How to Challenge an HOA’s Rental Policy

Frustrated condo and townhouse owners who are not allowed to rent out their units under the HOA’s grandfather clause or a hardship exception often ask “Is there anything I can do to challenge the rental policy?”  The answer is yes, but the challenges will not be quick, easy, cheap, or necessarily successful.  The options include:


1.  Become involved in your homeowners association and work to change the rental policy.  Get elected to the HOA Board, if possible.  But even without that, you can organize a group of owners who feel similarly.  Ask the Board to begin the process of amending the Governing Documents so that better rules can be adopted.  Provide a draft of the leasing policy that you believe should replace the existing one. 


2.  Advocate for a change in your state’s laws to limit the power of HOA Boards.  Only a few states have done this and not surprisingly, they are the ones with the heaviest foreclosure burdens.  As an example, rental rights in Florida condominiums are now grandfathered in by law.  Changes in the ability to rent would only apply to current owners who consented to the amendment or owners who take title after the amendment is recorded.  Minnesota does not have a similar law.


3.  Are the Fannie Mae mortgage requirements about owner-occupancy the main reason your HOA is rejecting leases?  If the rental cap has been met but there is further demand by owners, make sure the Board knows that FNMA expanded the allowable percentage of rentals over the past few years.   And even if the condo’s leasing percentage is too high under current guidelines, it is possible to get a waiver.   The key is to find a loan officer willing to apply for a waiver through the FNMA Project Eligibility Review Service (PERS).  You can find more info here.  Also, the highly-desirable FHA loans require an owner-occupancy rate of only 51%.


4.  File a lawsuit against the HOA.  This step should never be undertaken lightly.  People who sue their homeowner association are essentially suing their neighbors and themselves.  Lawsuits consume cash at an alarming rate and often destroy good will in the neighborhood, regardless of who wins.  You should also know that the odds are heavily tilted in favor of the HOA.  The law gives considerable discretion to the HOA Board and its decisions are presumed valid until proven otherwise.


5.  Find a fatal flaw in the amendment process that passed the rental restriction.  This route is discussed in the article “HOA Rental Policies – Procedural Flaws That Matter.” 


Related Posts in this Series: 

HOA Rental Restrictions – Owner Perspectives

Rental Restrictions – The Third Rail of HOA Policies

HOA Rental Exeptions – Grandfathering and Hardships

HOA Rental Policies – Procedural Flaws That Matter 

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  1. Hello, I live in a townhome community of 20 townhomes in NC. The individual homeowners do own the lot on which the townhome sits, so I believe it is considered a Planned Unit Development, not a condo. I am currently in the process of challenging the HOA restriction of only 20% rentals. The reason for this is out of the 20 homes, 6 have gone through foreclosure or shortsale, which has caused our values to plummet. Also, the highway on which our community sits is expanding and will now be within 15 feet of two of the buildings. As homeowners, we do not want to be stuck in this community forever and selling right now is not an option. The HOA president (who is against removing the restriction), has sited the 50% rule in mortgage lending, stating that if 50% or more are rented out, then nobody would be able to get financing on a sale or refinance. I’ve read some information though that says PUDs are treated as single family homes so they aren’t affected by that, do you know if that is true? Also, if an HOA has regularly ignored other violations of rules (allowed one homeowner to have renters stay even when lease expired for a year, allows partial rentals (roommate situations), people destroying common grounds or using common grounds as thier own, etc…), would there be a valid case if someone were to sue them for suddenly charging them $100 per day for a rule violation?

    • Hi Kathy,

      Thanks for your inquiry. You are correct that current mortgage underwriting standards treat townhouses like single family homes, not like condos. The 20% rental limit you cite applies to FNMA condo financing. FHA loans allow up to a 49% non-owner occupancy rate in condos. If your townhouse is indeed a PUD, those ratios are irrelevant because you do not live in a condo development. You may need to find an experienced loan officer in North Carolina willing to update your HOA Board on the current mortgage environment. Lots of underwriting rules have changed in the past few years and the PUD rules are part of that.

      As for your question about suing your HOA Board for inconsistent enforcement of the rules, I cannot give a legal opinion as I am not a licensed attorney in North Carolina. These types of cases are highly dependent on state law and your jurisdiction’s court decisions. But in general, the analogy of getting a speeding ticket is probably appropriate here. When you challenge a speeding ticket in court, the judge usually only cares if YOU were guilty of speeding at the time. Your ticket does not get dismissed just because you can prove that there were other speeders who were either not caught or caught but fined differently. And the judge would also not dismiss your speeding ticket even if you can prove that other drivers committed an illegal U-turn or ran a stop sign without getting a ticket.

  2. I live in a 116 unit townhome community with a HOA, and have owned almost 6 years. At around year three, the HOA passed a change to the bylaws not allowing rental properties. They did grandfather in the existing renters, which was around twelve. The grandfather clause I believe stated they could only keep existing leases, but they have not enforced this rule. Is it legal to allow certain individuals preferential rights to lease? I had intended to rent my property when I bought it, but now am put in a tough situation with fallen prices and a desire to move elsewhere.

    Also, the voting for this change to the bylaws was very odd. As was as if the polls stayed open until they had the number of votes required. The polls/vote was a mail in vote. But, they sent out numerous mailings requesting vote if you had not already. Also stating they only needed 10 more, 7 more, 4 more, etc. votes for passage. One board member even knocked on the doors of those who did not submit a vote, or voted no…campaigning for the votes they needed. There was absolutely no structure to the voting process.

    Do I have any kind of case from this brief story?

    • Hi Edward,

      Yes, HOA’s can legally grandfather in existing rentals while not allowing new ones. And typically, an HOA’s failure to enforce an adopted rule (such as not renewing an existing grandfathered lease) does not by itself render that rule invalid.

      The voting scenario you mentioned is a bit unusual but could have been allowed under the provisions of the HOA Governing Documents and your state’s law. Finally, I don’t know what state you are in, but in Minnesota, you only have two years to challenge the validity of an amendment to the HOA Declaration.

      Your best bet is to review everything that was adopted for the HOA leasing rules. See if there is a hardship exception you can get or if there are other ways around the leasing ban. Some places allow you to rent to a relative, for instance. And some HOA’s are willing to turn a blind eye on new rentals while the housing market is in a sustained decline like the one we are experiencing. You can also try to get the leasing ban softened or reversed, but that takes a lot of work to be successful. Good luck on your chosen path!

  3. I own a condo in IL and wish to rent it out. Our declaration states that any unit can be rented as long as the lease abides by governing documents. Our rules have a condition to only rent out 20% of the units. One of the board members just took the last rental spot, making 20% rented. I was actually on the board when the rules were adopted and know they were not adopted in accordance with IL Condo Act. We literally changed the title of another condo assoc. R&R and handed it out at a meeting saying here are the rules and regulations. Besides this, the 20% was arbitrary and both of the other board members at the time will state it so, as both are renting their own units now. In addition, all the other rules regarding renting (or anything else) have not been followed (getting leases, insurance, etc.) or enforced. Even considering the Apple II case, I think the rules on rental restrictions can cause a hardship in taking such a monetary loss being forced to sell. I guess I am looking for some confirmation on my opinion considering the above. Any assistance or opinions would be great. thanks

    • Hi Mike,
      I’ve given a lot of thought to the questions raised by your scenario. The facts you described would not be sufficient to amend a condo’s Governing Documents in Minnesota. And under a strict interpretation of sections 17 and 27 of the Illinois Condo Act, it would also have failed. But the Apple II case introduced a strange twist to an HOA Board’s power to amend condominium instruments without a vote of the owners. You could well have a case for setting aside the rental restriction, but only an Illinois attorney can tell you for sure. By email, I am sending you the name of a law firm that specializes in this area and an article on point. I’d be interested in hearing how this turns out. Good luck!

      • Thank you so much Rebecca. I thought I would update you on how everything unfolded. After meeting with the board and explaining that the rules were in clear contrast to the declaration and that any rules on rental restrictions were unenforcable, the board contacted the association attorney to discuss. Needless to say our condo attorney stated that same thing I did and at least now the board knows the rules can not be enforced.
        Through this whole endeavor and researching everything, my biggest surprise was IL courts view in Apple II on rules restricting renting. I understand a Declaration/bylaw/CCR being able to restrict renting because then a super majoirty is needed. What is scary is that litteraly 2 board members can create a rule pretty much eliminating 200 years of property rights. In any case, I thank you for your time and very helpful information.

        • Mike,
          I’m so glad that my info helped! Like you, I think the ruling in the Apple II case is bizarre and misguided. But your situation is a good reminder that HOA’s are governed by state laws, and what is true in one jurisdiction is often not true in another. Thanks for the update and for sending me a cheery “thank you” note.

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