Is there a limit on rentals in an HOA?

Started by KarlA1 • 12 replies • 2186 views

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KarlA1 (Florida)
Posts: 84

Posted:

Hi,

I have a questions regarding rentals in an HOA.
I heard that the law distinguishes between a rental community and an HOA, and that an HOA cannot have more than a certain percentage of rentals, otherwise it is considered a rental community and therefore governed by different laws.

Now I have been up and down in Chapter 720 of the FL Statutes, but couldn't find anything. I also tried to fly through some of the other Chapters of the FL Statutes I thought might tell me something about that, but no luck.

If somebody could help me out with this question I would appreciate that.

Cheers
Karl

Cheers
Karl

MicheleD (Kentucky)
Posts: 4,491

Posted:

Quote:

Posted By KarlA1 on 09/17/2009 5:39 PM
Hi,

I have a questions regarding rentals in an HOA.
I heard that the law distinguishes between a rental community and an HOA, and that an HOA cannot have more than a certain percentage of rentals, otherwise it is considered a rental community and therefore governed by different laws.

Now I have been up and down in Chapter 720 of the FL Statutes, but couldn't find anything. I also tried to fly through some of the other Chapters of the FL Statutes I thought might tell me something about that, but no luck.

If somebody could help me out with this question I would appreciate that.

Cheers
Karl

I think you were misled by anyone who told you this: "I heard that the law distinguishes between a rental community and an HOA,"

That could be why you can't find anything in the FL statutes about it.

A rental community can exist with an HOA. SOMEONE owns the units that are being rented, and it would be that person (the unit owner) who is or would be subject to whatever assessments or dues are assessed and required to compel compliance of his or her renters to any deed covenants.

GlenL (Ohio)
Posts: 5,491

Posted:

Karl I believe what you are referring to as a change in the law is how the FHA and others especially Fannie and Freddie are looking at communities before lending money. On Oct 01, 2009 some very drastic changes in what the FHA will look at before writing a loan on a COA (Condo HOA) take effect; other lenders will more than likely follow suit and HOA's can't be far behind. Some of the changes are:

1. There will be NO more spot approvals.

2. All development not considered primarily residential are out.
For instance, a development with more than 25% of the total floor area dedicated to commercial business use is out.

3. Noise issues is a new concern, so any development within 1,000 feet of a highway, freeway, or heavily travelled road, 3,000 feet of a railroad, 1 mile of an airport, or 5 miles of a military airfield will become ineligible for approval.

4. If the property has an “unobstructed view , or is located within 2000 feet of any facility handling or storing explosive or fire prone materials, it is not insurable - we're not talking just fireworks factories here. A gas station 2 blocks away can disqualify this development.

5. Any property located within 3000 feet of a dump, landfill, or superfund site, is ineligible.

6. No more than 10% of the properties can be owned by a single investor, including builders or developers who are renting out or have not yet sold vacant units. For 2-3 unit developments, no one can own more than one unit.

7. No more than 15% of the homeowners can be more than 30 days late on their homeowner dues.

8. For new developments, at least 50% of the units must be sold prior to applying for FHA approval (valid presales include those with purchase agreement and lender validation of an approved loan in process)

9. A minimum of 50% of the units must be owner occupied or sold to owners who intend to occupy as their principal residence.

10. Projects in designated wetland and flood zones will not qualify.

11. All current condominium project approvals will be invalid (with the exception of projects approved on or after October 1, 2008) and projects must be re-approved under the new options available. Going forward, all projects will require recertification every two years.

Studies show that 5 out of 4 people have problems with fractions

DonnaS (Tennessee)
Posts: 5,671

Posted:

Karl,

I know Statutes 720 fairly well. There is no place that addresses rentals in those statutes

As Glen said, Fannie and Freddy have some limitations as well as some lending institutions. The Fair Housing Act section with Housing For Older Americans does not as well. Now your individual State may have special laws addressing rental communities so that might be worth looking into.

MicheleD (Kentucky)
Posts: 4,491

Posted:

But, Glen, if I'm reading you right, those qualifications don't necessarily apply to someone securing a traditional mortgage, correct?

So if I'm going through my bank and not trying for FHA or Fannie/Freddie, those wouldn't necessarily come into play?

MaryA1 (Arizona)
Posts: 7,043

Posted:

Karl,

Posted below is an article from the FHA website detailing the FHA condo requirements. The Spot Approval is being eliminated effective 10/1/09 so that section won't apply anymore. As you can see the rental limit is based upon the number of HUD-insured mortgages in your condo complex. If there aren't many then there's nothing to worry about.

The website for the article is: www/fhainfo.com/condos.htm

Buying a Condo using an FHA Loan
HUD Section 234(c) of the National Housing Act provides authority to insure any mortgage covering a one-family unit in a project coupled with an undivided interest in the common areas and facilities which serve the project. The project may include dwelling units in detached, semidetached, row, garden-type, low- or high-rise structures. Generally these types of properties are referred to as Condominiums.

HUD will insures mortgagees against losses on mortgage loans used for buying a condo or to refinance individual units in eligible condominium projects provided that they meet certain guidelines.

A. Project Eligibility. The condominium project must be on HUD's approved condominium list.
B. Applicant Eligibility. Eighty percent of the HUD-insured mortgages in a condominium project must be the principal residence of the owners (owner-occupants).
C. Maximum Insurable Mortgage: Same as Section 203(b) (except that the mortgage amount must be in multiples of $50).
D. Minimum Investment: Same as Section 203(b).
E. Mortgage Term: Same as Section 203(b).
F. Mortgage Insurance Premium: Monthly+Upfront MI of 1.5%
G. Refinancing: Same as Section 203(b).

If the Condominium is not approved then the Lender may go through the "Spot Approval" process.

The following requirements must be satisfied before a spot loan is endorsed:

• The condominium project must be complete. There should be no ongoing or anticipated addition of any units, common elements, and/or facilities.
• Control of the common areas of the project must have been turned over to the unit owners association for at least one year.
• The owners association must provide evidence that the project has the appropriate hazard, liability and flood insurance.
• Individual units in the project must be owned in fee simple or be an eligible leasehold interest. The project's legal documents must provide for undivided ownership of common areas by unit owners. By virtue of this ownership, unit owners must have the right to use all facilities and unrestricted common elements.
• The project's documents should not place any legal restrictions on conveyance. Any provisions that seek to limit the free transferability of title is generally unacceptable. Such restrictions include rights of first refusal and restrictive covenants. Certain governmental or nonprofit programs designed to assist in the purchase or rental of low- or moderate-income housing are exempted from the restrictions on conveyance provisions.
• At least 90% of the units in the project must have been sold.
• At least 51% of the units in the project must be owner-occupied.
• No single entity may own more than 10% of the units in a project. "Entity" includes an individual partnership, corporation, limited liability company, limited liability partnership, joint venture, investor group or other natural or legal person qualified to hold an interest in real property. The 10% restriction does not apply when the ownership of less than three units would disqualify an otherwise eligible project.
• HUD recognized that the 10% cap on the number of units that may secure FHA insured mortgages in a given project can place a small regime at a disadvantage, since only a few units will invoke the limit. Accordingly, a two-tiered system was established. For condominium projects having more than 30 units, no more than 10% of the units may have FHA insured loans at any given time. Condominium projects consisting of 30 units or less, can have up to 20% of the units encumbered by FHA insured mortgages under the spot loan rule.

GlenL (Ohio)
Posts: 5,491

Posted:

Quote:

Posted By MicheleD on 09/18/2009 7:57 AM
But, Glen, if I'm reading you right, those qualifications don't necessarily apply to someone securing a traditional mortgage, correct?

So if I'm going through my bank and not trying for FHA or Fannie/Freddie, those wouldn't necessarily come into play?

Michele for now, but the others usually model their loan practices on the FED.

Studies show that 5 out of 4 people have problems with fractions

KarlA1 (Florida)
Posts: 84

Posted:

I want to thank everybody for their advice/opinion.

I just want to make one thing clear, and I don't know if that makes a difference, we are not a condo association, we hare a homeowners association and are regulated by chapter 720. Condos are regulated by chapter 718.

But if this does not make any difference, then I guess what everybody is saying is that there is no limit on how many Units can be rented in an HOA.

Now another question I haven in this case then, can the association limit the percentage of rented Units by amending the governing docs? Is that legal?

We do not want to become a "Rental Community" in the means that we have more units rented out than actual homeowners living in them. Our experience is that renters in 90% of the cases don't give a crap how their property looks and that give the whole community a bad image. So our intention is to keep the rented units below 25%.

Thanks again for your help.

Cheers
Karl

Cheers
Karl

MicheleD (Kentucky)
Posts: 4,491

Posted:

Most HOAs who attempt to do that (control # of rentals) run into all sorts of problems. In many cases, it would require an unusually high number of people to agree. Even if your docs say only 51% or 75% are needed for an amendment, we have been advised on numerous occasions, by many attorneys over the years that attempts to limit a homeowner's ability to obtain income off their property in the form of preventing rentals is not looked on kindly by the courts.

By that, I've been told, that when challenged, judges usually find against the HOA.

IF the documents included that language originally, then it doesn't appear that causes much of a problem.

It's the attempt to change them after the fact that gets tricky.

Here's the point, though, and it can't be stressed enough, it doesn't matter WHO is living in the home, the deed holder of record (the member) is responsible for ensuring that the covenants are followed and not violated.

You have the same recourse regardless of who owns the lot in question.

If there is a violation, then make the owner compel compliance.

If they do not, then fine them.

If they still do not fix the violation (even if it's a renter who is in actually in violation), then take them to court.

You have the same recourse and have the same power regardless of who the owner is.

The problem then becomes in how weak your board may be in actually enforcing the covenants.

Which won't be solved by trying to limit rentals.

RickW (Illinois)
Posts: 169

Posted:

Karl,
I understand the thoughts behind limitng the number of rentals within any one complex. I agree to a certain extent that renters typically do not care for their home with the same concern that a homeowner does.

We looked into limting the number of rentals within our complex shortly before the economy took a downturn. We decided that it was, at least for now, alright to have rentals. In fact, we have taken possession of one unit, that is in foreclosure, and are renting the unit to collect back assessments.

The real issue is not the number of rentals, but how the board deals with the situation. As MicheleD stated, it still revolves around the unit owner. Its as if the unit owner and the association have a contract. The responsibility to follow the association is with the unit owner because that is who is on record. If they rent the place out, the unit owner is responsible, regardless of what the renter does.

We request that any owner renting their unit, provide us with updated contact information for the owner as well as contact information for the renter. We also request a copy of the lease. Of course, this means we have to have knwoledge a unti is being rented which is not always the case.

GlenL (Ohio)
Posts: 5,491

Posted:

Karl, while it may be difficult to limit the percentage of rentals and as Michele rightly pointed out that the BOD needs to make the owner comply if your documents allow you can put rules about rentals in place up to and including certain language in the rental agreement. Although it is from 2002 an excellent article on this can be found at: http://realtytimes.com/rtcpages/20020102_hoarentals.htm

This is a re-post to give you an idea of the types of rules you can add:

Gary I believe a better way to go is to put in place protections to protect your Association from bad renters and landlords. I believe it was Donna that mentioned she had property in an Association that required an owner to occupy the home for two years before it could be rented to prevent speculators. This of course would not affect the houses currently for rent but could be phased in; I would however have a hardship provision where an owner could apply for a variance on this as emergencies do happen.

While the homeowner is ultimately responsible for their tenant's actions, you can add some protections by requiring certain language in the lease or as an addendum to the lease. Some of the things I would suggest in no particular order are:

1. Make the minimum rental term at least 6 months preferably a year.

2. Add something to the effect of if the homeowner becomes delinquent with their assessments then the Association can collect them and any past due amounts directly from the tenant and the owner must credit the money paid by the tenant as rent. In other words if your monthly assessment is $150.00 and the H/O is delinquent then the BOD collects the $150.00 from the tenant directly. When the tenant sends the owner his rent minus the $150.00 the owner must credit it as if the tenant paid him in full.

3. I would also include language that if you have amenities (pool, tennis court etc.) the owner either assigns the amenity to the tenant and cannot use it for the term of the rental or keeps it for their self and the tenant can't use it.

4. Give the Association the power to initiate eviction actions against problem tenants with the cost to be born by the homeowner.

And finally when you have the whole thing drafted have it looked over by an attorney to make sure it doesn't violate the landlord - tenant law in your state and adequately protects your Association as much as possible.

Studies show that 5 out of 4 people have problems with fractions

JamesC (Maryland)
Posts: 282

Posted:

KarlA1

I checked into this issue with the Maryland Homeowners Association a couple of years ago, because at the time we had fourteen rentals out of 167 homes, and was told if 30% of the homes in our community were rentals it does in fact make a difference in our standings, but the biggest problem would be, mortgage lenders would be relunctant to approve loans in those communities.
So in Maryland, it is 30%

Jim

MaryA1 (Arizona)
Posts: 7,043

Posted:

I would be very surprised to learn there are state laws limiting rentals, but I do know there are federal laws (FHA to be exact). Please read my message of 9/18 @ 10:35 AM for info from FHA. You'll note that at least 50% of the units must be owner-occupied to qualify for FHA funding. The test is not the number of rentals but rather the number of units that are mortgaged by FHA loans. However, if yours is not a condo assn the ruling does not apply. Planned communities (single family homes) can adopt a rental policy whereby certain requirements are placed upon property owners who choose to rent their property. If the HOA wants to curtail the number of rentals an amendment to the CCRs in all likelihood would be required.

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