If your HOA has a rental cap, what's the %

Started by DebS1 • 21 replies • 4246 views

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DebS1
Posts: 1

Posted:

If you'd be so kind to participate in this informal poll, please reply with:

-Rental cap % (if applicable)
-State
-Whether or not your HOA grandfathered existing owners after implementing a rental cap
-Total number of units and types of units (condos, duplexes, townhomes, patio homes) in your community and type of community (high-rise, garden, mixed, other)

Thanks in advance!

TimB4
Posts: 20,986

Posted:

We do not have rental limits.

Townhome HOA (not a condo).

I think that due to certification requirements, condominiums will be more likely to have rental limits than HOAs

JohnC46
Posts: 14,230

Posted:

Our covenants say that one cannot rent their home during their first year of ownership. We are comfortable that this would prevent speculators and so far seems to have worked.

Now we do have 3 homes we keep a blind eye to. In two cases the parents bought the home and their adult children moved in. In another case, a women bought the home and her father alone moved in. We do not consider those as rentals.

NpS
Posts: 4,187

Posted:

No cap. PA. 81 townhouse HOA. About 5% rentals, but on the rise.

Sikubali jukumu. Read all posts at your own risk.

RobertM25
Posts: 12

Posted:

John c 46 Could I have your Hoa site I would like to see how it is written in the By laws or Covenants We are going to attempt to amend ours. Thanks

JohnC46
Posts: 14,230

Posted:

Quote:

Posted By RobertM25 on 02/20/2015 12:55 PM
John c 46 Could I have your Hoa site I would like to see how it is written in the By laws or Covenants We are going to attempt to amend ours. Thanks

We do not have our docs online as of yet so I typed the below. Our wording is rather simple.

Leasing: Lots may not be leased during the first 6 months of ownership. After the first 6 months of ownership, Lots may be leased for residential purposes only. All leases shall have a minimum term of at least 6 months. All leases shall require, without limitation, that the tenant acknowledge receipt of a copy of the Declaration, Bylaws, use restrictions, and rules and regulations of the Association. The lease shall obligate the tenant to comply with the foregoing.

Even though the word lots is used, all lots have a home on them thus lots/homes/units are synonymous to us.

I was in error when I originally said 12 months. It is 6 months as above but could easily be changed to 12 months for your usage.

One has to accept that docs can say what they want but I really doubt every tenant gets a copy of all yet that is not our issue. We place the emphasis and responsibility on the owner as they are the ones that acknowledged they received a copy of the docs. The owners are the ones we would go after if problems arise. That said, we do send a copy of any violation notice to the tenant also. Often the violation goes away as the tenant was simply unaware of the violation.

KerryL1
Posts: 14,519

Posted:

No rental cap. It would take a revision of our CC&Rs.

211 high rise res. condo units

37% tenants

I don't think this is a bylaw issue, Robert.

BonnieG1
Posts: 1,184

Posted:

Quote:

Posted By JohnC46 on 02/19/2015 5:11 AM
Our covenants say that one cannot rent their home during their first year of ownership. We are comfortable that this would prevent speculators and so far seems to have worked.

Now we do have 3 homes we keep a blind eye to. In two cases the parents bought the home and their adult children moved in. In another case, a women bought the home and her father alone moved in. We do not consider those as rentals.

I wanted to present a resolution to the Board requiring an owner live in a unit a year before it can be rented. John, I think you told me we couldn't do this. Also the lawyer/owner (not the Association's lawyer) advised we could not do this as an owner could be a company and a company cannot live in a unit.

At this time we have one unit that is rented to someone other than a family member.

JohnC46
Posts: 14,230

Posted:

Bonnie

I believe what I might have said is you cannot make such a change via a resolution. It would have to be a Covenant change and could take all owners agreeing to such. I do not agree with what your lawyer said. A company could buy a unit but they just could not rent it for the stated time. Also some people do form a corporation/company to buy their unit under and they live there.

Our rental restriction was part of the Covenants from the get go.

TimB4
Posts: 20,986

Posted:

Deb,

What about your Association?

MelissaP1
Posts: 13,734

Posted:

I feel I need to point out something on this subject. HOA's can not really enforce rental limitations. Only state that I know of is California, and that is as recent as 2012 with a few stipulations. HOA rental restriction limits are a good idea and I am NOT personally against them. This is NOT a personal opinion on this situation. Unfortunately, this is a REALIST FACT one has to deal with.

With that said... ONLY Mortgage companies can place rental restrictions on the property. Depending on the loan package you go with, some will NOT allow you to rent your home for the first 2 years of ownership or even more. My own situation when I bought my second home is that I had to have a 1 year lease signed on my other home before they would loan me the money. Since it is the mortgage company's money they are loaning and ultimately own that property, they are the one's to dictate rental allowances or use. A HOA does NOT own the home nor has title to your home to impose any such restrictions. They just can enforce STANDARDS.

FHA loans are one of the most popular type loan programs out there. Many people desire them. However, FHA does have a PUD form that every HOA has to fill out whenever a person gets a FHA loan. It is basically a 25 questionnaire about the financial health of the HOA. It ask if it is a "fee Simple, number of owners versus renters, and collections". FHA does have a "rental cap" allowed in order for them to continue to offer FHA loans to that HOA community. I believe it is around 60% Maximum. If that PUD form indicates it is a high rental percentage, then FHA may no longer offer loans to your HOA community.

I should mention that Freddy Mac and Fannie Mae are moving toward the same direction of FHA restrictions. They are now on occasion requesting this similar information if not already. Other loan/banks are starting to get on board with the PUD form for HOA's. That is because with the high rate of foreclosures, it is much more riskier to loan high risk HOA's potential buyers money.

This does mean potential buyers will not qualify for FHA loans. Your HOA community will not be FHA qualified. However, it does NOT mean potential buyers can not get loans nor your home values being effected. It means that potential buyers will have to seek out different loan packages. Which is NOT a bad thing if you think about it. That usually means a higher qualified owner. They have to have a really good FICO score and long history of making bills to qualify for some of these loan types to mitigate the higher risks to the bank. The bank isn't going to loan their money to a higher risk property in a HOA without a better candidate who qualifies at a lower credit risk.

Essentially, HOA rental restrictions even enforced just means better loan rates for refinancing and a bigger pool of potential buyers. HOA's are NOT in the home VALUE market. They are in the making the homes MORE ATTRACTIVE to POTENTIAL BUYERS. The best way to do that is to have nice looking property and the ability to offer more loan options...

Former HOA President

KerryL1
Posts: 14,519

Posted:

Melissa, there are a lot of readers of our forum who are new to it and perhaps new to HOAs.

So, please provide evidence that, to quote you, "HOA's can not really enforce rental limitations..... "ONLY Mortgage companies can place rental restrictions on the property." Cite your sources. is it AL law? Federal law? What??? It's on you to show us proof for these sweeping "realist facts" of yours.

Since such limitations, whether they be a minimum rental period; that after a sale, the dwelling must be owner occupied for 1 year, or that only X% of the dwellings in the HOA may be rentals (so there's a waiting list), the fact is various limitations are in many states and in many HOAs. And they can be enforced.

TimB4
Posts: 20,986

Posted:

Quote:

Posted By MelissaP1 on 02/22/2015 8:07 AM

I feel I need to point out something on this subject. HOA's can not really enforce rental limitations.

Rental restrictions that are not located within the CC&Rs would certainly be difficult, if not impossible, to enforce. This is because an argument can easily be made that such a restriction would be in conflict with the CC&Rs. The argument would be under the principle of expressio unius est exclusio alterius. That is to say the omission of a particular covenant or term from a contract reduced to writing shows an intent to exclude it (also see Sarnir R. Farran, et al. v. Olde Belhaven Towne Owners Association page 4, 2nd full paragraph).

Many Associations have attempted to limit rental restrictions by amendment to their Bylaws or by adopting a policy resolution. However, over time, Associations now understand the need to place rental restrictions within the deed restrictions. There are many, many cases (both within and outside of CA) of upholding rental restrictions when the restriction is in the CC&Rs. For example:

Town Houses at Bonnet Shores Condominium Association v Langlois 2012 RI case

Villas West II of Willow ridge Homeowners Association, Inc., v. McGlothin 2008 IN appeals court decision

Advisory
opinion by VA Attorney General 2011 (yes, it has no authority like a court case, but AG opinions are typically based in Statutes and, if available, court cases)

Rental Restrictions in Single Family Vacation Rentals, COAs and HOAs from a FL law firm that also lists various cases.

The Preserve at Forrest Crossing Townhome Association, Inc., v. DeVaughn 2013 TN appeals court ruling.

WHAT WE LEARNED AT CAI’s NATIONAL LAW CONFERENCE 2010 newsletter from a law firm. Pages 2 & 3 lists various cases on rental restrictions.

KerryL1
Posts: 14,519

Posted:

Thanks for adding your caveat, Tim. HOAs in many cases certainly may impose rental restrictions IF permitted by their covenants (aka, deed restrictions, declaration, CC&Rs).

This is why, for now, the best my HOA can do is limit short term rentals to 30 or more days. We cannot justify--with our vague CC&R language--limiting short term rentals, to, say, 90 days or 6 months.

TimB4
Posts: 20,986

Posted:

Quote:

Posted By KerryL1 on 02/23/2015 1:43 PM
Thanks for adding your caveat, Tim.

No problem.

I expected that if Melissa's experience and last research on rental restrictions was during the time frame when most Associations were placing the restrictions in their Bylaws or Rules/Regs then her comments were very correct for that time frame.

However, as we know, things change over time and everyone doesn't always have the time to do the research needed to keep up with the changes. Therefore, I thought it was best to simply provide the references I could locate so everyone who desires to may utilize those references for their own research.

LindaK5
Posts: 241

Posted:

I was just coming to the forum tonight to ask about this topic.

Our HOA is in the process of putting this potential change before the Association for approval.

We have 48 townhomes and are in the State of California. Right now, our rentals are at 33%+. My understanding (in California) is that there is a 35% cap on rentals. When you have a higher percentage, there is a very good change you won't be able to get new financing as a buyer or re-financing as a homeowner.

There is currently nothing in our Bylaws or Declaration stating any sort of restriction on rentals. As to short-term rentals, our city precludes that, so no worries there.

This topic came up briefly at our general meeting this past weekend - one homeowner (senior citizen who currently resides in the townhome) was completely against it. His take was that if he had to be moved to assisted/skilled living and rent out his unit for additional income, if he wasn't part of the initial 35% cap that we may put on rental units, he would be out of luck. Well, yeah, that would be the case, but I'm thinking more about "for the good of the community" instead of for the good of one homeowner. I wanted to ask what he thought about precluding 47 owners from re-financing or getting a new purchase loan so he can rent out his unit to go to an assisted living/skilled nursing facility, but didn't go there.

In California, an Association can put a cap on rentals in an HOA community.

Also, regarding FHA - FHA loan properties are to be owner-occupied. We have several FHA loan properties in our community and they are NOT owner occupied. So much for that rule ... and who is going to police that?

LindaK5
Posts: 241

Posted:

I also meant to add .... it's a bit of a conundrum. Not sure if this applies everywhere? You can put a rental cap on units but if someone comes in, purchases a property and rents it out, the renters will most likely be protected by the Fair Housing Act. I have a feeling it's a no win situation.

KerryL1
Posts: 14,519

Posted:

Hi Linda, I believe you've been misinformed. CA has no cap on rentals, but FHA does. I think, though, it's 50%.

Our HOA is 37% rentals, but we're not HOA certified. Still, conventional lenders don't want more than 50% rentals either.

I also think, but don't know, that your HOA may limit new buyers to be occupants. You will have to change your CC&Rs, i.e., send out double envelope allots and get a % approval that's determined by your CC&Rs. It's often 67-75%.

For starters, go to davis-stirling.com, Main Index, Rentals. Also check FHA on that website. I feel you'll get accurate information there and you'll learn a lot too!!

JohnC46
Posts: 14,230

Posted:

Interesting article:

http://www.californiacondoguru.com/hoarticles/lease.html

TimB4
Posts: 20,986

Posted:

Quote:

Posted By KerryL1 on 02/25/2015 7:43 AM
Hi Linda, I believe you've been misinformed. CA has no cap on rentals, but FHA does. I think, though, it's 50%.

The Bank bailout is what initiated rental limits. They initially applied to every Association. Now they only apply to condominiums when they are certified.

FHA certification must be renewed every two years. It is important for condominium associations to monitor the expiration date since the FHA will not notify you that the certificate is about to expire. Condominium associations must recertify no earlier than six months before the expiration date and/or no later than six months after the expiration date. In the event there is a lapse, the certification process is identical to the recertification process.

HUD List of Mortgagee Letters

Mortgagee Letter 2012-18Temporary Approval Provisions for the Federal Housing Administration (FHA) Condominium Project Approval Process (which was extended by Mortgagee Letter 2014-17.

The CAI Guide to FHA Certification from the Community Association Institute

The Basic Guidelines for FHA Condo Approval 2014

FHA Condo Approval Required Document List 2014

CONDOMINIUM PROJECT APPROVAL and PROCESSING GUIDE From HUD. A 2011 document but the only one I could located on the HUD site.

FHA Condo Project Approval Guidelines from fha.com

LindaK5
Posts: 241

Posted:

My error - I put in 35% because that was what was discussed at the meeting. Current max is 50%. That's straight from the FNMA eligibility requirements ..... "at least 50% of the total units in the project must be conveyed to principal residence or second home purchasers."

Also, financial institute-owned REO units that are for sale (not rented) are considered owner-occupied when calculating the 50% owner-occupancy ratio requirement.

TimB4
Posts: 20,986

Posted:

Over time, the percentage has gone up. It very well may have been 35% at one time. You may want to bring the current max to the Boards attention in case they are unaware of the change.

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