HOA Rental Restrictions

[Troy F.]

Has anyone ever purchased an investment property only to find out it is not eligible to rent due to the HOA rules?

I just bought an investment townhome. When I found the home MLS said Rentals Authorized. I reached out to HOA three times with no call back. In hindsight that should have been a red flag. Three days before closing my realtor was able to get ahold of and sent me the HOA documents. We both reviewed them and came to the same conclusion, no rental restrictions.

One month later after rehab and all set to rent with the property manager I reach out to HOA to keep them apprised of what I'm doing. At that time they point out the paragraph I missed that stated you must live in the home 5 years before being eligible to request to rent.

Looks like my only course of action is to sell, right? What is the realtors responsibility in all this?

[Frank Chin]

I think both you, and if used an attorney, the attorney and the selling agent are both at fault.

You used an attorney didn't you? If you did, it should be one that is familiar with condos, and if it's an established one, done a few transactions with that condo complex.

My attorney insisted on me getting a board resolution from the HOA granting me the right to rent so there would be no arguments later on whether I got the approval or not. Got the letter personally from the board president that there was a board meeting on such and such date, and approval granted for the unit was granted to me. He personally typed it, and helped he was an attorney. My attorney done transactions with the condo complex previously and know who the board president is.

It was an out of state investment, and on the date of the closing, my attorney still did not receive the approval letter in writing. My attorney did not think it was a good idea to close without the approval, even though I drove 2 hours, and the seller attorney was already there. Since the condo complex was downtown, a 15 minute walk from my attorney's office, I walked over to the complex to pick up the approval letter as the board president prepared the letter, after he got a call from my attorney. I remember it well as it was a day after Thanksgiving and downtown streets were closed for a Thanksgiving day parade.

It came in handy over the years when questions came up about the approval. It came up when the HOA changed PM's, they found out I was renting, and wrote me a letter, "who gave me the approval to rent?". Imagine if I thought I got the OK based on a MLS agent's say so. I sent them the approval letter that read "on "mm/dd/yy" he HOA board met and approved the condo unit for rental". Note that HOA rules evolved over time, and rental rules became more stringent, and it appears no one kept records on units allowed to rent, as evidenced by the PM letter. Thank goodness I got a sharp condo attorney who know the in's and out's.

In fact, the condo complex was in foreclosure, and the seller's attorney was there representing the foreclosing bank, who's technically was the seller, took over the powers of the sponsor. When I arrived, my attorney explained he will not permit me to close unless I got the approval letter, which he didn't get it from the HOA, and asked the seller attorney if had the power of attorney to represent the seller. The seller attorney said "yes". So my attorney suggested we write into the deed that my unit is a rental unit since sponsors have the power. The seller attorney thought for a moment and said "that would make the unit a rental unit in perpetuity, wouldn't it?, I think it's not a good idea for my client", and my attorney nodded. There was also a question whether the HOA is in charge or the sponsor. So they got on the phone and got the HOA president, and agreed it's best the HOA put it's stamp of approval on it, as in the future the HOA is in charge. I always laughed about it since the letter saying there was a board meeting was all BS, because the HOA president typed up the letter in the 15 minutes it took me to get there.

All of this took place in my attorney's office, and I learned more about HOA governance in the 30 minutes, at my attorney's office, that I ever did.