Board Responsibility for Development Turning Into Rental Community

I am the President of an HOA association for a townhome (Condominium) development. Private road, gated community of 40 homes. Homes were built in 2007-2012 so they are newer homes. Builder sold 12 homes to one investor and 3 to another investor and his brother owns one. All are rented.

The investors (husband and wife) who purchased 12 paid 150,000-200,000 under what most of the owners purchased. They have their homes structured as: 11 in one LLC and 1 in another. When the builder owned the homes he had them in five separate LLC which fell in line with Fannie & Freddie rules.

We had seven homeowners who have put their homes on the market and not one has sold. Two homeowners have rented their homes since they could not sell. Two other homeowners left their homes and one was a short sale (rental)and one is in foreclosure. The one and only homeowner that sold her house did so four years ago for a loss.

I believe that the reason is that there are too many rentals and investor owned properties in our development. Owner occupied is falling below 50 percent. I have discussed my concerns with our attorney and the board. The members of the board say that things will turn around eventually and the investors will sell. Our attorney says there is really nothing we can do unless we amend the bylaws to limit rentals or at least make it so that someone buying has to wait one or two years to rent, which will be difficult even though our bylaws state that the Board has authority to amend when it affects the Federal Mortgage Companies (Fannie & Freddie).

At our annual meeting two years ago, residents brought this concern up to the investors who were at the meeting. They promised to restructure their LLCS so that it would conform to the F&F rules on mortgages, instead they moved 11 into 1 LLC and 1 into the other (saying that their tenant wanted to purchase). The tenants is still renting years later. These investors are more responsible landlords then the builder was. He would rent to anyone with no credit checks, etc. or have people living in our development temporarily waiting to move into one of his other developments.

Is it the responsibility of the board to look into this for the good of our development or is there nothing we can do and I should just leave it be.

Any constructive advice would be appreciate.

Hi Maureen

1. I am not sure how holding 11 units in one LLC could affect lending rules. Could you clarify?

2. The LLC owners have no obligation to change their ownership structure. They can promise to do anything. But they have no obligation to follow through.

3. Your attorney seems to have given you solid advice that an amendment to your bylaws may be your only option.

4. Even if the board does amend its bylaws, which seems to be a trend, there is no telling how those restrictive amendments might hold up if challenged through the courts.

I agree with Roger the only hope you have is amending the Covenants, IMHO amending the By-laws just won't cut it. The problem possibly insurmountable at this time is that if you only have 50% owner occupied homes and it usually takes 67% or higher to amend the Covenants, I don't see the current homeowners who are renting, rushing to cut their own throats by voting yea.