More on the HOA-Investor Wars

This article appeared in the March 31 edition of the Washington Post. It's behind a paywall, but they usually allow a certain number of free articles for non-subscribers:

Corporate landlords are gobbling up U.S. suburbs. These homeowners are fighting back.

Quote from the article:

"Like hundreds of communities across the United States, Hamilton’s neighborhood had become the target of large companies amassing empires of suburban homes for rent. ...

The rise of investor purchases has spawned complaints that the companies, flush with Wall Street money, are pricing out first-time home buyers and renting to tenants who have not been properly screened. In Potters Glen, one house owned by Invitation Homes, a $24 billion company created by a Wall Street firm, drew several reports of illegal drugs and gunfire, according to police reports and neighbors."

According to the article, homeowners in a number of communities are fighting back successfully, generally by doing things we've recommended on this website: beefing up their communities' rental restrictions and rigorously enforcing their CC&Rs.

Predictably, the investors are pushing back. A favorite claim is that rental restrictions are discriminatory and harm low-income renters. If anything, rental restrictions discriminate against investors, which is why they're crying crocodile tears. And they're conveniently ignoring the fact that their actions harm low-income home buyers by putting out of reach what is often these buyers' only opportunity to build up their net worth. Investors aren't buying up homes in order to benefit low-income renters - they're doing it because there are big bucks to be made, often at the expense of homeowners in those communities.

I'm starting to consider pushing for an amended rental restriction again. It was supported by a majority of owners, although not enough to pass the amendment. I regret not campaigning openly for the amendment. I thought at the time that the board should take a hands-off approach - but I've decided that I was wrong, it's in the association's best interest that we not turn into a "renter's paradise".

My favorite part of the article:

[In 2019 Charlotte North Carolina "Potters Glen" HOA (250+ homes) adopted a rule requiring any new home buyer to wait two years before renting it out.]
Companies affiliated with some of the nation’s big rental firms have continued to purchase homes at Potters Glen, according to property records. Invitation Homes bought one in September 2020, about a year after the rental limits went into effect. The company said that the “neighborhood restriction was not noted in our system.”

Amherst Residential [a corporation], bought one, too. In a statement, [Amherst] said it aims to work collaboratively with homeowners associations and that “it does not appear this waiting period was communicated [to us] in documentation related to purchase of this home.”

The NC Residential Property Disclosure Act is clear that it is the owner who has to disclose covenants et cetera. See https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/ByChapter/Chapter_47E.html

Invitation Homes and Amherst Residential, you all can go try to sue the owner, or you all can go pound sand.

Also in my non-lawyer opinion, the NC HOA disclosure yada statute seems to me to cover the bases. It speaks in kind of general terms of restrictions on ownership having to be disclosed. E.g. if the covenants say the board has the lawful right to create such a rental rule, and a buyer did not go check what the (un-recorded) HOA rules say, tough on the buyer.

Plus it's still the buyer against the seller (and not the HOA), by my reading.

I'd love to have updates on this. I don't see how the investor has any basis to sue since he presumably knew what he was buying, but who knows. In my state it's caveat emptor.

We'll probably see plenty of case law like this since I get the feeling that owner-occupants have finally seen the writing on the wall and are starting to push back against the landlords. Bring it on, I say. Owner-occupants have the worst of both worlds: the obligations of home ownership coupled with the disadvantages of living in a rental community. There's only one thing that could make their lives worse, and that's if investors buy up enough units to force a de-conversion.

I'd really like to know how an HOA has successfully enforced a rental restriction on single family homes.

I do like John and Lori’s idea about requiring that the house not being rented out for a year or two - I wish we could do something like that. When we tried to institute a 25% rental cap, the proposed CCR also had a grandfather clause for townhomes already rented – the restriction would kick in as soon as the house was transferred or sold. We thought that would help sell the proposal, but unfortunately, the rental percentage was already high (one lady owned 29 units at the time, although I think she’s sold a few since then), and so it failed miserably.

Ironically, that lady DID vote for the restriction, figuring she wouldn’t have to worry about increasing competition. Another owner-landlord (one of the few good ones – he even became board president before selling his unit to a human, not an investor) suggested requiring a surcharge for people renting their homes that would be paid at the start and end of the rental period to help defray additional expenses from more wear and tear. However, without the CCRs being amended to address landlord-tenant relations in more detail, we wouldn’t have had a legal leg to stand.

In this state, the laws tend to skew towards property owner’s rights, and sometimes that can and has caused problems, and there’s case law stating HOAs have the right to institute rental caps. The problem is enforcing the cap, as Dave notes – you’d have to keep a running list of homes with renters and then have to juggle that against other homeowners who are moving out of the area (to another part of the state or out of it altogether) and so they need to rent it out to help pay the assessments until the house is sold.

And then you have the people who might try to get around the restriction, saying “that’s not a renter, that’s my cousin It who’s just looking after the place for me.” Not to mention the people who are buying the house on a land contract and continue to “rent” forever and a day.

If you can’t get a rental cap, it appears fair and consistent rule enforcement may be a way to keep out some of the investors, many of whom don’t care what their tenants do to the community as long as the rent check clears. Fair and consistent is the key – if you target rental homes, you’ll get into more trouble (as you should). That said, investors don’t necessarily want to get violation notices that can lead to clashes in small claims court, and if it gets to the point they’re spending more money on legal fees they will either pay more attention to what their tenants or doing or sell the house. When you drive around any neighborhood, you shouldn’t be able to tell the difference between an owner-occupied home vs. a rental because everyone should be complying with the rules.

I would be all in favor of a rental restriction, such as owner must live in the property for 1 or 2 years before property can be rented. Also in favor of a maximum number of rental properties in the HOA. However, it would be difficult to police/monitor/enforce and could get expensive if some owner decided to fight the restriction or limit. It would be hard to dictate to a homeowner what they can do with their own property.

Is It possible that an investor slowly buys up homes in an HOA as they hit the market and then sort of in a way becomes the declarant?
It just seems like a shady way to take over an HOA.

I agree that there will never be a full proof way of catching every rental violation. However, these are the things that we did to monitor rentals:

1.) Our property manager uses a well known property management software program. They have setup a filter that shows any owner who's mailing address is different than the home they own in our community. The filter is setup to automatically run once a month. A Board member can also contact the PM and have the filter run for an immediate need.

2.) There is a saved search for any new rental for our community on Zillow, Redfin, Trulia and Reator.com. When a new rental comes up the alert is sent to a generic HOA email account that is automatically forwarded to a designated Board member's account.

3.) We have a welcoming committee that visits all new residents. When they do their introduction to the new neighbors they check the name they were given against what is on file with the property manager.

4.) When a new resident contacts the property manager for a key to the pool and tennis courts this persons name is compared with their records.

Where I can see things would get messy is when the owner claims the occupants are a family member or friend and out of the goodness of their heart they don't charge any rent.

This is exactly what happened during the Great Recession. I remember reading about investor groups targeted condo complexes and buying up units - once they owned enough units to control the association (usually a super-majority), they would de-convert the association to rental property.

It may be shady, but it's definitely legal. The folks who are really hurt are the ones who don't see the writing on the wall and who refuse to sell. The new owners usually make low-ball offers on their property, with the offer amount going down the longer they hold on - if they don't sell, they either have to agree to rent their home from the new owners or they'll be evicted.

This is one reason why Wall Street firms buying up HOA property is so much of a concern - they have the deep pockets to acquire enough property to control the HOA.

You're correct, they don't become the declarant. They control the HOA through seats on the board. That's enough to accomplish what they want.

Anyone can Google "condo de-conversion" and find plenty of examples of this happening.

In fact, there are also examples of apartment owners turning their properties into condos. In general, people with money just can't leave residential property alone. Whatever it currently is, they want to change it. The ones who are hurt by this are the residents.

This is a really interesting topic. One issue is that the more rentals that are in an HOA community, it can destroy the values of homes of the resident homeowners, which can make it more difficult to obtain mortgages for home buyers.

https://www.washingtonpost.com/news/where-we-live/wp/2015/10/21/too-many-rentals-in-neighborhood-can-cause-property-values-to-stagnate/

I am in favor of rental limits. That said, unless limits are already in one's Covenants it is near impossible to add them. Some one also argued that adding such, changes the original "contract" between an owner and the association thus it takes agreement to do so from all owners. I am not agreeing. I am just throwing this out for what it is worth.

Argh! My kingdom for an edit button:

Our lawyer drafted an amendment that tightened up our current rental restriction and believed that this WOULD hold up in court.

Cathy

You say you already had rental restrictions. The hard part is getting some when one exist.

I expect you're right about that. I can see why a new restriction could be illegal - and it's more likely to be challenged.