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.”
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