A service of:
Community123.com
Professional websites for HOAs & condos, since 2004
🎁 1st year FREE for HOATalk members! →
← Return to Topics List

HOA rental cap

Started by TamB • 13 replies • 583 views

💬 Join us to post & get advice from 50,000 HOA & Condo leaders.

Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in

TamB (North Carolina)
Posts: 3
Posted:
Hi,

There is a 20% rental cap in my community.
It was reached a few years ago, so homeowners had an option to be added to a waitlist.
I was added to that list earlier this year, now I've received a letter from the HOA letting me know that there is rental availability in the community and asking me if I am still interested in renting my home.
If I do not answer by a certain date I will be moved to the bottom of the list again.

Since I am still living in my home, and not in a process of purchasing another one at the moment (probably not for the first half of 2022), can I still take that vacancy and postpone renting it out?

Thanks!

AugustinD
Posts: 3,698
Posted:
TamB, have you done a close reading of what your HOA/COA's Declaration, Bylaws and rules and regulations say about this? If so, what do these governing documents say on the subject?

Ideally the Rules and Regs say something like, "The unit must be rented within two months of being removed from the waitlist. If it is not rented within two months, then the owner must put her/his name back on the waitlist, in the lowest position."

If the governing documents are silent, then I would appeal to your sense of fairness and let the HOA/COA move you to the bottom of the list. Because if you do not, then there is someone who could be making income that you are keeping from making income.

Rental caps are hard to administer. I think what is "fair" is often going to be subjective.

Else I do not believe I have ever seen state statutes address this.
CathyA3 (Ohio)
Posts: 6,299
Posted:
I agree with Augustin's reading of this, including the difficulty of administering arbitrary caps like this.

If there were no provisions to remove someone from the wait list after a certain amount of time, homeowners who were opposed to allowing rentals at all could apply and then just remain owner-occupied. If enough did that - bingo, no rentals!

(For others reading along, more about rental restrictions:

When we looked at amending our rental restriction, our attorney researched case law in the US and recommended not using a cap since a number of these have been struck down as "arbitrary". I agree since anyone's right to rent out their homes depends on what other homeowners have done or not done, and can't be viewed as a contractual right.

Also, the percent may not have any solid basis in law aside from trying to remain below FHA and other lending limitations, which historically have changed. For example, during the Great Recession, FHA dropped the percentage from 50% to 25%. In practice, this meant that communities with rental rates greater than 25% but less than 50% lost their FHA eligibility overnight. People in these communities with FHA mortgages were unable to refinance their loans, among other things. And other lending institutions similarly adjusted their lending criteria during this time.

The end result was that these changes helped to make the already dire housing market worse and caused issues in the affected communities. Among other things they enabled investors who could pay cash to snap up properties whose owners could not pay their mortgages. Some condo communities eventually became mostly investor-owned, at which point the investors voted to convert the COA to rental property. They forced out the remaining owner-occupants who lost their homes and often most of their equity in their homes. Perfectly legal. There were no winners here except for the investors.

This is why I recommend having a robust and strictly enforced rental restriction in HOA and COA governing docs. HOAs are not immune since investors nationwide have been buying up single family homes in these communities. This negatively impacts lower and middle class individuals in particular since for them home ownership can be an important factor in their financial stability. Many of the current crop of investors aren't US citizens, so this wealth isn't even remaining in this country - and it further worsens the wealth gap worldwide.

I bet most people don't realize how our seemingly minor HOA/COA issues can have links to international finance...) )
BenA2 (Texas)
Posts: 1,273
Posted:
Quote:
Posted By CathyA3 on 12/24/2021 6:08 AM
I agree with Augustin's reading of this, including the difficulty of administering arbitrary caps like this.

If there were no provisions to remove someone from the wait list after a certain amount of time, homeowners who were opposed to allowing rentals at all could apply and then just remain owner-occupied. If enough did that - bingo, no rentals!

(For others reading along, more about rental restrictions:

When we looked at amending our rental restriction, our attorney researched case law in the US and recommended not using a cap since a number of these have been struck down as "arbitrary". I agree since anyone's right to rent out their homes depends on what other homeowners have done or not done, and can't be viewed as a contractual right.

Also, the percent may not have any solid basis in law aside from trying to remain below FHA and other lending limitations, which historically have changed. For example, during the Great Recession, FHA dropped the percentage from 50% to 25%. In practice, this meant that communities with rental rates greater than 25% but less than 50% lost their FHA eligibility overnight. People in these communities with FHA mortgages were unable to refinance their loans, among other things. And other lending institutions similarly adjusted their lending criteria during this time.

The end result was that these changes helped to make the already dire housing market worse and caused issues in the affected communities. Among other things they enabled investors who could pay cash to snap up properties whose owners could not pay their mortgages. Some condo communities eventually became mostly investor-owned, at which point the investors voted to convert the COA to rental property. They forced out the remaining owner-occupants who lost their homes and often most of their equity in their homes. Perfectly legal. There were no winners here except for the investors.

This is why I recommend having a robust and strictly enforced rental restriction in HOA and COA governing docs. HOAs are not immune since investors nationwide have been buying up single family homes in these communities. This negatively impacts lower and middle class individuals in particular since for them home ownership can be an important factor in their financial stability. Many of the current crop of investors aren't US citizens, so this wealth isn't even remaining in this country - and it further worsens the wealth gap worldwide.

I bet most people don't realize how our seemingly minor HOA/COA issues can have links to international finance...) )

Thank you, Cathy, for the very interesting perspective.
LetA (Nevada)
Posts: 2,679
Posted:
That kind of seems odd and unfair that they would bump you back to the bottom of the list and not just drop you one notch and make you the next again to wait. I agree with you, right now is not the ideal time
to buy or pay rent. It is a sellers and landlords market right now, how long that will last is anyones guess.

Cathy hit the nail on the head when it comes to rental caps, too many rentals and the pinch is on homeowners and buyers, they will be the hardest hit.
ThadC2 (Florida)
Posts: 820
Posted:
Quote:
Posted By CathyA3 on 12/24/2021 6:08 AM

I bet most people don't realize how our seemingly minor HOA/COA issues can have links to international finance...) )

No to mention conspiracy theory pizza gate, Qanon, and members travelling to the capital to try and overthrow legitimate elections.
TamB (North Carolina)
Posts: 3
Posted:
Thank you all for your responses!
JeffT2 (Iowa)
Posts: 880
Posted:
Quote:
Posted By CathyA3 on 12/24/2021 6:08 AM
... during the Great Recession, FHA dropped the percentage from 50% to 25%. In practice, this meant that communities with rental rates greater than 25% but less than 50% lost their FHA eligibility overnight...

I think it was the other way around. It was raised to 50%.
CathyA3 (Ohio)
Posts: 6,299
Posted:
Quote:
Posted By JeffT2 on 12/27/2021 7:39 AM
Posted By CathyA3 on 12/24/2021 6:08 AM
... during the Great Recession, FHA dropped the percentage from 50% to 25%. In practice, this meant that communities with rental rates greater than 25% but less than 50% lost their FHA eligibility overnight...


I think it was the other way around. It was raised to 50%.

The percentage is the maximum allowable level of rentals in the community. During the Great Recession lending standards were tightened because of fears of mortgage defaults, and default rates rise with increasing rental rates. This means they reduced the allowable percentage of acceptable rentals to 25%. They loosened the standards again once the economy recovered, and we're currently at 50% again. I remember this well because we had to update our marketing materials in our FHA-eligible communities and some had to re-certify during this period (I work for a new home builder).

https://www.clevelandfed.org/newsroom-and-events/publications/economic-trends/2015-economic-trends/et-20150414-fha-lending-rebounds-in-wake-of-subprime-crisis.aspx

Quote from article:

"During the Great Recession, lending standards tightened, making it difficult for some borrowers to get or refinance their mortgages."

MelissaP1 (Alabama)
Posts: 13,836
Posted:
HOA rental gaps are more self-imposed ideas than legal. If the HOA doesn't own your property, it can't tell you can't rent it out. Now yes there are "rental caps" by like FHA etc. All that translates to is higher refinance rates and/or less options for loans. Meaning your HOA may not qualify to offer FHA/Fannie Mae/Freddie Mac type loans. Which isn't necessarily a "bad thing". Considering those are offered to many customers with not so good credit scores. It would make any new owners have to qualify or pay more for new loan options.

What punishment does the HOA have if you do rent? Not much it can do to punish you. Plus how do they know your even renting?
Former HOA President
TamB (North Carolina)
Posts: 3
Posted:
Hey AugustinD,

The documents I was able to find on our community website are:
-Articles of Incorporation
-Bylaws
-Covenants
-Policy Resolution - Charges/Penalties for Misuse of Trash/Recycling Area
-Maintenance Responsibility Chart
-Mediation Notice

and none of them is stating anything about the rentals.

The information about our rental cap and the opportunity to be added to a waiting list I received via an email from our association manager.
I should probably ask her about the document where we have these things defined.

I've just learned that currently we have 15+ homeowners on this waiting list.

JeffT2 (Iowa)
Posts: 880
Posted:
Quote:
Posted By MelissaP1 on 12/27/2021 8:01 AM
HOA rental gaps are more self-imposed ideas than legal. If the HOA doesn't own your property, it can't tell you can't rent it out. Now yes there are "rental caps" by like FHA etc. All that translates to is higher refinance rates and/or less options for loans. Meaning your HOA may not qualify to offer FHA/Fannie Mae/Freddie Mac type loans. Which isn't necessarily a "bad thing". Considering those are offered to many customers with not so good credit scores. It would make any new owners have to qualify or pay more for new loan options.

What punishment does the HOA have if you do rent? Not much it can do to punish you. Plus how do they know your even renting?

Simple fundamentals. The hoa doesn't own your property, but the CCRs can control paint color, prohibit home-based business, and can impose many other restrictions including rental restrictions. Very basic. Rental and other restrictions are upheld all over the country. The hoa can issue fines and enforce through the courts, and other means.

Internet article: The Do's And Don'ts Of HOA Rental Restrictions

From the article: "Rental restrictions undeniably limit the free-use of property. Nonetheless, courts throughout the country have consistently upheld such restrictions when rationally calculated to promote the development’s greater good."

🎯 You've read this entire discussion

Join the conversation with 50,000 HOA & Condo Leaders:

Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in here

Terms of Use and Privacy Statement