WEEP

the HOA does NOT own a 'unit', other than a restriction actually in the covenants it may only regulate a 'common element'

If you have a FHA backed loan, the property must be owner occupied for at least one year.

There is far more to the FHA then getting a low down payment loan. Even though you may be sending your mortgage payment somewhere else, about 90% of condo mortgages are actually bought by Fannie Mae and Freddie Mac and backed by the FHA. Many banks and other lenders, since 2008, use the FHA guidelines when it comes to condos. Since 2008 the FHA is a whole different ballgame and every association should investigate what it means for them. Go to your local bank and talk to a loan officer.

The HOA does not own your unit, but owners are required by law to follow their declaration and bylaws. Whether the COA can restrict rentals depends on those documents and state laws. Also, Ohio allows the Board of Directors to amend the Declaration and Bylaws to meet the guidelines of lending institutions and that can include restrictions on the number of rental units. It is complicated, the rules change frequently and anyone interested should have a lawyer knowledgeable in COA laws review your documents and options.

I do agree with the "READ IT AND WEEP" statement though.

John, I'll take a piece of that action: (emphasis added)

5311.05 Condominium declaration.(E)

(1) Without a vote of the unit owners, the board of directors may amend the declaration in any manner necessary for any of the following purposes:

(a) To meet the requirements of institutional mortgagees, guarantors and insurers of first mortgage loans, the federal national mortgage association, the federal home loan mortgage corporation, the federal housing administration, the veterans administration, and similar institutions;

(b) To meet the requirements of insurance underwriters;

(c) To bring the declaration into compliance with this chapter;

(d) To correct clerical or typographical errors or obvious factual errors in the declaration or an exhibit to the declaration;

(e) To designate a successor to the person named to receive service of process for the unit owners association. If the association is incorporated in this state, this may be accomplished by filing with the secretary of state an appropriate change of statutory agent designation.

(2) Division (E)(1) of this section applies to condominium properties submitted to this chapter prior to, on, or after the effective date of this amendment.

(3) Any unit owner who is aggrieved by an amendment to the declaration that the board of directors makes pursuant to division (E)(1) of this section may commence a declaratory judgment action to have the amendment declared invalid as violative of division (E)(1) of this section. Any action filed pursuant to division (E)(3) of this section shall be filed in the appropriate court of common pleas within one year from the date of the recordation of the amendment.

O -M - G

perhaps it actually is time to emigrate

assuming your quoted section is not 'out of context'

perhaps it just means (in context with the rest of section E) that the BOD MAY amend the 'dec' to bring it into compliance with any actual LAW

? does FHA, FNMA, MAC, etc require compliance ?

either way ...... it STINKS

however

this kills me

in this case I am probably wrong

(and bankrupt)

In my 'home state' of NY there were 3 types of HOA

1 - private home fee simple
2 - condo whether townhome or hi-rise
3 - co-operative

all were state governed with DIFFERENT laws

your Ohio statute sounds like a (NY) co-op where one owns 'stock' in the corp, qty. of stock equating to sq. ft. of living space in building with costs assigned as % of total

CAVEAT EMPTOR

the FHA requires 'owner occupancy' - nothing in writing re: rentals

(my) bank's 'standard' mortgage requires - primary residence for 2 years, else 1.2% higher interest rate as vacation / rental property

I realize that owner occupancy vs. rental may be a fine point, but, case in point:

a property may be BOTH owner occupied/primary residence AND rental

* 3 BR condo owner occupied full time with rental of 2 bedrooms to distant relatives, said rental paying ALL the costs of condo

* geezer sells unit to LLC with lease-back 'life estate' arrangement

I will now let this topic die its own natural death.

I honestly think that the horse has died.

People are free to continue kicking to be sure.

I would wonder if the association could write the debt off thus it is no longer delinquent? I would wonder if someone could pay the delinquent dues off thus they are no longer delinquent?

Might be several ways to skin that cat assuming one wanted to.

John C - Yes you can write off the debt and it isn't delinquent any more. Often you aren't going to collect on that type of debt anyway if it is a bankruptcy or foreclosure - all depends on how under water they are on their mortgage. The bank gets their money first and that includes lawyer fees incurred during the foreclosure, often leaving the association with nothing.

John,
The certification questions might be pesky but the penalties are severe for providing false information. However, I don't think the FHA cares how the debt is paid. Their concern is the amount of potential liability an owner will face if they are given a loan, since owners are responsible for all costs and debts incurred by the association.
An association with liabilities and poor finances make for a risky loan and banks are a little skittish since the financial collapse of the housing market... even if they caused it themselves.

Associations seem to have different ways of accounting for the debt. We include "bad debt" in our budget now and write it off each year but previous boards just let it accumulate. I would be interested in knowing how other associations handle their unpaid dues debt.