Flipper Restrictions?

Started by NpS • 36 replies • 2049 views

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NpS (Pennsylvania)
Posts: 4,216

Posted:

Good holiday to all.

We are dealing with a somewhat urgent matter.

In the past, we never had to deal with flippers. All previous buyers intended to live in the property or hold it as a rental investment.

There was always an ongoing relationship with the association, which meant that the HOA had some power over what they did or didn't do.

But with flippers, we are concerned that, like the banks before them, they will disregard all policies and procedures of the HOA, do things the way they choose, control things as long as they want, and then be gone when they decide to go.

Sure, we have architectural standards and all that. But they'll be here and gone before that conversation even begins.

It will probably take them 6-8 weeks to be in and out. Houses here are selling in less than a month.

I'm looking for a better understanding from those who have been through this.

Is there anything you do that discourages flipping AND is actually effective? Not interested in bark without bite.

Thanks.

Sikubali jukumu. Read all posts at your own risk.

PitA
Posts: 1,416

Posted:

No

Unless a Covenant is actually violated.

? Why do you otherwise care ?

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By PitA on 05/28/2016 6:06 AM
No

Unless a Covenant is actually violated.

? Why do you otherwise care ?

Not sure. But it's all new to us.

Some of us are thinking that if short term rentals can be restricted maybe short term ownership (flipping) can be restricted too.

Some of us think it shouldn't make any difference as long as township inspects and approves.

Sikubali jukumu. Read all posts at your own risk.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By NpS on 05/28/2016 7:58 AM

Posted By PitA on 05/28/2016 6:06 AM
No

Unless a Covenant is actually violated.

? Why do you otherwise care ?

Also, one board member thinks we should set up a right to pre-approve the flipper - similar to some situations involving renters.

Sikubali jukumu. Read all posts at your own risk.

MarkM31 (Washington)
Posts: 351

Posted:

There's been many threads about the ability of HOAs approving ownership changes. It can be a nightmare, and you (the HOA) can be liable for damages if you act to not approve a proposed sale and the owner loses money because of that. What exactly would your criteria be? Has there actually been any problems, or are you mired in the what?

KerryL1 (California)
Posts: 14,550

Posted:

I think Mark meant "what ifs."

Remind us, NpS how many THs are in your HOA.

How many are on the market? Can you estimate how many you think have been bought by flippers?

I know I've read somewhere, maybe on this Forum, that some HOAs have changed their docs, probably their CC&Rs, to require all buyers occupy their new purchase for one year to quell the flipper issue. I have no idea how this works legally.

Our condos, when priced right, also are selling very quickly. A flipper bought one about 8 months ago, and the problem is he's not paying monthly dues. I hear his escrow will close soon at which time we should get our back dues. We did lien him.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

As I understand it "a flipper" is one that purchases a home, modifies/improves it, and then sells it at a profit. Where is the problem?

KerryL1 (California)
Posts: 14,550

Posted:

As in my example above, John, the problem is the very short-term nature of this kind of ownership, with no real attachment to the community. I guess the good news is that it's in the flipper's self interest to maintain their grounds, exteriors nicely in order to turn that profit.

JeffT2 (Iowa)
Posts: 880

Posted:

Google: condominium restraint on alienation, for some background info and articles.

The basic idea is that a COA/HOA cannot make a restriction that is an unreasonable restraint on selling a unit, since such restrictions violate common law for real estate ("restraint on alienation").

Rental restrictions, for example, have been challenged in court based on this idea, but in general, rental restrictions have been upheld because they are not an unreasonable restrain on alienation.

What you are suggesting is a restraint on selling by the flipper. You may be able to find a flipper restriction that has been upheld somewhere, but just how far this can go is unsettled/risky.

JeffT2 (Iowa)
Posts: 880

Posted:

You might want to stick with normal provisions (with fines) that limit noise, parking, work hours, dumpster, and other negatives, and require permission, reviews, and inspections. Delegate authority from the board to someone to handle it all quickly.

AllisonD (Florida)
Posts: 449

Posted:

Quote:

Posted By NpS on 05/28/2016 5:58 AM
Good holiday to all.

We are dealing with a somewhat urgent matter.

In the past, we never had to deal with flippers. All previous buyers intended to live in the property or hold it as a rental investment.

There was always an ongoing relationship with the association, which meant that the HOA had some power over what they did or didn't do.

But with flippers, we are concerned that, like the banks before them, they will disregard all policies and procedures of the HOA, do things the way they choose, control things as long as they want, and then be gone when they decide to go.

Sure, we have architectural standards and all that. But they'll be here and gone before that conversation even begins.

It will probably take them 6-8 weeks to be in and out. Houses here are selling in less than a month.

I'm looking for a better understanding from those who have been through this.

Is there anything you do that discourages flipping AND is actually effective? Not interested in bark without bite.

Thanks.

This happened in my development several years ago. We have a purchase application process which was completely ignored. We had no idea the house had been sold (bank foreclosure), it was a quick cash deal. The new homeowners caused problems by doing work on the house night and day, bothering the neighbors late at night. Garbage was left out on the lawn always; bringing out the trash only on pickup days rule was thrown out the window. People were coming and going all hours. For a while the water was not turned on in the house and the workers used a hose from the house next door. I would say this went on for a month and they ignored our attorney sending letters. Finally we received a purchase application and it was agreed that all owed dues would be paid and it was all over. It was pretty bad but for a short time. In hindsight, I should have cut off the access to the gate, forcing them to call me for access.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

This is kind of a difficult situation to explain. I find that "house flipping" has more misconceptions/perceptions associated with it. Most of it stems from a lot of advertisements and Reality TV shows. There is more of a time line issue involved. Banks do have restrictions/requirements for time/number of property ownership. Some states there are even laws of which flippers can face prison time for various violations.

I tried my hand at a little bit of house flipping once. However, the housing bubble burst about that time. It turned more into a flop. However, I did learn a few things in the process. Like how banks do have limits/restrictions on multi property ownership. For example I was NOT allowed to own a second home (flip house) unless I had a signed 1 year lease. It had to be claimed as Rental. Considering that, then many of your flip houses do need to have long term 1 year leases on them. Unfortunately, in real life those can seem like "short term" rentals to some as not everyone lasts 1 year of their rental agreements. I had to kick out a tenant at 3 months into their 1 year lease for non-payment.

Another odd issue is in some states it is illegal for some flipping practices. Those laws went into effect after too many flippers were ripping into condos and doing substandard remodels. They could flip them in a short time period only for the new owners to find out the shoddy work involved. Which then lead to issues with the HOA having multiple violation issues of which your have concerns/perceptions about. Now a days, there are laws but it's a bit too late since the misperception is already out there.

HOA's can only do their part with enforcing their rules/restrictions. After that the issue becomes more of a bank and legal issue. One can only report the substandard workmanship if they own that property. Which may prompt an investigation into the company/individual flipper. However, since the HOA doesn't own the property it's more of their perception of the situation than enforcement of it. If that makes sense?

Former HOA President

TimB4 (Tennessee)
Posts: 21,059

Posted:

Fortunately, our States disclosure requirements ensures that the Association has an architectural inspection prior to selling. So, keeping the property in compliance with a flipping situation is minimized.

We did have one home that I am aware of which was flipped. When construction started, the Architectural committee walked by it everyday. The minute something went astray (like an unapproved door), letters went out. Therefore, it will really depend on how diligent your volunteers are.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By KerryL1 on 05/28/2016 12:06 PM

Remind us, NpS how many THs are in your HOA.

How many are on the market? Can you estimate how many you think have been bought by flippers?

81 units.
2 bank-owned - 1 on the market.
79 non-bank-owned - also 1 on the market.
No flippers yet.

Sikubali jukumu. Read all posts at your own risk.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By JeffT2 on 05/28/2016 5:43 PM
You might want to stick with normal provisions (with fines) that limit noise, parking, work hours, dumpster, and other negatives, and require permission, reviews, and inspections. Delegate authority from the board to someone to handle it all quickly.

Thanks. Will consult with board on this.

Sikubali jukumu. Read all posts at your own risk.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By TimB4 on 05/29/2016 5:46 AM
Fortunately, our States disclosure requirements ensures that the Association has an architectural inspection prior to selling.

Cool. Wish we had that. Can you provide a citation?

Sikubali jukumu. Read all posts at your own risk.

AugustinD
Posts: 5,144

Posted:

I would like to know if the gov docs of the HOA give the board latitude on imposing a transfer fee or an initiation fee, imposed on the buyer (or seller; whichever is allowed). At least this might help build up the HOA Reserves, particularly given the argument that the flippers' actions tend to hurt the HOA.

KerryL1 (California)
Posts: 14,550

Posted:

Thanks for the additional info, NpS. It seems to me that Jeff & Tim offer good advice. Scrutinize each new owner's behavior really closely. Make sure that they have copies of your ARC docs. Tighten the latter if needed.

In our situation, the flipper also had bought a foreclosure. At present, no listings are priced where purchasing for the purpose of flipping would make sense. If fact, because of the hot market, of the 10 or so listed (of 200+ condos), at least three are overpriced-- maybe. We'll see.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By AugustinD on 05/29/2016 7:57 AM
I would like to know if the gov docs of the HOA give the board latitude on imposing a transfer fee or an initiation fee, imposed on the buyer (or seller; whichever is allowed). At least this might help build up the HOA Reserves, particularly given the argument that the flippers' actions tend to hurt the HOA.

We have a $750 capital improvement fee on all non-family deed transfers. Doesn't create any incentive for the flipper to abide by our standards and rules, which is our real objective.

Sikubali jukumu. Read all posts at your own risk.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By KerryL1 on 05/29/2016 8:30 AM
Thanks for the additional info, NpS. It seems to me that Jeff & Tim offer good advice. Scrutinize each new owner's behavior really closely. Make sure that they have copies of your ARC docs. Tighten the latter if needed.

In our situation, the flipper also had bought a foreclosure. At present, no listings are priced where purchasing for the purpose of flipping would make sense. If fact, because of the hot market, of the 10 or so listed (of 200+ condos), at least three are overpriced-- maybe. We'll see.

Our prices are still recovering from the slide. But they sell quickly.

I like the tight scrutiny, but it's hard for our folks to be beat cops. Only one is interested in enforcement, but even he doesn't like explaining the compliance requirements face-to-face.

Wish we had state-sponsored support for enforcement like Tim has. I think it would make a difference.

Sikubali jukumu. Read all posts at your own risk.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By NpS on 05/29/2016 7:36 AM

Posted By TimB4 on 05/29/2016 5:46 AM
Fortunately, our States disclosure requirements ensures that the Association has an architectural inspection prior to selling.

Cool. Wish we had that. Can you provide a citation?

VA § 55-509.5 subsection 9:

An association disclosure packet shall contain the following:

9. A statement that any improvement or alteration made to the lot, or uses made of the lot or common area assigned thereto are or are not in violation of the declaration, bylaws, rules and regulations, architectural guidelines and articles of incorporation, if any, of the association;

And

VA § 55-509.7 subsection G [emphasis added]:

G. When a disclosure packet has been delivered as required by § 55-509.5, the association shall, as to the purchaser, be bound by the statements set forth therein as to the status of the assessment account and the status of the lot with respect to any violation of the declaration, bylaws, rules and regulations, architectural guidelines and articles of incorporation, if any, of the association as of the date of the statement unless the purchaser had actual knowledge that the contents of the disclosure packet were in error.

Since an Association is bound by the statements made within a disclosure package, they would be foolish not to perform an inspection prior to making a statement regarding any violations.

LarryB13 (Arizona)
Posts: 4,099

Posted:

No experience with flippers but did consider doing it myself a few times.

The suggestion that the board delegate authority to someone to act as an enforcement officer is good. You will need someone who can act immediately without having to wait for the next board meeting.

I would add to that the suggestion that any notices of violations be recorded immediately so that a potential buyer has notice before he signs on the dotted line.

Flippers, I think, are do-it-yourselfers. They are not going to make a profit paying contractors. This is a problem in any community type housing such as condos or townhouses. The flipper may make "improvements" to his unit that are detrimental to other units. Plumbing, electrical, and structural issues come to mind. This forum has had its share of complaints about owners of second-floor units installing noise-transmitting flooring products.

You might want to amend your bylaws to require that all work be permitted by the local building authority and that all work be done by licensed contractors.

You should also have a policy in place to inspect vacant units periodically. Give notice of the inspection by taping it to the front door, make entry 48 hours later. Look for problems from water leaks, both roofing and plumbing, electrical issues, or structural matters.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Thx Tim.

We have similar resale certifications. But we only provide it when the seller requests it. Buyers only get it if the seller requests it from us and gives it to Buyer.

Concern is that Buyer and Seller will come to an agreement that resale certificate isn't needed. So they avoid the process. But that means that we might face an angry flipper who, by his own fault, doesn't realize that he must comply with our requirements.

Thx Larry

Interesting thoughts.

See my response above to Tim.

No problem delegating - problem finding a person to delegate to.

No up-and-down issues. But definitely side-by-side issues. Biggest one is vertical seams on vinyl siding - complex issue and more expensive than usual the way we require it.

No need to amend bylaws. All external work requires permits and township inspections. Good friends of ours.

Intriguing idea of inspecting vacant units periodically. Problem is we don't have access. Would like to hear more.

Sikubali jukumu. Read all posts at your own risk.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By NpS on 05/31/2016 8:24 PM
Intriguing idea of inspecting vacant units periodically. Problem is we don't have access. Would like to hear more.

Residential door locks are usually easy to pick. Hire a locksmith or search online for lock-picking tools. (Yes, they all say they only sell to licensed locksmiths but no one turns away an order.) You can pick most locks with pin tumblers with just a single-pin pick and a tension wrench. (I used to do that for fun; it takes just a few hours to get the hang of it.)

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By LarryB13 on 05/31/2016 10:21 PM

Posted By NpS on 05/31/2016 8:24 PM
Intriguing idea of inspecting vacant units periodically. Problem is we don't have access. Would like to hear more.

Trespassing concerns?

Sikubali jukumu. Read all posts at your own risk.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By LarryB13 on 05/31/2016 3:53 PM
No experience with flippers but did consider doing it myself a few times.

The suggestion that the board delegate authority to someone to act as an enforcement officer is good. You will need someone who can act immediately without having to wait for the next board meeting.

I would add to that the suggestion that any notices of violations be recorded immediately so that a potential buyer has notice before he signs on the dotted line.

Flippers, I think, are do-it-yourselfers. They are not going to make a profit paying contractors. This is a problem in any community type housing such as condos or townhouses. The flipper may make "improvements" to his unit that are detrimental to other units. Plumbing, electrical, and structural issues come to mind. This forum has had its share of complaints about owners of second-floor units installing noise-transmitting flooring products.

You might want to amend your bylaws to require that all work be permitted by the local building authority and that all work be done by licensed contractors.

You should also have a policy in place to inspect vacant units periodically. Give notice of the inspection by taping it to the front door, make entry 48 hours later. Look for problems from water leaks, both roofing and plumbing, electrical issues, or structural matters.

Larry

Demanding that all contractors be licensed in the case of a stand alone homes association is a bit much. I could see such in a multi unit building association for the safety of all but not in stand alone home associations.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By JohnC46 on 06/01/2016 7:36 AM

Demanding that all contractors be licensed in the case of a stand alone homes association is a bit much. I could see such in a multi unit building association for the safety of all but not in stand alone home associations.

I agree. My understanding was that the OP lives in some sort of condo or townhouse complex.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By LarryB13 on 06/01/2016 9:09 AM

I agree. My understanding was that the OP lives in some sort of condo or townhouse complex.

TH.

Sikubali jukumu. Read all posts at your own risk.

BobD4 (up north)
Posts: 1,002

Posted:

NpS Penn : Good question. It would be interesting to read how a legislature or adjudicator would decide what is " not owned long enough" or on what grounds other than something arbitrary. How does one define "not long enough" ? ( plus property & civil rights issues )

A jurisdiction in my country incidentally is introducing legislation to TRY to control "shadow flipping" in a downtown condo market. Public policy problem is perceived as property being REsold - with broker collusion - one or more times in compressed timeframe without the initial vendor being even aware, without any intermediate deed(s) being registered, and without the tax man being notified. The registration trail is directly : original vendor to the last purchaser in the chain, profits going to brokers & middlemen & property values argued being escalated . . . Court challenges to come.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By BobD4 on 06/02/2016 8:40 PM
NpS Penn : Good question. It would be interesting to read how a legislature or adjudicator would decide what is " not owned long enough" or on what grounds other than something arbitrary. How does one define "not long enough" ? ( plus property & civil rights issues )

A jurisdiction in my country incidentally is introducing legislation to TRY to control "shadow flipping" in a downtown condo market. Public policy problem is perceived as property being REsold - with broker collusion - one or more times in compressed timeframe without the initial vendor being even aware, without any intermediate deed(s) being registered, and without the tax man being notified. The registration trail is directly : original vendor to the last purchaser in the chain, profits going to brokers & middlemen & property values argued being escalated . . . Court challenges to come.

Not surprised Bob.
When the RE bubble was in it's heyday, the mortgage companies set up an entity called MERS as strawman. It was a private registration system where "members" of MERS could move mortgages among each other freely, but at all the registries of deeds around the country, those mortgages were in the name of MERS. The whole idea of public filings was undermined.

At one point I think, more than half the mortgages being registered in this country were being put in the name of MERS.

Finally, many lawsuits by county governments against MERS for being cheated out of fees.

Guess the mortgage flippers might have led the way for house flippers.

Sikubali jukumu. Read all posts at your own risk.

PitA
Posts: 1,416

Posted:

I purchase a home in your development.

I verbally state how much I like living there.

I proceed to legally and with ACC approval(s) fix up the place.

I sell immediately after the repairs/upgrades.

Y'all go ahead and try to PROVE I violated any Covenant.

Why are y'all concerned with a Covenant compliant member?

BobD4 (up north)
Posts: 1,002

Posted:

Quote:

Posted By NpS . . . At one point I think, more than half the mortgages being registered in this country were being put in the name of MERS. Finally, many lawsuits by county governments against MERS for being cheated out of fees. . . .

Ho . Ho "But it's not really cheating ! It's only ‘eliminating undesirable chance elements’ . . ." or putting the system to best profit.

PitA ( S Carolina ) : "Why are y'all concerned with a Covenant compliant member ?" A valid argument for re-transfer fees ?

( The other jurisdiction is deploring a vulnerable bubble of urban pricing. Or is it also capital gains taxes & land registration taxes & flipper realtor taxes & Gods know whatever other taxes being avoided or submerged.)

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By BobD4 on 06/03/2016 6:15 AM

Ho . Ho "But it's not really cheating ! It's only ‘eliminating undesirable chance elements’ . . ." or putting the system to best profit.

Don't think so Bob.
The reason the counties filed suit was to recover unpaid registration fees.
The counties' legal justification was that it was illegal for MERS was offer a private recording system that was only available to its own members but avoiding the legal obligation to record in the county recording office.

What that meant was that if you belonged to club, you could find out who the real owner was. But if you were an ordinary public citizen, all you could find in the public recording offices is that MERS was the owner of the mortgage.

The way the scam worked was that MERS would be the "nominal" owner in the documents. Any bank officer could become an officer of MERS by paying a $25 registration fee. Then that officer of MERS (ha ha) could sign all the necessary documents on behalf of MERS to move the mortgage from bank to bank while remaining "nominally" titled in MERS.

Legal? Not so sure. Scam? Big-time.

Sikubali jukumu. Read all posts at your own risk.

PitA
Posts: 1,416

Posted:

Quote:

Posted By PitA on 06/03/2016 5:40 AM
I purchase a home in your development.

I verbally state how much I like living there.

I proceed to legally and with ACC approval(s) fix up the place.

I sell immediately after the repairs/upgrades.

Y'all go ahead and try to PROVE I violated any Covenant.

Why are y'all concerned with a Covenant compliant member?

The above scenario still stands.

AllisonD (Florida)
Posts: 449

Posted:

Quote:

Posted By NpS on 05/29/2016 10:46 PM

We have a $750 capital improvement fee on all non-family deed transfers. Doesn't create any incentive for the flipper to abide by our standards and rules, which is our real objective.

We have the same fee and it ended up being paid. It was not about paying the fees, it was about getting the house quickly, rehabbing it as fast as possible and selling it for a profit. All fees were paid in the end. The good thing about flippers is that they are out of the neighborhood rather quickly.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By AllisonD on 06/03/2016 7:18 PM

Posted By NpS on 05/29/2016 10:46 PM

We have a $750 capital improvement fee on all non-family deed transfers. Doesn't create any incentive for the flipper to abide by our standards and rules, which is our real objective.

You're probably right Allison. Maybe we should sit back and see what happens.

Sikubali jukumu. Read all posts at your own risk.

KerryL1 (California)
Posts: 14,550

Posted:

Our very limited experience was the same as Alison's (see my above).

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