HOA trying to limit amount of rentals - HELP!

Started by JohnJ14 • 29 replies • 2321 views

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JohnJ14 (Ohio)
Posts: 7

Posted:

I live in a condo here in Michigan, and we have an association.

Recently, the board has proposed amending the master deed to limit the amount of "rental" units in our community. As an owner here with 2 units, one of which is my primary, homesteaded residence, I do not agree with this proposal.

I am planning on moving soon and wanted to rent my units out instead of selling them. Had I known my community had these restrictions in place prior, I never would of purchased two units here.

I had the following questions:

1) Is it legal for them to enforce this?

2) What would the ramifications be if I rented it out anyways if the amendment passes?

3) They say that I will be "grandfathered" in, if I have a lease on file with them currently. In order for it to be a a valid lease, it has to be non-owner occupied. If I want to ensure I can rent out my primary residence in the future, could I simply draw up a lease agreement and assign my mom to the lease? How would they verify if my unit is "owner occupied"? Would they look at the address on file with them for the association? Or would they look at the county tax records and see that I have this property homesteaded?

Thank you in advance!

NpS (Pennsylvania)
Posts: 4,216

Posted:

Welcome John

It would help if you provided a bit more information about your association. Condo or HOA? Number of units?

What was the prior policy re rentals? Was it enforced?

Is the lease on your other unit on file with the association?

Sikubali jukumu. Read all posts at your own risk.

GlenL (Ohio)
Posts: 5,491

Posted:

Quote:

Posted By NpS on 02/16/2015 1:19 PM
Welcome John
It would help if you provided a bit more information about your association. Condo or HOA? Number of units?

Quote:

Posted By JohnJ14 on 02/16/2015 12:48 PM
I live in a condo here in Michigan, and we have an association.

Studies show that 5 out of 4 people have problems with fractions

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By GlenL on 02/16/2015 1:58 PM

Posted By NpS on 02/16/2015 1:19 PM
Welcome John
It would help if you provided a bit more information about your association. Condo or HOA? Number of units?

Quote:

Posted By JohnJ14 on 02/16/2015 12:48 PM
I live in a condo here in Michigan, and we have an association.

Missed that.

Sikubali jukumu. Read all posts at your own risk.

JohnJ14 (Ohio)
Posts: 7

Posted:

Quote:

Posted By NpS on 02/16/2015 1:19 PM
Welcome John

It would help if you provided a bit more information about your association. Condo or HOA? Number of units?

What was the prior policy re rentals? Was it enforced?

Is the lease on your other unit on file with the association?

There are approximately 206 units here. I currently don't have a lease on file for either of the two units, and one is currently my primary residence.

Regarding whether or not the lease policies were enforced prior to this, I don't really know, since I've never tried to lease my units, or know much about it.

JohnB26 (South Carolina)
Posts: 1,001

Posted:

Recently, the board has proposed amending the master deed...

The method of amending the master deed would be 'spelled out' in the deed itself.

That action would generally require a super majority of the total membership to approve.

You are governed by a direct democracy known as a HOA.

Jefferson's nightmare come to life.

JohnJ14 (Ohio)
Posts: 7

Posted:

Quote:

Posted By JohnB26 on 02/16/2015 2:36 PM

Recently, the board has proposed amending the master deed...

Yes, I understand the process to change the amendment, that's not my question.

These are my concerns:

I had the following questions:

1) Is it legal for them to enforce this (by this, I mean a limitation on whether or not you have the right to rent out your unit)?

2) What would the ramifications be if I rented it out anyways if the amendment passes?

3) They say that I will be "grandfathered" in, if I have a lease on file with them currently. In order for it to be a a valid lease, it has to be non-owner occupied. If I want to ensure I can rent out my primary residence in the future, could I simply draw up a lease agreement and assign my mom to the lease? How would they verify if my unit is "owner occupied"? Would they look at the address on file with them for the association? Or would they look at the county tax records and see that I have this property homesteaded?

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By JohnJ14 on 02/16/2015 3:15 PM
1) Is it legal for them to enforce this (by this, I mean a limitation on whether or not you have the right to rent out your unit)?

2) What would the ramifications be if I rented it out anyways if the amendment passes?

3) They say that I will be "grandfathered" in, if I have a lease on file with them currently. In order for it to be a a valid lease, it has to be non-owner occupied. If I want to ensure I can rent out my primary residence in the future, could I simply draw up a lease agreement and assign my mom to the lease? How would they verify if my unit is "owner occupied"? Would they look at the address on file with them for the association? Or would they look at the county tax records and see that I have this property homesteaded?

1. It is not illegal to limit the percentage if rentals in a community, even if the restriction was not in place when you purchased your units.

2. That depends on whether the association actively enforces the restriction. If they do, they must treat you like anyone else in a similar situation.

3. Sure you can lease your unit to your mom. If she isn't on the deed, it won't be considered owner-occupied. No one here can say what your association will or won't do to verify your information.

From what you said, you have one rented unit - and the lease for that unit is not on file. Apparently, your association is starting with poor record system. It will probably take them quite a while to figure out whether they can successfully enforce this new restriction.

Sikubali jukumu. Read all posts at your own risk.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By JohnJ14 on 02/16/2015 3:15 PM

I had the following questions:

1) Is it legal for them to enforce this (by this, I mean a limitation on whether or not you have the right to rent out your unit)?

2) What would the ramifications be if I rented it out anyways if the amendment passes?

3) They say that I will be "grandfathered" in, if I have a lease on file with them currently. In order for it to be a a valid lease, it has to be non-owner occupied. If I want to ensure I can rent out my primary residence in the future, could I simply draw up a lease agreement and assign my mom to the lease? How would they verify if my unit is "owner occupied"? Would they look at the address on file with them for the association? Or would they look at the county tax records and see that I have this property homesteaded?

1. Whether the rental restriction is enforceable will depend upon the language of the restriction, how much the association is willing to spend on enforcement, and how much you are willing to pay to fight it. In general, yes rental restrictions are enforceable.

2. The ramifications will depend upon how much you want to be sued. Suppose you rent out one of your units knowing that it violates the rental restriction covenant. The association could sue as well as all 205 of your neighbors as well as your own tenant.

3. It sounds like the "grandfathering" goes only as far as your current lease. You can try all kinds of subterfuge to skirt the restriction and I have little doubt that you will be the first wise-ass that the judge has buried in costs and attorney's fees. I am not too familiar with homesteading, but I was always under the impression that a homestead had to be your primary residence; if that's the case do not be surprised by the notice of back taxes from your county assessor.

My unbiased and totally balanced coverage of this topic my have concealed my dislike for renting out units in a condo. You suggested at the outset that you were somehow wronged because you did not know that the association might someday prohibit rentals. From my point of view, it is you who wronged your neighbors; they purchased homes with the good faith expectation that all other unit owners would reside in their units. You, and other wanna-be real estate barons, may have overloaded the condo with rental units. When this happens, the FHA stops lending and resale prices fall. Your rentals cause harm to your neighbors. Do them a favor and sell both units.

JohnJ14 (Ohio)
Posts: 7

Posted:

Now Larry, did you have a bad day at work?

Your points are amusing, thanks for your input.

JanetB2 (Colorado)
Posts: 4,219

Posted:

Larry ... IMO that owners should have rights protected when they spend lots of money purchasing property based on what had been "implied and expressed" in the contract they purchased under and their Secured Creditors lent money under in good faith. While CCRs can be amended it should be difficult to accomplish.

My issue would be with the FHA who is a government entity and should not be making those type demands with regards to compromising our citizens freedom to choose how to utilize our property and who should keep their damn noses out of the real estate market and our free enterprise system. All they are doing is trying to manipulate the economy. I for one like the condos who will stand up and tell the FHA exactly where they can shove their BS. Citizens can either stand up and not take the beauracracy garbage or they can bend over and kiss their legislative tail ends ... When it comes to certain rights I don't kiss, I bite.

JanetB2 (Colorado)
Posts: 4,219

Posted:

John ... When it comes to your questions Larry pretty much hit the nail on the head. The CCRs can be enforced as written and amended. If you violate the association can choose to take you to court to enforce. And depending on the exact wording of any change your idea on leasing to your mom may or may not be an option (but would be one I personally would closely look at and consider).

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By JanetB2 on 02/16/2015 10:30 PM
My issue would be with the FHA who is a government entity and should not be making those type demands with regards to compromising our citizens freedom to choose how to utilize our property and who should keep their damn noses out of the real estate market and our free enterprise system. All they are doing is trying to manipulate the economy. I for one like the condos who will stand up and tell the FHA exactly where they can shove their BS. Citizens can either stand up and not take the beauracracy garbage or they can bend over and kiss their legislative tail ends ... When it comes to certain rights I don't kiss, I bite.

The FHA inherited the mortgage market after the free-enterprisers stole us blind. The banks sold and resold NINJA loans. The rating agencies gave good ratings. The regulators were asleep at the switch. We then bailed out the banks. Some paid fines that sounded big but were a pittance in the overall scheme of things. No one went to jail for these white collar crimes. I think you are going after the wrong target.

Sikubali jukumu. Read all posts at your own risk.

JohnB26 (South Carolina)
Posts: 1,001

Posted:

Listen to king Larry

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Here is what I have been told by a lawyer. The HOA can NOT enforce rental restrictions even if written in (except in California since 2012 with restrictions)because the HOA does NOT own the property. If the HOA, owns ALL the homes, then they can restrict rentals. Otherwise, a HOA can not restrict rentals no matter the good intentions.

I like to call rental restrictions a "good intention" rule that can't be enforced. Your documents can say restrictions all day long, but what is the punishment? Is it a Fine? Your HOA can NOT file a lien for fines. It is for unpaid dues. So a person not pay the fine and rents anyways? Most likely will pay the fine and write it off on their taxes or just ignore it altogether.

My suggestion is that the HOA requires ALL leases to have a caveat in it that the renters will follow the HOA rules or the owner can evict. This protects the owners as they are responsible for their tenants. The HOA will go after the owner for damages or fines. This way the owner can evict their tenant for violating the rules and causing them damage. Without that caveat in it, the owner hands are tied. The HOA can't evict their tenants either as the HOA does not have the lease. They are a 3rd party to the contract.

Former HOA President

JohnJ14 (Ohio)
Posts: 7

Posted:

Yes, Janet I pretty much agree with you here. It is about your rights here. I do not want someone limiting my rights on something that I own outright.

I live in an upscale community... rents fetch over $1500/month for units where I live. The majority of renters who rent here, are not going to be having wild parties and be disrespectful of the neighbors.

Again, it goes back to my point that when I moved here, I did so under the impression I had the right to rent my property (i.e. rent it out if I wanted to).

On the flip side, if I had no intention of renting out my unit, I would still fully understand that my neighbor had the RIGHT to rent out THEIR unit if they desired. This is what happens when you live in a condo.

Closed minded individuals (ahem, larry) are the intolerant ones who have a flagrant disregard for other people's liberty.

JeffT2 (Iowa)
Posts: 880

Posted:

JohnJ, the courts decided long ago that owners in a condominium are members of a community that can amend the governing documents. The amended documents are then enforceable on all owners. Typical rental restrictions have not been found by courts to be unreasonable.

To put it another way, you don't own your unit outright, but instead you are in a shared environment where you give up some "rights" and are subject to the terms of the governing documents.

To be open-minded about it, you have to also consider the "rights" of the other owners who might otherwise be subjected to a high percentage of rentals. They also had expectations when they bought their units, of pride of ownership and of living with other owners in a condominium, not an apartment building.

If you Google rentals in condos, you will see a wealth of information on the harm that rentals do in condominiums.

EllieD (Vermont)
Posts: 446

Posted:

JohnJ,

Is your Michigan Condominium a FHA approved Condominium Project?

If you do not know, a list of FHA-approved projects can be found on the Department of Housing and Urban Development’s website at https://entp.hud.gov/idapp/html/condlook.cfm.

Is it possible that your Association is trying to limit rentals so as to comply and qualify, as you posted that: “the board has proposed amending the master deed to limit the amount of "rental" units in our community”?

If your Condo Association is on the “List” then rental restriction rules already apply and are (should be) being enforced. Again a possible reason for amending the master deed.

The basic HUD-FHA “rental rules” requirements are, from:

https://www.caionline.org/govt/news/Political%20HeadsUp%20Public%20Document%20Library/FHA%202011-22%20Intial%20Review.pdf

Rental Restrictions:

FHA guidance requires that a condominium association have a minimum owner occupancy rate of 50 percent of units. Ironically, based on the 2009 FHA guidance, FHA would disqualify any condominium association that had a rental restriction in place. In 2011, based on pressure from CAI members, FHA issued a temporary waiver allowing rental restrictions which met certain requirements. The new guidance makes that waiver permanent.

FHA will allow rental restrictions if they meet one or more of the following criteria:

All leases must be in writing and subject to the declaration and by-laws of the condominium project. The condominium association may request and receive a copy of the sublease or rental agreement.

The condominium association may request the name(s) of all tenants including the tenants’ family members who will occupy the unit.

Unit owners are prohibited from leasing their units for an initial term of less than 30 days.

The condominium association may establish a maximum allowable lease term (e.g. six months, twelve months, etc.).

The condominium association may establish a maximum number of rental units within the project; however, the percentage of rental units may not exceed the current FHA condominium project owner-occupancy requirement.

JohnJ14 (Ohio)
Posts: 7

Posted:

Quote:

Posted By JeffT2 on 02/17/2015 10:42 AM
JohnJ, the courts decided long ago that owners in a condominium are members of a community that can amend the governing documents. The amended documents are then enforceable on all owners. Typical rental restrictions have not been found by courts to be unreasonable.

To put it another way, you don't own your unit outright, but instead you are in a shared environment where you give up some "rights" and are subject to the terms of the governing documents.

To be open-minded about it, you have to also consider the "rights" of the other owners who might otherwise be subjected to a high percentage of rentals. They also had expectations when they bought their units, of pride of ownership and of living with other owners in a condominium, not an apartment building.

If you Google rentals in condos, you will see a wealth of information on the harm that rentals do in condominiums.

Thanks for your reply. I'm not disagreeing with you that people that live here have the right to live in a peaceful environment without disruptions from neighbors. In higher rent areas, renters are not a bunch of teenage kids looking to party, it is full of professionals.

Keep in mind, any buyer has the ability to see what percentage of condos are being rented PRIOR to purchasing their property. They know what they are getting into ahead of time. On the flip side, a prospective investor who buys, but then is later subjected to amendments to what they can and can't do regarding renting out their unit does not have the same courtesy of "knowing ahead of time".

JeffT2 (Iowa)
Posts: 880

Posted:

The amendment has to be voted on. You are free to convince the owners to vote against it.

JohnB26 (South Carolina)
Posts: 1,001

Posted:

These are my concerns:

I had the following questions:

1) Is it legal for them to enforce this (by this, I mean a limitation on whether or not you have the right to rent out your unit)?

2) What would the ramifications be if I rented it out anyways if the amendment passes?

3) They say that I will be "grandfathered" in, if I have a lease on file with them currently. In order for it to be a a valid lease, it has to be non-owner occupied. If I want to ensure I can rent out my primary residence in the future, could I simply draw up a lease agreement and assign my mom to the lease? How would they verify if my unit is "owner occupied"? Would they look at the address on file with them for the association? Or would they look at the county tax records and see that I have this property homesteaded?

1) Yes

2) Fines, Court Order (injunction), Foreclosure, after failing to comply, due to HUGE legal fees

3) Yes -They can't - Both

CAVEAT EMPTOR

considering moving

DouglasK1 (Florida)
Posts: 2,046

Posted:

Quote:

Posted By JeffT2 on 02/17/2015 1:34 PM
The amendment has to be voted on. You are free to convince the owners to vote against it.

This is the gist of it. The association is a democracy. Just as bodies from town councils to congress can pass laws that change the existing rules, so can the HOA. If the majority of the owners are in favor of the change, then the change can be made. Since most elections, HOAs included, get much less than 100% turnout, then a group smaller than 50% can decide the vote. Just how many owners you need on your side depends on your quorum requirements for such a change. You could always lobby the other owners and try to get support for not passing this change, and especially, get the ones who agree with you to vote.

Escaped former treasurer and director of a self managed association.

JanetB2 (Colorado)
Posts: 4,219

Posted:

Quote:

Posted By DouglasK1 on 02/17/2015 3:16 PM

Posted By JeffT2 on 02/17/2015 1:34 PM
The amendment has to be voted on. You are free to convince the owners to vote against it.

This is the gist of it. The association is a democracy. Just as bodies from town councils to congress can pass laws that change the existing rules, so can the HOA.

While that may be true the issue is if a city changed its laws for example that all businesses must have fire sprinkler system it cannot force on current operating businesses. Current businesses prior to code change would not have to implement until they make changes to their building and apply for a building permit, as the city cannot put a heavy financial burden on citizens after the fact. Prior businesses in essence would be grandfathered. Potentially some changes made to CCRs should affect future owners. They should not put financial burden on current owners who did their due diligence prior to purchasing.

TimB4 (Tennessee)
Posts: 21,059

Posted:

JohnJ,

As others have pointed out, rental restrictions have been supported by various legal cases. See:

Rental Restrictions: An Enforceable Tool to prevent Absentee Ownership 2013 article from an attorney

No-Lease Restrictions on Condominium Owners from Illinois Bar Journal, February 2006. From the article: "Condominium associations in large numbers are adopting provisions that eliminate rental units and forbid absentee ownership. Here's a look at (mostly unsuccessful) legal challenges to these restrictions and some of the ways owners have tried to get around them."

Subject: Rental Restrictions and the FHA a 2010 thread on this forum (please do not reactivate the thread, simply read it as a resource).

The key is, and it appears that your Association is doing this, is to have the rental restrictions within the CC&Rs.

I would encourage you to start gathering support and see if you can get enough to stop the amendment from passing. That would be the easiest thing to do. Use the same points with your neighbors that you have used here.

JeffT2 (Iowa)
Posts: 880

Posted:

I found this:

"The Condominium Buyer's Handbook is created by the Michigan Department of Licensing and Regulatory Affairs as required by the Condominium Act..."

"The association of co-owners may amend the condominium documents as to the rental of units or terms of occupancy. The amendment does not affect the rights of any lessors or lessees under a written lease executed before the effective date of the amendment, or condominium units that are owned or leased by the developer."

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By JeffT2 on 02/18/2015 7:53 AM
I found this:

"The Condominium Buyer's Handbook is created by the Michigan Department of Licensing and Regulatory Affairs as required by the Condominium Act..."

"The association of co-owners may amend the condominium documents as to the rental of units or terms of occupancy. The amendment does not affect the rights of any lessors or lessees under a written lease executed before the effective date of the amendment, or condominium units that are owned or leased by the developer."

Wonder what happens to a one year lease that automatically renews? Is the protection only good for the current year's lease?

Sikubali jukumu. Read all posts at your own risk.

DouglasK1 (Florida)
Posts: 2,046

Posted:

Quote:

Posted By JanetB2 on 02/17/2015 9:48 PM

Posted By DouglasK1 on 02/17/2015 3:16 PM

Posted By JeffT2 on 02/17/2015 1:34 PM
The amendment has to be voted on. You are free to convince the owners to vote against it.

This is the gist of it. The association is a democracy. Just as bodies from town councils to congress can pass laws that change the existing rules, so can the HOA.

I'll have to respectfully disagree with your premise that lawmakers can't impose a heavy financial burden. They certain can (at their option) create rules that only apply going forward and should try to be mindful of any financial burdens imposed, but that is not a requirement. Here is a link to an article that explains where existing businesses were in fact required to install sprinklers:
http://www.bostonglobe.com/metro/2013/02/16/ten-years-after-the-station-fire-massachusetts-and-rhode-island-officials-say-club-patrons-are-safer/xH7ZvYagZPiKvjx0atBNyH/story.html

Escaped former treasurer and director of a self managed association.

JohnJ14 (Ohio)
Posts: 7

Posted:

Quote:

Posted By NpS on 02/18/2015 8:22 AM

Wonder what happens to a one year lease that automatically renews? Is the protection only good for the current year's lease?

I had the same question, they assured me I would still be grandfathered in, but unless I have it in writing I don't think that is worth anything...

JanetB2 (Colorado)
Posts: 4,219

Posted:

Quote:

Posted By DouglasK1 on 02/18/2015 8:31 AM

Posted By JanetB2 on 02/17/2015 9:48 PM

Posted By DouglasK1 on 02/17/2015 3:16 PM

Posted By JeffT2 on 02/17/2015 1:34 PM
The amendment has to be voted on. You are free to convince the owners to vote against it.

This is the gist of it. The association is a democracy. Just as bodies from town councils to congress can pass laws that change the existing rules, so can the HOA.

And I would have to respectfully disagree with your article posted. First of all this is not from the OPs state and keep in mind State and Local laws differ by state and local governments. Second while the article from 2013 states that enforcing was the goal ... Was the goal met or did businesses affected file a lawsuit? If I had that type business I would have installed a system; however, not everyone is me and some may have chosen to fight the issue.

Also, keep in mind that was just one example and I can give many others.

JanetB2 (Colorado)
Posts: 4,219

Posted:

JohnJ14:

It is going to come down to wording contained In the amendment. Your best way to avoid scenarios is to solicit and get other owners on board to vote down the CCR change.

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