Board Wants To Increase 30% Rental Cap to 50%!

Started by WillD • 13 replies • 2112 views

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WillD (California)
Posts: 14

Posted:

Greetings,

I would like to gain some feedback from this community regarding a forthcoming ballot.

It appears that two board members (the majority - one being the developer) would like to increase our 30% rental cap to 50% so that "homeowners will have the right to exercise their ability rent their unit if they need to". My son is a mortgage broker and so I am well versed with lending restrictions when rentals exceed 30%. The issue was on the agenda, however, I was unable to attend the board meeting. Those who did attend were outraged and feel that perhaps the developer may be the one who wants the increase as to unload his unsold inventory. This condo conversion is roughly two thirds sold.

What I am not understanding is why a developer would encourage homeowners to vote against the very "controlled" policy (30/70 rule cc&r) that the homeowners bought into? My sales contract states the developer's plan to sell and maintain this community as an owner-occupied residential community. In point of fact, many homeowners based their decision to buy on the 30/70 rule as well. The goal was not to purchase a unit in a rental community.

It was my hope to one day get a reverse mortgage on this property, but now I fear my property will be worth less than what I paid for it because (1) the type of community will be "investor" rather than "residential" and (2) it might be difficult to sell because lending will be limited.

I would very much appreciate feedback. Would a right to lease your property (when you BOUGHT INTO a controlled community) be more advantageous than risking future lending?

I have never heard of a board wanting to increase a rental restriction from one percentage to another. I fear something is wrong.

Many thanks
Wilma

RogerB (Colorado)
Posts: 5,067

Posted:

Wilma, I would vote against increasing the rental cap.

HaroldS1 (Arizona)
Posts: 314

Posted:

Wilma - Has the developer turned over control to your HOA? If so, why is he still on the board? This is a strange situation. How many votes does the developer control yet? Will it be possible to outvote him? Harold

WillD (California)
Posts: 14

Posted:

Great questions. No, sadly the developer has not quite reached the 70% mark. He remains the declarant/President. Based on the last board meeting, he alone distroyed his professional reputation and credibility by suggesting 50% would "increase our property values". The developer controls about 40% of the votes. It is possible to out vote him...provided people are well informed and actually vote. The mortgagees also have to vote and the developer would require 51% of those votes to win. Had it not been for our HOA atty, a letter of opposition would not have been included in the voting package. Thankfully, we have a resourceful group of homeowners working on it and I have every confidence they will get the job done to convince homeowners to vote against the increase.

Regardless of the confidence that I have in the letter of opposition, the possibility of my community "reverting" to an "investor/rental" community is very upsetting. I just can't believe a vote like this is even happening.

Thank you for taking the time to write me.
-W

WillD (California)
Posts: 14

Posted:

Thank you RogerB! I truly appreciate your participation.

-W

WillD (California)
Posts: 14

Posted:

Quote:

Posted By WillD on 05/23/2007 5:01 PM
Greetings,

I would like to gain some feedback from this community regarding a forthcoming ballot to raise our 30% rental cap to 50%!

It appears that two board members (the majority - one being the developer) would like to increase our 30% rental cap to 50% so that "homeowners will have the right to exercise their ability rent their unit if they need to". My son is a mortgage broker and so I am well versed with lending restrictions when rentals exceed 30%. The issue was on the agenda, however, I was unable to attend the board meeting. Those who did attend were outraged and feel that perhaps the developer may be the one who wants the increase as to unload his unsold inventory. This condo conversion is roughly two thirds sold.

What I am not understanding is why a developer would encourage homeowners to vote against the very "controlled" policy (30/70 rule cc&r) that the homeowners bought into? My sales contract states the developer's plan to sell and maintain this community as an owner-occupied residential community. In point of fact, many homeowners based their decision to buy on the 30/70 rule as well. The goal was not to purchase a unit in a rental community.

It was my hope to one day get a reverse mortgage on this property, but now I fear my property will be worth less than what I paid for it because (1) the type of community will be "investor" rather than "residential" and (2) it might be difficult to sell because lending will be limited.

Would a right to lease your property (when you BOUGHT INTO a controlled community) be more advantageous than risking future lending? I would very much appreciate professional and homeowner advice regarding this unusual circumstance.

I have never heard of a board wanting to increase a rental restriction from one percentage to another. I fear something is wrong.

Many thanks
Wilma

JM2 (Oregon)
Posts: 439

Posted:

Hi Wilma:

Check your declaration to see if the developer, while still in control, can change the declaration unilaterally. If that's the case, you might be out of luck. If the BOD can change it, you might be out of luck. BUT - if it requires a supermajority vote (such as 75% yes votes from all members, then you would only need to get 26% to vote no, in order to stop the change) you might stand a chance.

There are other ways to deal with the situation if the developer changes it. One might be the Better Business Bureau (filing compliants, you would want to get a whole lot of people to complain); another might be through the courts, dealing with real estate law as it pertains to your sale and the subsequent change (you would need to contact a lawyer).

J. Patrick Moore, CMCA

WillD (California)
Posts: 14

Posted:

Thanks so much. We DO require supermajority. 67% in our case. I think we stand a chance.

Your comments mean a great deal to the homeowners. I say this because our CAM seems to be going out of her way to accomodate the developer during this process and offers no suggestions to the homeowners (i.e. if you are unsure about how to vote, call your trusted lender, realtor or mortgage broker).

My objective is to provide something for homeowners who may not have the time to explore the consequences of this vote. I have a long weekend to perhaps do something that will make a difference.

Thanks so much.

DwightT (Idaho)
Posts: 664

Posted:

Quote:

Posted By JM2 on 05/24/2007 1:00 PM
Hi Wilma:

Check your declaration to see if the developer, while still in control, can change the declaration unilaterally. If that's the case, you might be out of luck. If the BOD can change it, you might be out of luck. BUT - if it requires a supermajority vote (such as 75% yes votes from all members, then you would only need to get 26% to vote no, in order to stop the change) you might stand a chance.

Careful. Remember that often the "Declarant" (developer) is a "Class B" member with multiple votes for each lot that he still owns. That could mean that with the 67% rule you would have to have more than 34% voting no in order to override the developer.

WillD (California)
Posts: 14

Posted:

Thanks for the tip. He is has the same number of votes per unit as everyone else - one unit/one vote. I didn't know that multiple was called "Class B". Great info.

HaroldS1 (Arizona)
Posts: 314

Posted:

Wilma - no surprise about the MC working for the developer's interest. You usually find that situation while the developer is still in control. They could even be a subsidiary of the developer's company. Good advice is to remove them when and if the HOA is turned over to the owners and hire one that will respond to your interests. This one will always be beholden to the developer, wanting the job at his next development. Harold

WillD (California)
Posts: 14

Posted:

Ha, we thought they were a subsidiary months ago. Thankfully they are not, however, that doesn't mean the aren't a developer's preferred source. Thank you for your comments. Have a great holiday weekend.

PaulM (Pennsylvania)
Posts: 1,347

Posted:

WillD:
Your post noted, '...our CAM seems to be going out of her way to accomodate the developer during this process and offers no suggestions to the homeowners....
The reason for her observed loyalty to the developer is because she 'works for him' at this point, and not for you as a resident and community unit owner. Her position as community manager is based on how she can be of assistance to the developer during the time he is in control. This is prior to the time, after a certain percentage of units are sold, he then turns the community over to the unit owners for their election of a new Board and their decision on whether to retain the manager or seek another.

It would be to your great advantage to refer to your Bylaws and section on 'Appointed Board' (by Declarant). This is a crucial time for the community to understand what the Declarant can and cannot do legally.

The developer had to submit plans for the development of the community to the municipality officials for their approval prior to the start of ground breaking. It may be well for you to contact the municipality to ask whether there is a rental cap to be followed according to your municipality's code/rules.

GloriaM (North Carolina)
Posts: 829

Posted:

Wilma:

I would seek the advise of legal counsel in your state. One of our communities here in NC tried to pass a rental %, and our attorney advised the HOA does not have the right to not allow investors to rent their unit. We were unsuccessful in passing such a requirement.

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