Renter Restrictions by Homeowner AssociationsDecember 19, 2005Common Interest Development Committee
Property Management Committee
Legislative Committee(The following is for study only and has NOT beenapproved by the Common Interest, Property Management, Legislative or Executive Committees or the Board of Directors.)Issue:
What position should CAR adopt concerning homeowner associations that restrict the number of renters and indirectly, investors?Action:
If CAR desires to affirmatively act on this issue this year, action is recommended at the January 2006 board of director’s session.Options:
1. Support legislation that will require homeowner associations to adopt written findings justifying the objective reasons to impose special fees or restrictions on tenants.
2. Adopt a position of neutrality because CAR members are agents of homeowners, buyers and sellers that may or may not want investors/renters in homeowner associations.
3. OtherStatus/Summary:
Some homeowner associations impose limits on the number of renters that may occupy dwellings. The associations may do so by: limiting the number of households that may reside in the dwellings; charging a fee to investors that rent; interviewing and then approving prospective renters etc. Pacific West AOR has requested CAR to consider this matter in light of associations taking action to limit renters from occupying dwellings. On one hand it could be argued that rules of an association may be arbitrary, in violation of the discrimination statutes and discriminatory. Others suggest that too many investor owned properties leads to a steady decline of the appearance and maintenance of the common areas.CAR’s Legal Hotline reports this matter rarely is at issue. CAR does not have a formal position on this matter.Discussion
For the most part, homeowner associations have not enforced or do not have rules limiting renter households. Years ago, homeowner associations were quite concerned about this issue because of the underwriting guidelines of Fannie Mae and Freddie Mac. Those guidelines included owner occupancy standards if the government sponsored enterprises (GSEs) were to buy loans in homeowner associations. At the time, the GSEs argued the common area grounds were not as well maintained and the financial strength was inferior if there were high number of renters occupying dwellings in homeowner associations. CAR met with representatives ofthe GSEs for over a year requesting changes to the underwriting guidelines. In the end, Fannie and Freddie did amend their guidelines which allowed “seasoned” (7 years or more) HOAs to have much higher renter to homeowner occupancy ratios.Themost compelling argument that CAR had with the GSEs was that this state had a well developed body of laws governing the financial integrity and financial strength of HOAs in comparison to all other states’.Since that time, a few homeowner associations have adopted rules about renters. Some of the rules and regulations are benign; owners must provide the associations with the names and phone numbers of renters and may require renters to abide by the governing documents and reasonable rules and regulations. Other associations are more invasive: associations interview and may “approve” a prospective tenant; they may impose a fee of $100 per month to owners that rent; or limit the number of renters that may occupy dwellings at any particular time.Limiting the number of renters at any one time may be particularly problematic for investors. If there is a low renter ratio requirement, some investors may not buy or may offer less to purchase the property due to risk. Lower purchase price affects all owners at time of sale, and owners that refinance, or owners that obtain junior trust deeds or equity lines of credit will be advertly affected.Limiting renters may hurt owner occupants that have to temporarily move out due to medical reasons. In those cases, these households may not be able to rent and as such may be forced to sell.Property managers are caught in the middle of the debate. They serve at the will of the board. They also try to reflect the mindset of the homeowners.Of course, there are some households that argue renters destroy the real property and are not respectful of the quiet enjoyment of property. Nay sayers claim owner occupants may destroy the property and peace just as easily and ONE rule should apply to all. If for example,quiet hours are from 9 PM to 7 AM, the standard should apply to all dwellers.Renter limitations may also be beneficial to some. In their eyes, a community of owners will bring about a more solid association. Commitment to maintain the common areas is better. The owners that make this claim also believe that it is easier to maintain the common areas and the financial strength of the association is stronger. Investors are in to make the “fast buck”.REALTORS® may represent investors and prospective renters. REALTORS® may also represent prospective homeowners that would prefer owner occupants. And for that matter, our members may be property managers of homeowner associations.Setting aside HUD restrictions, some would assert that renterrestrictions may be discriminatory, may be a restraint on alienation, arbitrary, and may be unreasonable. These individuals do NOT challenge homeowner restrictions however. It is too costly and takes too long to mount a judicial challenge.The law is clearas mud as the old expression goes. State law does not directly address this point. And there are individuals that would like to put this matter to rest.If CAR is to adopt a support position, consider: requiring homeowner associations to adopt and then distribute to their homeowners written findings and declarations that justify the objective reasons that restrict the number of renters. If the associations charge any fee to an owner or tenant because the dwelling is rented, the fee must be based on actualcosts incurred. Finally, the prevailing plaintiff (or party) shall be entitled to attorney fees and costs.The Pacific West AOR has asked CAR to adopt policy on this issue. A member PWAOR will make a presentation before the Common Interest Development Committee.During the debate of this issue CAR may wish to consider:
• REALTOR® business practices
• Conflicts of interests
• If current laws are sufficient
• If judicial remedies are inaccessible due to cost and time
• The frequency and number of homeowner association rules
• Actual problems and resolution of the matter
• Importance to CAR