Rental Restriction - Liability of having one?

Your proubably talking about FHA loans which require low rental rates. From what I have seen, FHA loan rates are actually higher than going though a normal lender, so I'm not buying the "acceptable rate" argument. Its not a legal right for prospective buyers to have access to FHA loans.

You should be more worries about people like me. If you told me I couldnt rent my unit, I would sue the HOA. In fact, some states have laws that that say owners can rent if they cannot sell for the purchase price plus inprovements. You may be in violation of state law if you dont allow rentals.

Either way, if you dont allow me to rent, I'll take my chances with the judge.

Janet many HOA's have rental restrictions which as long as they are properly enacted and administered fairly are legal.

Also, if your CCR has a rental restriction you may want to be sure and check your state statutes and possibly eliminate the restriction. I would think this rule is not fair and equitable because everyone is not treated the same. You should not have a rule where a few could rent their units, but another who may need to desperately rent cannot because four others are already renting. Everyone in this instance is not being treated equally. For some to be able rent their units and others cannot is asking for lawsuits.

Until a judge rules against the HOA. You can hire the best lawyer, and have the best documents saying whatever restriction you want. A judge can easily invalidate any of them. Like I said, I would take my chances with the judge.

Tino

Here is a url for some case law on the subject including CA: http://www.davis-stirling.com/MainMenu/MainIndex/RentalRestrictionCaseLaw/tabid/1835/Default.aspx

SteveM9 in Massachusetts,

Thanks for weighing in on this and I think I do understand your opinion that this might be a very problematic amendment to CC&Rs because the law is not firmly defining "reasonable".

Be that the case I still would like to address the other questions that I've asked because I think they are general questions that could be applied to other areas besides a rental restriction amendment.

Let me put it in a different way - and consider that this is California with the Davis-Stirling laws:

1 and 2) Is there an advantage to defining penalties in the CC&Rs that help enforce the rules because if the penalties are not paid and it is proven to a court that the rules were broken, then the property can be foreclosed? Yes, this is severe but it might need to be, because a simple lien that does not lead to foreclosure might not deter someone who finds a utility to breaking the CC&Rs (that they have signed).

3) When rules are not enforced (and I could see some distinctions being problematic - what is enforcement? - is it sending out letters asking for compliance or it is spending enough on attorney's to win a judgement?) is the board liable for the cost to owners when the rules are not enforced? As mentioned at the top, could an owner successfully sue that the board didn't try hard enough to enforce a rule (rental restriction or any other rule) and because of that the property lost some value?

Thanks. (And yes, I know the standard answer is "talk to a good lawyer".)

Any restriction on rental affects the rights of owners. The authority for the association to create such a restriction needs to be carefully researched. Such a restriction would likely require amendment to the CC&Rs. Since the change may be viewed as fundamental, approval of all owners may be required.

Just trust the lawyers are doing everything perfect? Um.... NO. LOL. Having a good lawyer does nothing to lessen your chances of being sued. People can sue for any reason.

What do you call a lawyer who just barely graduates and had the worst grades in his class? A lawyer.

If your question to me is how would someone prove "non discriminatory" I have to answer that I don't really understand the term in this context.

Thanks for the link to AB 1927. It looks like it might make things easier in the future.

But if breaking the CC&R's rental restriction rule is considered a penalty as opposed to an assessment (I think that is a fundamental distinction?) and if non-payment of assessments can trigger a lien, leading to foreclosure, but non-payment of penalties can not, then it sure doesn't seem worth having the penalty. Why would anyone that wanted to rent be concerned about a penalty if they knew the HOA would be reluctant to go through expensive law suits to win non-collectable cases? For me that is the important point.

It is one thing to buy into a community that has rules and agree to abide by them and another to have rules changed, especially without knowledge or consent.

Let me use my community as an example … the CCR’s were changed by Declarant increasing the Declarant rights without any of the current homeowner’s knowledge or voting consent. In essence the Original CCR’s which we agreed to, signed, are attached to, run with, and affect the value of our property were stolen from us. If the Declarant had stolen my car he could be arrested, if he had stolen my identity he could be arrested; however, if he steals our CCR’s which are worth hundreds of thousands of dollars he can get away with essentially theft. The current homeowner’s only recourse is they MUST take it to court. Is this proper justice?

It is one thing to purchase and agree to rules, and another to have one or a handful of individuals in an HOA change the rules to suit their own agenda or beliefs. If you want to “change the rules” be sure to look at all sides of the issue.

I am pretty sure that changing the rental rules to put in a restriction that did not exist when a person bought would require 100% of the homeowners to amend, many others require 80%. Think of the declarant as a dictator, they can pretty much do anything they want to do, I have seen it many times.

Jim

We are still contemplating whether, and how, to do a rental restriction amendment. Today I attended an HOA seminar with presentations by a few attorneys and property managers. The topics were not about rental restrictions but both attorneys in passing mentioned that rental restrictions are becoming their most popular questions.

As I've mentioned in past postings I have mixed feelings about going forward with one, mostly because of the liability if some home owner wants to sue us if they feel we are not enforcing it.

My property manager has told me that if I am worried about this the way to deal with it is to state a penalty in the amendment and then if a owner rents breaking the terms of the CCR amendment the board can fine the penalty for each month that the owner is breaking the rules. Even if we were not actively suing the owner to collect the accruing penalties we would be able to defend ourselves in court against a home owner that tried to sue us for not doing our duty of enforcing the rental restriction. We could state that we are enforcing the rule by fining but are making the decision to not sue based on the cost of sueing and the risk of not being able to collect. That seems logical and gave me a better feeling that we might not be adding liability if we did it that way.

But today after the seminar I asked an attorney about that. I felt very rushed because there were some others waiting behind me so I didn't have time to really get this straight. First off he told me that he is advising against rental restrictions because he thinks they can invite law suits and thinks that market forces eventually keep out renters in our area. But in answer to my question about whether fining would be good enough he pointed out that fines should be levied after a board meeting with the owner invited and that means we would have to have board meetings each month, inviting the owner, which he says would be impractical. I didn't take the time to try to follow up.

So this question is about how penalties in general work.

Is he correct that each time the board levies a penalty for breaking the CCR, and where the penalty for that infraction is defined in the CCR, and is published each year, does the board have to have an open board meeting with the owner invited to attend, to levy the fine? I am not familiar with the process because to my knowledge we have never levied penalties for breaking CCRs - other than penalties for late payment of dues.

Tino

Tino,

Whether a hearing is required b/4 a penalty/fine can be assessed would be dependent upon what your CCRs and/or state law say. Since this requirement was mentioned by an attorney, it must be a CA state law requirement and would be worth your while to check out. In AZ, there is state law which requires the member to be allowed "to be heard", meaning meet with the board, b/4 a penalty/fine can be assessed for a CCR violation. The hearing must take place at an open board meeting because this topic is not one that may be discussed in a closed session. Most people who receive violation notices do not request a hearing, but the few that do are asked to come to the next board meeting to state their case.