"Grandfathered" rentals

This is a ‘grandfather clause” in our CC&Rs:
“The restrictions on leasing and renting contained in this Section 4.2 shall not apply to any Member who was an Owner of a Lot on January 11, 1998 (the date when the Second Amendment to the original Declaration setting forth rental restrictions was first recorded). Notwithstanding the foregoing, the restrictions on leasing and renting contained in this Section 4.2 shall apply to any Lot or Lots upon transfer of title to such Lot subsequent to January 11, 1996.”

We now have the maximum number of rentals allowed by the restriction. The rental of property by a ‘grandfathered’ owner would put us over our limit and probably classify our property as ‘investment’ rather than ‘residential.’ Property values are falling with the market and more rentals would probably make things worse. Yet according to the above statement we cannot stop a grandfathered owner from renting his/her property. The dates don’t make sense to me either. What if you bought in 1997?

I’ve heard in some cases these grandfather clauses are illegal. Can anyone explain the dates and give me more info on this type of ‘grandfather clause?’

Confused,
Jane

I agree with Dane's interpretation. Who authorized the additional rentals beyond those grandfathered which exceeded the percent rental limit? Such approval was a violation. I would demand no more rentals be allowed until such time as they would not exceed the defined maximum limit; and it includes those which are grandfathered.

Consider the following scenario - An investor from say Vermont, wants to acquire a unit via a 1031 exchange - will the Corporation (Association) refuse to allow that person to rent or lease the unit - would that not be a constraint against interstate trade? Or does the Managing agent advise every prospective purchaser, that they cannot acquire a unit for investment purposes?

My question is: Was there ever a defined punishment for exceeding the rental limit? Your documents may "limit rental" but do they adress what is to be done. Sounds like they don't. Basically, no "follow-through".

I have always been against a policy against limiting rentals. My reasons are pretty clear. This situation being one of them. Your HOA has now limited rentals but doesn't offer a way to enforce it. You can't fine the owner, raise their dues, or even evict their tenant. Renters have rights beyond the owner's control.

Here's where it gets confusing. The effect of your community turning "Rental" to "investment" effects the availability of certain loans. New buyer's may not be able to get loans that are supported by federal monies. (Freddy mac, FHA, HUD, etc.) The potential buyers may have to rely on other loan options such as conventional or other commercial type loans. (80/20, 100% financed, etc.) So essentially the effect of this catagory of "investment" really means limiting the availabity of types of loans and making it more difficult for new buyers to come in.

There is a form that is sometimes filled out by the HOA's President at the closing of some homes. Mostly the one's involving certain types of loans. (Mostly federal). That form has about 25 questions on it. It covers items such as Fee simple? How many not paying? How many are owner occupied? etc... It's more or less a survey by HUD. (Housing and Urban Development). The form is to give them an idea of the property condition. Remember, if this home is foreclosed on by them, they will own it. They need to know what their investing in just like anyone else. They don't want to invest in property that is majority rental. That's a bad investment and they can deny a loan on this. Why invest their money if they risk not getting a good return? Banks and mortgage companies are into real estate to make money.

So the effect of having rental property limitted ripples down to everyone. It's darn if you do and darn if you don't. You limit rental property, you could limit buyers. You don't limit rental, you can get stuck with bad renters. It's really up to the owner's to decide which side of the rock and the hard place they want to stand.

JaneK:
It would seem to me since your present CC&R clause/s are very confusing and 'muddied' as they stand now, you may want to consider an amendment. At this point, it is suspect and left to whomever is 'trying to interpret'.??? The document is also over 10 years old, and resident needs and real estate trends change.

Hold a special meeting for this one purpose, get a handle on what percentage of rentals the majority of the community is willing to bear, hold a member vote and file a clearly understood 'amendment' which the majority can agree with.