Rental Homes

This is a complicated subject. If you want the "where the rubber meets the road" answer, here it is. The only real place that rental property shows up is on the HUD form that is filled out to get certain loans. Typically, that has been FHA type loans but Fannie Mae/Freddie Mac are sure to do this as well if not already. This form has about 25 questions on it. It asks things like is the HOA fee simple? How many members are there? How many pay regularly? How many are behind in dues? and finally how many are owner occupied?

That owner occupied question is where the rental issue comes up. It may be assumed if it's not owner occupied then it is is rental property. The higher reported number of rental properties (non-owner occupied) the higher risk the HOA may appear to the bank. Let's say you have 100 homes in the HOA. 10 of those are rentals. That's not a high number. However, if there are about 25 - 30 homes used as rental (Excluding vacation type homes)then a red flag may come up.

What that red flags means is the harder or less available type of loans will be available to potential buyers. It can also effect the interest rate of some mortgages and refinances. Which not only reduces the number of potential buyers but existing owners could be paying more for their own homes.

Here's the rub. HOA's can't interfere with the contracts of the owners. A HOA can't enforce the rules (Most states) on renters but ONLY the owners. Florida does have a law where renters may make the back dues payments of the owners, but most states the owner is always responsible for the dues payments. This interference of contracts can also extend to those HOA's who belief they can make "Rental restrictions". How can you tell the 11th owner who just lost their job and has to move out of state that they can't rent their property out because the HOA only allows 10 units to be rented out? The HOA is asking for a lawsuit. It's not to say that some states don't allow rental restrictions in HOA's. It's just the reality of the situation is that it is the MORTGAGE company to allow or disallow a owner from using their property as rental NOT the HOA's in many cases.

This is why I always post that rental restrictions are a great idea and they may help reduce some of the annoyances (site and sound) the HOA may have. However, the reality is that a HOA is overstepping it's legal bounds in enforcing those restrictions. A different approach besides restriction needs to be put into place. Meaning that the owner's contract with any renter should include they must obey the rules of the HOA. Typical off the shelf rental agreements don't include that. A notification of property being used as rental should be given to the board. This way the HOA can monitor the number of rental property more accurately. Plus they can have the POC of the actual owner to enforce the owner to keep an eye on their property. Let's least not forget that Renters do have rights to. Even the HOA or owners can't violate those. Knowing those laws and adapting the HOA's laws to accommodate the situation is the best solution. Restricting necessarily isn't.

Sorry it's not scientific answer. However, it's how the system works. Does it need improving? Yes. Is it an area more laws need to be created? Yes. It's just has to be done on a more state level and involve alot of lobbying...

Brad:

In any sort of scientific research the method is to eliminate all variables except the one being studied. That would be nearly impossible to do with regards to rental properties. A researcher would need to find two identical groups of homes where one has rentals and the other does not. The researcher would then have to ensure that the owner-occupants in both groups behave identically during the study and that their homes are maintained the same. At the end of the study the researcher would have to bring in experts to evaluate the values of the properties in both groups without the experts knowing which group has the rental properties. This would be prohibitively expensive and unlikely to ever be done.

I would disagree with those who claim that an HOA cannot enforce restrictions against renters. First, the CC&R's apply to the property, not the owner. Second, when a person rents a property he does so subject to whatever restrictions are set forth in the CC&R's. Since the CC&R's are a public record, the tenant has no legal grounds to claim that he did not know about them.

An HOA can reduce a lot of the problems with renters by making them aware of the restrictions in the CC&R's as soon as they move in. By continuing to occupy the property the tenant is implicitly agreeing to abide by the terms of the restrictions.

The recorded CC&R’s give the tenant notice that he has no voice in HOA matters. I am unaware of a legal requirement that a landlord must inform a tenant of the existence of the CC&R’s and I am unaware of a law that says the CC&R’s cannot be enforced if that notice is not given. The HOA can enforce the CC&R’s against the property regardless of who is in physical possession. While it is customary to seek compliance from the property owner, I am unaware of any legal prohibition from seeking compliance from the tenant as well. Perhaps you could offer some citations to legal authorities that support your position.


I am a college graduate with an IQ in the 130’s and a reading comprehension that is literally off the charts. For the life of me, I have no clue what you are trying to say in the above paragraph or how it pertains to the subject at hand.

I would disagree, show me where we can't restrict or prohibit rentals. Our attorney with over 15 years of HOA experience has said we can. My issue right now is convincing people this is the tactic we want to take and it is good for them. The CC&R's run with the land, I don't care who is on it, if there is a violation we will send notice to the address of record and we will fine them. It is the owner's responsibility to make sure things are ok.

Thanks Roger

The board of the HOA I belong to has decided to restrict rentals to 25% of the units and they passed a motion to that effect. Even though they don't know how many rentals there actually are, they decided the 25% had been reached and now will not approve purchases by persons not intending to live there or leases for previously owner-occupied units. I contend that an HOA must first amend the Declarations, which in our case required a 2/3 vote of the owners, and it is not something the board can simply do on its own. The current Declarations allow rentals and have no percentage restriction but do require board approval. I think this amounts to a significant restraint on alienation and should first be voted upon by the owners. Does anyone know of a specific case or Florida statute on point that I could use to force an amendment vote?

Ken,
We are going through the same thing at the moment. You are correct. If your CC&R's allows for rentals the board can't put restrictions in place without amending your documents through a vote of the membership.The Board is legally required to follow your Declaration and Bylaws so you shouldn't need any statute to back that up.If you think you need one there probably is one in Florida's statutes governing condos.. easily found on the internet.

Unfortunately, even if you take this before the membership and get a 25% restriction passed by your 2/3 majority, the association would probably lose if an owner challenged the restriction in court. Our lawyer has already confirmed this for us. That doesn't mean you shouldn't try because since the collapse of the housing market, owner occupancy is playing a MAJOR negative role when it comes to getting a mortgage in a condo which in turn is affecting everyones property values.

What does seem to stand up to court challenges are restrictions like requiring new owners to use the unit as a primary residence for a period of years before they can rent it. This is best done with some "hardship" clauses.
I don't know about Florida but Ohio statutes allow the board to limit rentals to 50% to fit FHA guidelines without a vote of owners but that is already at the point of no return.

There is a lot on the internet on this topic and what you can and can't do. Just search for things like "rental restrictions in condos", "Can rentals in condos be restricted" etc. ...add the word Florida and see what comes up. I made appointments with and spent several hours talking to loan officers at three major banks in my area about the problem of rentals, loans and property values etc. They were very receptive to doing this since it affects their business as well.

Add to this no win situation is the fact that the FHA, who now plays a HUGE role in the condo mortgage market, doesn't want you to restrict rentals even though they don't want to insure mortgages in associations with low owner occupancy. Here is a link to their one year waiver.

http://www.caionline.org/govt/news/Political%20HeadsUp%20Public%20Document%20Library/FHA%20Issues%20Waiver%20on%20Leasing%20Restrictions.pdf

Since you believe that you are already above the 25% that lenders consider the cut off point for traditional type mortgages then most likely, almost all of your future buyers will need to get their loans through the FHA or some other lender that uses the FHA guidelines.

FredB4 - thanks for the knowledgeable response. Actually, I am not in favor of the rental restrictions imposed by the present board. That is the reason I seek to convince the board that their action is invalid and that they need to amend the Declarations to restrict rentals and not just do it by passing a board motion. Of the 248 units in the HOA only 80 are owner occupied. The rest are vacation homes or future homes that are now rented until the owners retire. Only 12 percent would be considered investor owned (2 or more owned). Disapproving any sales that will not be owner occupied has limited the market and delayed clearing the foreclosure overhang, keeping values depressed. Disapproving any current owner from renting his unit is a significant restraint on alienation that I argue can only be valid if the Declarations are amended, if then. It is unlikely that the board can get the required 2/3 vote to amend the Declarations for this purpose.
Florida law is fairly well developed for condo associations, not so much for HOA's. I will look into condo rental restrictions as you suggest. Similar arguments should apply. Thanks.

Tim, As always you are a wonderful source of info and knowledge. While there is helpful advice in these previous posts some are earlier than 2008. It should be noted that since 2008 much has changed with the FHA and rental restrictions and how they affect homeowner associations. This is especially true with condos but is becoming more so with HOA's as well.

The whole rental ratio issue is now tied up with whether you can buy or sell a home in an association. The issue of whehter rentals affect property valuse becomes moot if no one can buy or sell property.

Before 2008 lending institutions and entities that insure mortgages like AIG, looked at the individual when determining if they would qualify for a loan. Since then, they now also look at the finiancial stability of the association as a whole, including the owner occupancy ratio.

The few loans that are available for associations now come with higher interst rates and higher downpayments turning away potential buyers. Even the FHA tacks on extra percentage points.

The 2008 government bailout of the fininacial market (banks, insurers like AIG, Fannie Mae, Freddie Mac, etc )put all of these entities under the control (directly or indirectly) of the government and consequently almost all now use the FHA guidelines as their standard.These guidelines are extensive and restrictive when it comes to rentals.

Also since 2008 the AIG, who insure a large majority of loans, started their list of "declining markets" where they will not insure loans period. Since then that list has become the standard with most lending institutions. Once again owner occupancy plays a significant role.

All indication are that the FHA will, in the future, play a much bigger role in all mortgages( both traditional and non traditional).The future is not a pretty picture.