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Rent Restrictions

Started by JustinW1 • 19 replies • 2308 views

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JustinW1 (Illinois)
Posts: 5
Posted:
I'm in a community that has rental restrictions, and according to our monthly newsletters we are currently over that limit due to grandfathered properties. I've been living here for 7 years now and am upside down on my mortgage because of the constant flow of foreclosures on the market in my neighborhood. I'd like to move, but I don't want to take the hit. I would like to rent but it seems like an uphill battle with the HOA. I've sent a letter asking them to consider raising the rent limits to try to reduce the foreclosures and help boost property values.

I've read a few articles that state that if the rent limit is in the rules and regs, that it was adopted by the board and not a vote by the homeowners, and therefore must not cause a hardship. However, the declaration also states that all leases must be in compliance with the rules and regs. Below is a link to a property managementment company that seems to be keeping electronic copies of our paperwork. I'm assuming that they own or represent an owner renting a unit since there is a rental in my neighborhood posted for rent.

http://www.jwpropertymanagement.com/Association_Information.html

I know that I could just rent and ask for forgiveness or deal with it if they ever find out, but I'm not willing to take that risk, I'd rather go about things the right way.

What I'm looking for is someone to tell me if the rent cap is really enforceable since it seems to be in violation of the laws restricting HOAs from creating rules that cause hardship. Thanks
LarryB13 (Arizona)
Posts: 4,099
Posted:
Jason,

Your situation is a fairly common one. Before answering any of your questions, I have one of my own for you? If you sold your unit, where would you move to? Something similar to what you already have? Or would you buy a single-family detached home in a different community?

The reason I ask is that being upside down in a mortgage is not the end of the world if you do not need to sell. You have been able to make the payments for seven years, so I assume that you can afford the payments. Balance the cost of staying put against the costs of selling, buying elsewhere, and moving. If you sell, you will take a hit in realtor commissions, you will take another hit when you acquire a mortgage on another place, and you will take a yet another loss when you pay for moving. I left out the biggest hit of all: you owe more than the place is worth so you are going to have to cough up some cash at closing to pay off your present mortgage. Those expenses are all good reasons to stay put.

Now to your question: the rental restrictions. My observation is that most rental restrictions would not withstand a court challenge. The problem is that mounting a challenge in court is expensive. In my part of the world even a simple injunction will set you back a minimum of $20,000 with no upward limit and I mean literally no upper limit. The good news is if you prevail, the association might be ordered to pay your fees. But if you lose, you pay through the nose.

Most state courts seem to hold that any restriction on what may be done with property must be in the CC&R's and must be explicit enough to leave no room for doubt as to their meaning. What you cited from your declaration ("all leases must be in compliance with the rules and regs") leaves too much room for doubt. Those provisions should have been stated in the declaration.

NpS (Pennsylvania)
Posts: 4,216
Posted:
Justin
Can you share the exact language in you docs with us so we have a better understanding of what you are up against?
Sikubali jukumu. Read all posts at your own risk.
TimB4 (Tennessee)
Posts: 21,062
Posted:
Quote:
Posted By JustinW1 on 10/05/2014 7:41 PM

What I'm looking for is someone to tell me if the rent cap is really enforceable since it seems to be in violation of the laws restricting HOAs from creating rules that cause hardship. Thanks

Justin,

That would be a legal question that is best answered by an attorney who is knowledgeable in IL law and has access to all of your governing documents.

That said, in the link you provided, there were two Associations listed. I could not locate anything in the rules/regulations about rental restrictions for either Association. I may have missed it or the restriction is in another document (CC&R, Bylaws, Articles of Incorporation, etc.) or the link does not provide access to the documents of your Association.

You should be aware that HUD now allows a 50% rental cap for condominiums. Perhaps your Board is unaware of this. Here is the link to the morgatee letter: Mortgagee Letter: 2012-18
Here is a link to all mortgagee letters: http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/letters/mortgagee
JustinW1 (Illinois)
Posts: 5
Posted:
Quote:
Posted By NpS on 10/05/2014 8:50 PM
Justin
Can you share the exact language in you docs with us so we have a better understanding of what you are up against?

If you follow the links in the original post, and look at the Briar Pointe documents. The rules and regulations have the rent limits, the declarations have the much more open language that only require that leases be no less than 30 days and are filed with the board.
MelissaP1 (Alabama)
Posts: 13,836
Posted:
What is the punishment for not following this??? Are their fines? They can not lien for fines typically. Your HOA dues you must pay as the owner and would be tax deductible as long as used as rental. Most states can NOT enforce rental restrictions even if in the documents. Remember the HOA rules can NOT supercede any state, local, or federal laws. That is why we say a court battle usually loses if pushed.

The requirement are kind of vague. Just submit the lease over 30 days to the board. Does not define they can deny. The sad part is that the rental agreement does not require the renter to obey the HOA rules. Something you need to put in to protect yourself.
Former HOA President
NpS (Pennsylvania)
Posts: 4,216
Posted:
Quote:
Posted By TimB4 on 10/05/2014 11:03 PM
You should be aware that HUD now allows a 50% rental cap for condominiums. Perhaps your Board is unaware of this.

Justin

I think that Tim provided you with an excellent recommendation. The 20% leasing cap was probably instituted to make HUD mortgages accessible. If the HUD cap is now 50%, there no longer seems to be a justification for the 20% cap.

Looking over your docs, it looks like the objective of all the leasing restrictions except one was to ensure that the tenants are obligated to comply, the landlords are responsible for a tenant's non-compliance, and the leases themselves are subject to these conditions of tenant compliance and landlord responsibility.

The one oddball rule is the 20% rule which seems tacked on after the fact. And it is a real stretch for the COA to attempt to apply general rules of tenant compliance and landlord responsibility to something neither you nor your tenant have control over.

You may want to inform the MC that you would like to inspect all of the leasing records to assess for yourself whether the 20% rule is being enforced in an even handed fashion. While you may be trying to be a good citizen, it is likely that others have ignored the restriction. If so, the COA is likely to have a problem with selective enforcement.

You have a carrot (new 50% HUD standards) and a stick (risk of exposure on selective enforcement). An intelligent board should listen carefully to what you have to say.
Sikubali jukumu. Read all posts at your own risk.
TimB4 (Tennessee)
Posts: 21,062
Posted:
Quote:
Posted By JustinW1 on 10/06/2014 7:31 AM

If you follow the links in the original post, and look at the Briar Pointe documents.

Yep, I missed that. It says that they will not exceed 20%. However, there is nothing about hardships, etc.

Since the previous rule for certification was 20%, I expect that this is where the number came from.
Therefore, I suggest that Justin offer the documentation I provided links to, where the certification limit was raised to 50%, to his Board and see if he can convince them to raise the limit based on the new certification limit and all the other benefits that Justin mentioned in their earlier post.

Personally, and I am not an attorney, I do not think that the simple one line limitation in the rules would stand up to a legal challenge. However, as Larry pointed out, a legal challenge could become very expensive for both sides.
JohnB26 (South Carolina)
Posts: 1,001
Posted:
To be precise and 'cover the bases', HUD does NOT mention "renters or rentals", they do, however, say:

At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units.


Therefor, an owner occupant MAY rent out a portion of their unit.

The crux of the matter is the definition of "..intend to occupy the unit..."

?full time occupant?

?part time occupant?

?primary residence?

etc.

a can-o-worms to say the least
NpS (Pennsylvania)
Posts: 4,216
Posted:
Great point John.
Sikubali jukumu. Read all posts at your own risk.
JohnC46 (South Carolina)
Posts: 14,265
Posted:
Justin

Typically a Rule & Regulation (R&R) cannot override a Covenant and/or Bylaw. I say a R&R cannot put a restriction in that was not there before, ala the 20% rental amount.

That said, it could get expensive to "fight" them so the advice of updating the R&R's to reflect present HUD guidelines is probably the best initial step before any other action.
RichardP13 (California)
Posts: 1,767
Posted:
I am not an attorney, but worked for one who owned a management company, so I have a little background in this. In California, the rent restriction MUST be incorporated into the CCRs for the Rules and Regulations to mean anything. If you live in Briar Pointe, it states the Rules and Regulations created for use of the common elements, not your unit.
GlenL (Ohio)
Posts: 5,491
Posted:
The Devil is in the details and while what Richard states is true, it also says under LEASES Any lease or rental agreement relating to a Unit must be in writing and shall be subject to all the terms, conditions and requirements of the Declaration, By-Laws and rules and regulations of the Association.

So the question becomes did the Board have the power to set rules and regulations for leases, if the answer is yes, and if you read section (2)(k) of the By-Laws it seems they do and the BOD followed the section then IMHO the rule is enforceable. If no then it's not but either way is liable to cost money to find out. But wait it gets better, if you look at the Illinois Condo Act it too seems to limit the Boards power to enact rules to: Sec. 18. Contents of bylaws. The bylaws shall provide for at least the following:

(a)(2) the powers and duties of the board;

(k) Such restrictions on and requirements respecting the use and maintenance of the units and the use of the common elements, not set forth in the declaration, as are designed to prevent unreasonable interference with the use of their respective units and of the common elements by the several unit owners.

(l) Method of adopting and of amending administrative rules and regulations governing the operation and use of the common elements.

The question then becomes is a 20% cap on rentals an: unreasonable interference with the use of their respective units and of the common elements by the several unit owners.
Studies show that 5 out of 4 people have problems with fractions
GlenL (Ohio)
Posts: 5,491
Posted:
Sorry my previous post should have had the disclaimer: (emphasis added)
Studies show that 5 out of 4 people have problems with fractions
TimB4 (Tennessee)
Posts: 21,062
Posted:
Quote:
Posted By GlenL on 10/06/2014 11:17 PM

So the question becomes did the Board have the power to set rules and regulations for leases

Which would likely need to be answered by a court.
JustinW1 (Illinois)
Posts: 5
Posted:
So I was finally able to talk to the board. Missed the last meeting because I was out of the country but submitted a letter requesting the board grant me a hardship claim which they did not.

So I began asking questions and digging through the documentation...

They are currently granting hardships based on military deployments, or getting a job out of state, or medical necessity. Technically I have a job out of state, and it is an unreasonable commute (90min each way,) but they didn't want to hear it.

What I have uncovered in the documents is that the declaration requires written approval by 51% of homeowners to change any provisions as to leasing of units. The Bylaws state that the board enact any rules and regs that conflict with the provisions of the act or the declaration.

According to the president, the 20% cap was added at a board meeting when they voted on it with the homeowners who were present by a show of hands. She also claims that their attorneys reviewed all of the documentation and said that they were good. Then she was dismissive and said that I was splitting hairs, and to put my home up for sale, end of discussion. And they wonder why no one in the community comes to the meetings or wants to get involved.

Any further thoughts? I'm going to take it to my attorney and see what they think, but I figured I would give you all an update and see what you think. Thanks for your comments!
KerryL1 (California)
Posts: 14,550
Posted:
WithOUT rereading the entire thread, Justin, and only your most recent post (and NOT being in a legal field), I'd say your board acted improperly.

Your declaration say 51% of Owners needed to change leasing rules. I believe you meant to write that your bylaws say the Board cannot enact rules that conflict with your declaration.

I'd ask to read the opinion that your prez supposedly said exists.

Btw, what does the actual declaration say about leases? Any limits??
JustinW1 (Illinois)
Posts: 5
Posted:
You're right, I meant "cannot"

The declaration has one paragraph simply stating that any lease or rental agreement must be in righting and subject to all the terms conditions and requirements of the declaration, by-laws and rules and regs of the HOA. One commenter pointed out earlier that any lease that puts the association above the 20% limit would be violating the rules and regs, so its a bit of a catch 22. From what I've read, I'm fairly certain that the boards failure to ammend the By-laws or Declaration through a majority vote of the homeowners makes the addition of the rule invalid.

I'm working with my attorney to bring it up to their legal counsel, although at this point I'm ready to start looking for a renter and just wait until they try to take action. That way I don't waste money on legal fees if they decide to not do anything
JustinW1 (Illinois)
Posts: 5
Posted:
As far as the president's opinion. She said the board is allowed to change the rules and regulations, they don't need to get 51% for every change. Which I agree with. She didn't seem understand that I was trying to point out a specific clause that prevented them from changing the rules and regs regarding this particular subject. That was when she told me I was "splitting hairs." Either their attorneys did not do their due diligence in reading through all of the documentation, or someone there thought that the references in the By-Laws and Declaration to the Rules and Regulations is satisfactory.

All of the case law that I have read only supports rental caps when the declaration or by-laws are amended by a vote of the homeowners. It seems as though any action by the board alone to make these types of changes have been found in the favor of the people against the changes.
JohnB26 (South Carolina)
Posts: 1,001
Posted:
if you like where you live - stay.

If you don't - move.

or

pile on more Toric Ka-Ka

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