HOA voting to ban MTR

[Kevin Ramos]

Hi everyone. First post here.

I've been house hacking on and off for the past 3 years and was ready to make the move to turn my first property into an MTR. Bought half the furniture and then boom, find out my HOA wants to ban rentals under 6 months. Voting ends in 2 months. They need 67% of homeowners to agree.

I have no idea what their thought process is. They say STRs are dangerous and increase crime, which doesn't really explain why you wouldn't want someone to rent for 5 months. They see MTR and STR as the same

Anyway, unless anyone has any wisdom they want to share, this is mostly a cautionary tale. Remember HOA's exist and can be quite the annoyance!

[Steve K.]

Quote from @Kevin Ramos:

Quote from @Steve K.:

Not uncommon at all, nor is having HOA's that don't allow units to be rented period. A big factor in these restrictions is that FHA guidelines for condos specify that a certain percentage of the units must be "owner occupied" to qualify for FHA financing. However one thing you might bring up which works in your favor is that the FHA guidelines actually consider "vacation condos" (2nd homes that are rented when the owner isn't there) as "owner occupied", but not LTRs. 2 of my clients with furnished luxury MTRs that were getting $10k/month in rent recently had their HOAs restrict rental terms (one to a 12 month minimum, the other banned any new rentals but grandfathered in several existing ones which board members owned, but not my clients). However because Colorado passed a law a few years ago that greatly reduced the power of HOA's (for example they cannot foreclose due to unpaid dues or fines anymore, and the maximum fine for non health and safety violations is $500), they both decided to simply continue renting their units anyway, and just pay the $500 then thumb their noses at the HOA board. If I ever own in an HOA again, which I probably will not, I'll make sure to be on the board (or even President of the board), to stay ahead of issues like this. OP, maybe look into getting on the board? Not a fun volunteer job to have, but would give you more control over your property at least. I'd also look into what the maximum fines/ consequences are. Good luck!

 Hah, board members grandfathering in their own units is unsettling.

For a bit of background, my property is a SFH, and the HOA encompasses a pretty large neighborhood in suburbs. I suspect a lot of the residents that participate in the HOA are older folks that would rather we had no renters at all. I may not have a good chance of getting voted in.

In the next few months I do need to find out how much of the actually neighborhood shares this mindset though.

The crazy thing is the reason behind HB22-1137. That bill was signed into law in CO in 2022 because of predatory and corrupt actions from a few HOA's. Leading up to HB22-1137, there were hundreds of cases here where homes were actually foreclosed on by HOAs and their attorneys over what started as fines of less than $200. One attorney filed over 580 foreclosure actions on behalf of HOAs. Some of these homeowners weren't even notified of the original fine until the attorneys had already racked up significant legal fees and added 21% interest. HOAs and their attorneys had all the power, and knew it, and used that power to bully homeowners into compliance while simultaneously gouging them horribly with exorbitant fines and fees, then foreclosed on the property if they refused to pay up. The law was entirely in favor of the HOAs and these corrupt attorneys.

Thankfully HB22-1137 created new requirements for notifying homeowners of violations before issuing fines, set a maximum interest rate of 8% on past due fees and fines, limited the ability of HOAs to foreclose, and set the maximum fine amount for non public health and safety violations to $500. Opponents of the bill say it tips the balance of power too much in favor of homeowners, and they may have a point as it takes a lot of the teeth away from HOA laws, with the max fine being only $500. But at least it prevents the predatory and abusive behavior that was caused by the basically unlimited power that HOAs had here before.

Not sure if other states have similar HOA laws or not, this is just in CO. I thought it would be interesting to share this story here in order to demonstrate just how problematic owning a property (especially an investment property) in the wrong HOA can be.

Watch out for those sketchy HOAs out there people! And know the laws in your state regarding how much power an HOA can have over your property.