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Subject: Board Members Self-Dealing?
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AmyP8
(Illinois)

Posts:2


09/07/2019 8:42 PM  
My aunt has lived in the same HOA for 30 years. Because of the changing neighborhood, the value of her unit has depreciated tremendously - bought at $250k, units now go for $30-40k. Many units are in foreclosure and being sold for $10k.
My aunt is moving out of the state for other reasons, and wants to rent her unit to a very responsible tenant, who is willing to "rent to own."
The Board is refusing to allow this because they amended the Declaration to say only immediate family members can live in/rent the units.
What has happened is that many owners have abandoned their units, which then go into foreclosure.
Several Board members then buy up these units at $10k and even $5k, , and install their family members.
Is this self-dealing?

MelissaP1
(Alabama)

Posts:8497


09/08/2019 12:33 AM  
I assume your aunt lives in Detroit. Which is experiencing a housing collapse of enormous proportions. I've heard of houses selling as little as 10 dollars. So I can't blame the HOA for what is going on. It's really happening all over that city/area. However, I would question the rules in the Declaration you say they changed. Where is the proof and where is it filed?

I find it odd that a board voted in this rule without majority of owner approval. Usually rules like this aren't just board voted on. They also have to be filed with the courthouse. This is in the CC&R's and not by-laws correct?

What is the enforcement of this rule if in violation? How is it checked? There has to be a fining schedule in place to enforce fines IF the HOA can enforce fines. They can't randomly out of the sky decide an amount or terms. It has to be established terms and amounts.

Honestly, I would consult an attorney. Not a Real Estate one. Certain rental restrictions can't be enforced even if they are written in documentation. That documentation has to be compliant with State or local laws. Family members only rule seems to not be one written in the books IMO.

Former HOA President
PaulJ6
(New York)

Posts:259


09/08/2019 6:05 AM  
OP, the board’s actions may be viewed as breaches of fiduciary duties, which render the board members personally liable for damages. Some states limit the scope of fiduciary duties that board members owe, though.

One solution: have your aunt rent the unit to a family member and have the family member sublease the unit to the tenant. Let the board fight it and she can counterclaim breaches of fiduciary duties, to the extent applicable.
MarkM19
(Texas)

Posts:402


09/08/2019 7:35 AM  
Amy,
Does the board do a "23 and Me" DNA test on every rental unit? How do they enforce this rule? I am a little confused about your Aunt unit. If she still has a mortgage she must be completely upside down on it. If people are buying units for 10k or 20k they must be able to rent those units for peanuts. How can she compete? Sounds like that place is on a death spiral.

If I was on that board I am sure there would be many more things to worry about then who the renters relative are. This seems like a very sad story that does not end well.
CathyA3
(Ohio)

Posts:396


09/08/2019 8:23 AM  
Was the Declaration amended legally (through affirmative vote of the majority of owners) and recorded with the county? Or did the Board just enact a rule? If the latter, then this rule should be unenforceable it modifies the restrictions on the property without owner approval, and you can ignore it.

However, it sounds like that's the least of your aunt's problems. This property is a target for investors, who can buy up enough units to be able to dissolve the condominium structure and then force any remaining owners to either sell their units to them at an unattractive price or pay rent to remain there. (Yes, this is perfectly legal.) It could be that the board members are doing exactly this. Are they buying up units under their own names or under an LLC? That will give you your answer. Is that a breach of fiduciary duties? Maybe not. If the amendment were enacted legally, then they are trying to enforce the current restrictions, which they are obligated to do. They simply may be taking advantage of a bad situation, and I believe they have the same right to buy up units that come onto the market as anyone else. The optics may be bad, but that doesn't make it illegal.

If I were in your aunt's position, I'd unload that sucker as fast as I could and consider it tuition in the School of Life. The last thing I would consider is possible legal action against the board for something that's worth only $40,000 or less.
JeffT2
(Iowa)

Posts:486


09/08/2019 9:35 AM  
One of the ways to buy real estate is called a contract for deed. It is similar to rent to own. It will probably satisfy the ownership requirements so the condo unit will not be considered a rental.

Here is an article.

Renting a condo unit or a contract to deed could work out, but they are not simplest thing for an absentee owner to understand and manage. Just sayin'. I would look for a lawyer who is familiar with it and familiar with condominium rental restrictions.
GenoS
(Florida)

Posts:3174


09/08/2019 2:39 PM  
Posted By JeffT2 on 09/08/2019 9:35 AM
One of the ways to buy real estate is called a contract for deed. It is similar to rent to own. It will probably satisfy the ownership requirements so the condo unit will not be considered a rental.

We have just such a situation now in my HOA. An owner is selling to another party via a Contract for Deed. Appears to be legal in Florida and probably many other states. The contract says that the title will not be transferred to the buyer until all payment terms of the contract are fulfilled. These consist of monthly payments for 3 years followed by a baloon balance payment for what remains on the purchase price.

Until the legal title recorded with the county is transferred to someone else, the current owner remains the "member" of the HOA. The guy buying the house is not the legal owner (yet). Until he is, we consider him a tenant.
JohnC46
(South Carolina)

Posts:8647


09/08/2019 6:13 PM  
Posted By GenoS on 09/08/2019 2:39 PM
Posted By JeffT2 on 09/08/2019 9:35 AM
One of the ways to buy real estate is called a contract for deed. It is similar to rent to own. It will probably satisfy the ownership requirements so the condo unit will not be considered a rental.

We have just such a situation now in my HOA. An owner is selling to another party via a Contract for Deed. Appears to be legal in Florida and probably many other states. The contract says that the title will not be transferred to the buyer until all payment terms of the contract are fulfilled. These consist of monthly payments for 3 years followed by a baloon balance payment for what remains on the purchase price.

Until the legal title recorded with the county is transferred to someone else, the current owner remains the "member" of the HOA. The guy buying the house is not the legal owner (yet). Until he is, we consider him a tenant.




Would or could this get around no rentals allowed?
GenoS
(Florida)

Posts:3174


09/08/2019 11:19 PM  
Posted By JohnC46 on 09/08/2019 6:13 PM
Would or could this get around no rentals allowed?

That's a good question.
NpS
(Pennsylvania)

Posts:3655


09/09/2019 7:22 AM  
Another work-around.
Owner forms an LLC. Titles the property in the LLC.
Makes any tenant a member of the LLC with no voting rights.

Will it work? Don't know.
Can HOA demand access to the records of the LLC? I don't think so.

If the sole purpose is to avoid the tenant rule, you might have a problem if you had to defend in court.
But if you have some other valid purpose in forming the LLC, then you've got a good shot IMO.
Shouldn't be hard to come up with an independent valid purpose - since the LLC offers protection against personal liability on many grounds.

Sikubali jukumu. Read all posts at your own risk.
JeffT2
(Iowa)

Posts:486


09/09/2019 1:36 PM  
Posted By GenoS on 09/08/2019 11:19 PM
Posted By JohnC46 on 09/08/2019 6:13 PM
Would or could this get around no rentals allowed?

That's a good question.



Yes it can be used to get around rental restrictions in some communities but not others. Here is an article

https://www.hoaleader.com//CondoHOA-Owners-Are-Crafty-Another-Way-Try-Get-Around-Rental-Restrictions.cfm

In the governing docs of my community, contract buyers are owners, and contract sellers are seen as just holding interest in a unit as security for an obligation. In other states and communities such as Geno's, it is apparently the opposite.
GenoS
(Florida)

Posts:3174


09/10/2019 1:01 PM  
HOALeader is a great resource and I never hesitate to read articles or posts on their website when the subject seems to be apropos to whatever I'm researching at the time. They canvass attorneys and PMs from around the country for most of their articles and usually you won't find a better treatment of whatever subject they're writing about anywhere else. I actually read the exact article at HOAleader the other day. It is a great article and it says, in part:

"It comes up in the context of someone claiming to own a property but who's actually a tenant, and nobody ever checks,"

It also says Contracts for Deed are not common in Florida (yet). There is an adminisrtative requirement in Florida to record mortages in the official records of the county where a property is located. That requirement also applies to CFDs (Contract for Deed) since a CFD contains provisions and language very similar to actual mortgages given by traditional financial institutions.

I found this set of instructions aimed at RE professionals that guides one through the preparation of a "Contract for Residential Sale and Purchase", Form CRSP-12, in Florida. On page 3 under "Specific Considerations" it says the form is not intended to be used for an Agreement/Contract for Deed, which is, "... basically a security arrangement instead of a purchase money mortgage. When an agreement for deed is used, seller is the record title owner until the agreement is completely fulfilled...".

So that's two examples of justification for the HOA to continue to treat the seller as the record title owner and the buyer as a tenant.

I have seen language somewhere regarding an interest for the purpose of securing an obligation but a quick look at the state statutes and our own governing documents shows it's not there. I need to look into that a little more since that's an interesting take on the situation.
AmyP8
(Illinois)

Posts:2


09/10/2019 6:06 PM  
I am so very grateful for all of your input!!!!!
There are a lot of creative suggestions here. I will pore over the Declaration to see which ones fit our situation the best. The amount of money involved is not huge, but it makes a significant difference to my aunt (along with not feeling like she is having her property stolen).
Thank you all so very much !!!
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