Does this sound right to you?

Started by MattS2 • 21 replies • 2111 views

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MattS2 (Washington)
Posts: 4

Posted:

I live in Washington State, my condo community does not have a rental cap... For the first year, the HOA board was almost non-existent, would not return phone calls, or send out notices about meetings or board members quitting.
Then, they hired a management company to act as a buffer between the owners and board. There is no cap on the condos and everyone that was having difficulties with the HOA decided to jump ship and rent their units out.

What we are left with is very few owners on site, we are unable to get the necessary number of votes to change our board of directors. We are being told that it will take until about the end of the year to write up a bylaw for a rental cap... We suspect that the president doesn't live on site. Those of us interested in selling can not get FHA approved.

We are also being denied access to financial records for last year - a reported $80,000 is "unaccounted for". From what I've read in the RCWs' we as owners are supposed to have access to ALL records including bank statements etc.

Any feed back you folks could provide me with would be greatly appreciated.

/Matt/

GeorgerwilliamsW (Indiana)
Posts: 975

Posted:

Matt, You have a problem for sure. You may be up the creek without a paddle.

But you gotta' keep tryin' . . .

Rental caps may not be the way to go, since they have been held to be invalid in at least on state. An attorney can provide the best guidance on this issue.

As far as the documents are concerned, it may require court action.

Whatever you end up doing, it ain't gonna' be cheap.

I bet you'll get lots of advice here. Several people are from Washington.

JohnK3 (Pennsylvania)
Posts: 967

Posted:

Who reported $80K unaccounted for if the financial records are unavailable? And you don't now if your Prez lives there?

A friendly call to the PM, on both issues, might be a good starting point.

PatrickH (California)
Posts: 204

Posted:

Hi Matt,

I think the ship may have already left the dock on the rental cap issue. It sounds like most of the units are now rentals, so it will be very hard to get the owners of the rental units to vote on a restirction regarding how many rentals are allowed. Even if you "grandfather" in all the current rentals, it could take many years until they are sold to owner ocupants.

Regarding the financials, the Washington State folks may have more insight, but I think any member should have access to the HOAs financial reocrds. If your HOA might have $ 80,000 missing, that's huge chunk of change, so you should keep pushing for a full accounting of where the money is or where it went.

Good Luck.

MattS2 (Washington)
Posts: 4

Posted:

One of the other residence that was in another meeting brought up the missing funds issue... They are one of the only people that have been to any of the meetings in two years - so it was something they heard or caught wind of... Until I get my hands on the records (Washington State Law says I have a right to all records), I'm viewing as complete hearsay.

The condo president is a very, very smug individual - he actually knows more than the Real Estate "professional" they hired. The Real Estate pro keeps saying things over the phone and out in public that he's supposed to keep hush-hush.
He's told us that the President is currently seeking legal action against the developer for damages he's not liable for. And he also told me in a phone conversation "You don't have a legal HOA board, you only have some volunteers".

When I brought both of these items up to the board - in front of the pro, they denied both of them... So I'm guessing that the Real Estate company let something slip to another resident about missing money.

GeraldT4
Posts: 1,022

Posted:

MattS2 - You wrote, "the HOA decided to jump ship and rent their units out." This has me laughing and I suspect there is more to their renting their units out than the mismanagement of the association. Reason is that as HO's they are still subject to the problems of the association. If they really wanted to get away, why not sell? Perhaps the reason is that the real estate market is pretty much in the crapper nationwide and they will experience a loss, or not enough of a gain.

LarryB3 (Arizona)
Posts: 1

Posted:

Could someone explain what a "rental cap" is. I am not familiar with the term. Is this something that limits the number or percent of units that may be rented?

GeorgerwilliamsW (Indiana)
Posts: 975

Posted:

Quote:

Posted By LarryB3 on 08/08/2008 2:33 PM
Could someone explain what a "rental cap" is. I am not familiar with the term. Is this something that limits the number or percent of units that may be rented?

That is a valid, and very good question. People get lazy in communications at times. And, yup! You got it right.

I understand a rental cap to be a limitation on the number of units in a condominium development that can be rented or leased out by the individual unit owners.

The notion behind a rental cap is to avoid having a large number of non-resident owners, turning the facility into more of a rental development instead of the owner-occupied development/building it was intended to be. A rental cap also provides for improved governance, since owners are also residents, making it easy to communicate, meet, and vote.

Others may have thoughts to add here as well.

SusanW1 (Michigan)
Posts: 5,202

Posted:

Matt - you should be able to request IN WRITING a copy of the last annual financial report. It should have been given to everyone at the last Annual Meeting. A balance sheet, an actual revenue/expenditure vs. budgeted report, and a reserve fund report should be provided. Document the date of your request. This should be provided to you in hours, if not days. Standard stuff.

You also need a copy of the CCRs and the bylaws which will detail the procedures for amending them, including adding any more amendments. There may be a process, then the vote probably takes place at the annual meeting. You need to know exactly HOW to get that introduced for a vote, if it is so important. You need a list of the members and their addresses, if you need to campaign for this.

However, as one person noted, those owners that have renters in their spots are NOT going to go for a "cap" now, not in this econonmy.

I am concerned about whether there IS a Board and a MC. Seems really loosey-goosey - unless you are not being assertive enought or asking the right questions.

P.S. The "missing money" is only a rumor until it can be documented. That's pretty serious stuff. An audit should have caught that, some time ago and the membership informed.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

I'm confused,
Matt says some can't sell their units because they can't get FHA approval, and yet others sell and moving on. I suspect the FHA thing is a rough rule that the FHA is supposed to abide by which limited the number of rentals (rental cap) (are we talking HOA or Condo?),

This FHA rule has been used to provide reason for a rental cap, and condos all over are doing it. On the one hand you would be trying to convince the court a rental cap restricts your free market to rent if you want, and on the other side you could present that a restriction by the FHA is retricting your right to a free market to sell the place if you want.

I think it goes deeper than that and Geaorge and Donna might be able to analyse better. I think the whole things goes back to what is good for the association as a whole, that is the question that has to be answered. Does this mean different standard for different places or does it mean, that some kind of floating cap should be used. I don't know. But I do feel I know that if you allow the scale to tip downhill by allowing too many rentals, your property value will suffer because of that act. Does the management BOD have the right to tip the scale, I doubt it, their mandate is above all else to protect the association and in a condo more than an HOA to protect the real property. So if you believe that, you have to start your discussion from that premise.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By GeorgerwilliamsW on 08/08/2008 2:43 PM

Posted By LarryB3 on 08/08/2008 2:33 PM
Could someone explain what a "rental cap" is. I am not familiar with the term. Is this something that limits the number or percent of units that may be rented?

One thing I'd like to add is that when there are too many rentals in a condo development it's impossible to get FHA financing for a mortgage or even for a refinancing. This HOA may already have too many rentals which might prohibit anyone else from renting their unit. Considering this it's even more crucial for the remaining full-time residents to get together and come up with some solutions for the problems they are facing -- especially the supposed missing funds.

The rental cap is something that should be pursued, but depending upon how many owners have already rented their units it may be impossible to pass. However, if they could get the required number of votes, it would serve to put a limit on the number of units that can be rented and enable a member to sell their unit if the need arises. As it stands right now, it may be impossible to sell a unit.

I think another poster mentioned the fact that those owners who are renting now would have to be grandfathered in if a rental cap was adopted. IMO, they would not have to be grandfathered in, rather they would be allowed to have a renter for the remainder of the lease. The BOD would have to obtain copies of the leases of all the rented units. When a lease expires, the owner would have to petition the board to renew. If the rental % has not been exceeded, the lease could be renewed. Of course, this is just my opinion. An attorney should be consulted to make certain whatever course of action is taken is legal.

KirkW1 (Texas)
Posts: 1,665

Posted:

The thing is that the Board is not in a position to create, modify, or destroy a rental cap. They could possibly allow a little "fudge" room in the cap, but it could be quite hard.

Speaking more to Matt's issue now, I also don't see how you could get a rental cap in place now. If I were an owner renting out my place, there is only one way I would consider voting for it. If you wrote the "grandfather" clause in such a way that the only time the unit would lose its status is if the owner moved in. Anything else could seriously affect my ability to sell.

Here is my view: too many rentals could well cause property values to go down. So then the remaining units are only attractive as rental units. But limiting the number after the fact will not fix the problem unless you force units to become owner occupied. At any time it would be problematic and right now it could be devastating. So if you simply say the next owner can't rent, then who will I sell to?

I am afraid that once that train departs, you will have a hard time bringing it back into the station. Your best bet would be to try and transform it into "upscale" rentals which could (possibly) eventually turn into owner occupied as more people are interested. Either that, or wait for the price to drop to where it competes in the "starter," or "affordable housing" markets at which point you will again see more people purchasing to live there.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By KirkW1 on 08/08/2008 3:44 PM
The thing is that the Board is not in a position to create, modify, or destroy a rental cap. They could possibly allow a little "fudge" room in the cap, but it could be quite hard.

Speaking more to Matt's issue now, I also don't see how you could get a rental cap in place now. If I were an owner renting out my place, there is only one way I would consider voting for it. If you wrote the "grandfather" clause in such a way that the only time the unit would lose its status is if the owner moved in. Anything else could seriously affect my ability to sell.

Here is my view: too many rentals could well cause property values to go down. So then the remaining units are only attractive as rental units. But limiting the number after the fact will not fix the problem unless you force units to become owner occupied. At any time it would be problematic and right now it could be devastating. So if you simply say the next owner can't rent, then who will I sell to?

I am afraid that once that train departs, you will have a hard time bringing it back into the station. Your best bet would be to try and transform it into "upscale" rentals which could (possibly) eventually turn into owner occupied as more people are interested. Either that, or wait for the price to drop to where it competes in the "starter," or "affordable housing" markets at which point you will again see more people purchasing to live there.

Kirk,

The reason I suggested trying to pass a rental cap is because Matt didn't indicate what % are already rentals. I think this is a real catch-22 situation. If the number of rentals has already exceeded the limits being imposed by FHA (I believe there must be 51% owner occupany), no one will be able to sell their unit.

Because there may already be too many rentals, it will be impossible to pass an amendment adopting a rental cap. But, w/o a rental cap too many units will turn into rentals making it impossible to obtain financing if someone wishs to buy a unit or if an owner wishes to refinance a unit. This is the catch-22 situation I speak of.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Mary and Kirk,
I suggest you both do a good job of defining the problems.
Let's explore one way of fixing or improving the problem. I think in condos especially you would agree a lot of units are bought to rent and a certain fraction of the rental income goes into advertizing these units. Any Newsletter, any web sites, any blurbs about the Association advertizes these rental properties. I say: For the health of the whole and the vitality of the whole, there should be positive steps taken to promote the association as a residential property. Any money spent would benefit the association as a whole by elevating property values. You will get a lot of flak by the folks renting but if they think about it, when they want to sell they would know their property still had value.
I would like to hear some analytical examinations of this idea. I also don't think you need a majority vote to do this. If the Board so desires they have the power to raise fees if it becomes necessary, to hell with majority vote. Ask the majority in any association if they thing there fees are too high? Does the answer support this is a mojority vote?

Take a little thought and a little doing but it may swing the downward trend. Also along these lines, how about curtailing the Business partner association and promotion or the rental unit with the Real Estate people. Make them offer all property as residential property and get them to verify they have done it prior to sale. Make the buyer refuse to consider the unit for residential residence. That would stop some of this second home condo riders that forbid rentals and the buyer turns around a rents anyway. That is another story that I can tello that makes renting unfair and maybe illegal in a lot of condos. If you are interested.

MattS2 (Washington)
Posts: 4

Posted:

I went through County records and I'm trying to come up with what I believe the Owner Occupied to Rental ratio is right now... My estimate is around 38% of the units are rented out, maybe a little bit more.

Where do you find the Magic FHA ratio for units rented out? I, and several other people have been crawling all over the Internet trying to figure it out.

I've heard as low as 15% and as high as 40%.

Whats strange is that when everyone was first moving into these condos, every single person remembers hearing "15%" from someone, possibly the developer - but none of us have that piece of paper in our bylaw or public offering statements.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Matt, Several thinjgs here:

#1. Ask your management people that hold your accounts what information they give out to Lenders that request this information or anyone else wanting to know.

#2. Does your document define a rental. Our documents state that anytime a unit is occupied by someone not the owner or immediate family; that is a rental. What are your real estate agents agents telling prospective buyers. Ask them for fgures.

#3. There ismore that has to be considered, I will think about it.

#4 I went to FHA web site rooted around until I got a "Contact us" button and sent them an e-mail asking their policy in your area. They will play run around the bush but pursue an answer. If I recall right the best I could get was 30% with not sense of that being enforced. But it is being enforced some places. Problem is, buyers will jus go somewhere else.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By MattS2 on 08/09/2008 12:48 PM
I went through County records and I'm trying to come up with what I believe the Owner Occupied to Rental ratio is right now... My estimate is around 38% of the units are rented out, maybe a little bit more.

Where do you find the Magic FHA ratio for units rented out? I, and several other people have been crawling all over the Internet trying to figure it out.

I've heard as low as 15% and as high as 40%.

Whats strange is that when everyone was first moving into these condos, every single person remembers hearing "15%" from someone, possibly the developer - but none of us have that piece of paper in our bylaw or public offering statements.

Matt,

It's not an easy thing to find out. I, too, was doing some searching and found it stated the requirement was 51% owner occupancy. However, I neglected to bookmark the specific page on the FHA website. Try calling a lender (your bank or cr. union) and ask them what the FHA requirements are; perhaps they can even give you the law or a resource that you can copy and keep in your files.

If 51% owner occupancy is the cap, then your assn is still w/i the limits so you can still pursue a rental cap. Set the cap a little above what the % of rentals is now. Explain to all the members the need for the cap -- it's in everyone's best interests, even those who are renting their properties. One day they may decide to sell but won't be able to if there are too many rentals.

MattS2 (Washington)
Posts: 4

Posted:

Hey Robert/Mary,

I appreciate the feedback very much - I have an E-mail out right now to the FHA and am awaiting a response, I'll scour their website for that information.

I'm hoping that we are under the cap, but the "estimate" I came up with was strictly going by county assessor information. I pulled up the site, went through every single unit and found owners whose address wasn't listed at my condo community... I started going through each one using the address and telephone records to confirm they were living else where.

But there is always the possibility that others are renting out as well. I think that next step will be taking the list around, door to door and trying to confirm the identities of the people living there.

According to my bylaws, tenants in our community are supposed to have signed a lease with the landlord and undergo a background check. Also, I believe that some of the people renting out their units have "liar loans" and are living off site with owner occupied financing... I have ways of checking and I'm hoping that I can present violators to the board of directors so that they may take action and possibly drop the number of rentals by contacting those who are doing it dishonestly.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Matt,
How about telling me what your management reports when they are asked by lenders about the rental figures. They have to tell them something and from where I sit it will be verbal. Check your property records at the County sourt house and see what kind of mortgages these folks are getting.

Here's the deal: If you have an buyer or owner that want to rent his unit. If the finance the property as a rental unit, they are going to pay big interest. If they finance there property as a scond home, the interest will be lower. If the rent this second home that has a second home mortgage, that would be in violation of their mortgage. So, another scheme that hides another cover is to finance your unit with a second home condominium rider. This gets you a smaller interest, and most people will rent because they think they can or have been told they can by realtors or whatever. However read the restrictions on a second home condominium and tell me what you think it says. All this is in the public records and available to anyone. You can search, names, addresses, key # and property #. If you look on your tax bill at your propertry #, somewhere in there is usually your address number. So extract that # and add your neighbors number, especially in condos and up pops your neighbors property tax info. From there you can search all kinds of property stuff and also the coourt house has a search feature that you can use if you want to find out what your association is doing in the world of litigation, but they should be open and tell you.

Forgive the typos, got a job to do.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Matt,

I did a search for "fha condo loans" and found a website you may be interested in checking out. www.fhainfo.com/condos.htm

The article states the owner occupancy must be at least 51%. I also read that the condo must be approved for FHA loans -- FHA maintains a listing of all approved condos. If your condo has not been approved for FHA loans, then the rental limit is a moot point, at least in the context of acquiring financing.

DeniseA2 (Washington)
Posts: 15

Posted:

Hi Matt, Our rental ratio is 60% owners and 40% renters, and have far exceeded that here in our community. I share your frustration completely. Then when you do not have a effective board that does not adhere to the Bylaws/Declarations - Rules/Regs, you have a recipe for disaster and your property values are decling daily. Very sad.

Well then if you are FHA qualified community, however your property manager provides a resale certificate to potential buyers reflecting different numbers then the 60/40 and it is more like 60% renters, 40% owners is very misleading if someone is buying in the community.

I hope the information below can help some folks in the WA state communities. Focus on your Property Managers.

Washington State property managers now have to be real estate licensed.

(16) "Real estate brokerage services" means any of the following services offered or rendered directly or indirectly to another, or on behalf of another for compensation or the promise or expectation of compensation, or by a licensee on the licensee's own behalf:

(h) Performing property management services, which includes with no limitation: Marketing; leasing; renting; the physical, administrative, or financial maintenance of real property; or the supervision of such actions.

http://apps.leg.wa.gov/RCW/default.aspx?cite=18.85.011

Chapter 18.85 RCW
Real estate brokers and salespersons

DonnaS (Tennessee)
Posts: 5,671

Posted:

Denise,

Look at the dates on the above posts. Kinda old so it might save you some time before you post to look at some of these old ones where people have disappeared.

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