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Recently one of our investor friends ran into a problem with a property owner’s association. The investor had a property that was rented out, and the association passed new by-laws requiring that all homes in the sub-division be owner occupied, therefore disallowing any rentals.
The newest and latest hype in associations seems to be the attempt to restrict owners in associations from renting their property. The restrictions come in all shapes and sizes, vary by reasoning, but always end up restricting private property rights.
In this particular circumstance the investor had a tenant who was about to move out so the association told the investor that they could not re-rent the property. The investor bought off on this scare tactic and after paying several months of mortgage payments on an empty house they finally sold the house for very little profit.
About two years ago I personally had this happen to me with a property in Georgia. The story was the same; I received the letter stating that we could no longer have rentals in the community. They stated that current renters would be grandfathered in, but if the tenants moved out then the property could not again be occupied by tenants.
This was a real problem for me since I was 800 miles away and since I knew my current lease-option tenant was not going to exercise the option. I was planning on fighting the association in court if necessary, however I got lucky and my next buyer had 15% down so I sold the property on Contract for Deed. The association didn’t like this idea either. I explained to them that the property was sold, not rented, and I told them to feel free and challenge it in court if they so desired. I never heard from them again. Homeowner associations typically have very limited budgets so they don't want to fight an expensive court battle.
So, obviously selling on Contract for Deed is a possible way around the association’s restrictions, but there are pros and cons to selling on CFD as well and some people just want to keep their property as a rental.
I am not an attorney, but after speaking with two people who are very bright attorneys, I believe that if the restriction was placed on the subdivision ‘after’ you purchased the property that the association would never win in court. At least one state agrees. Florida added the following amendment to their law regarding changes of deed-restrictions…
Any amendment restricting unit owners' rights relating to the rental of units applies only to unit owners who consent to the amendment and unit owners who purchase their units after the effective date of that amendment.
Associations will try to push it until they finally find somebody fed up with being forced to give up vested rights and go to court to fight a lengthy court battle. And you can be sure that this will happen one day, because many people who invested their savings into rentals instead of Wall Street are being pushed into a corner.