Your HOA's attorney can review the situation and the applicable documents and determine if your suspicions are warranted.
If the contract hasn't closed, the HOA's attorney might be able to contact the homeowner's attorney and intervene - at least dissuade him a bit and alert him to the fact that his HOA is aware of the situation.
However--and I'm not a lawyer, so this isn't legal advice--the answer to your specific question depends on how your townhouse association declaration describes prohibited activities. Does it simply say: "Renting is prohibited"? Or "Leases of under a year are prohibited"? Or "Leases and rentals must be approved by the townhouse association"?
Further, a contract sale isn't a lease. Now, you "suspect" that a contract sale is masking a rental. Perhaps. On the other hand, perhaps the owner wasn't able to sell outright, but found someone willing to buy on contract. In that case, unless the association declaration forbids contract sales or owner financing, you may not have much of a case. (Again, I'm not a lawyer, so this is NOT legal advice.) Contracts-for-deed, lease-purchases, owner financing, and a number of other techniques are all perfectly ethical and legal (except, to some extent, in Texas) ways to sell property.
Since I'm not a lawyer, I'm only guessing. But I suspect that a lawyer would first read your townhouse association declaration to determine precisely what is and what is not forbidden. Then I suspect he'd have to read the actual sales contract to determine whether the transaction would violate the association's declaration. All that costs money.
If it's a clear violation, you'd still have to pay the lawyer more money to proceed. And if it's not a clear violation, then you'd probably have to be examining the motivation of the seller. And that could take a lot of time and money.
And for what?
If you want, certainly take it to a lawyer. Still, as the others suggest, I probably wouldn't object since, at least on the surface (from what you've described) it appears that the owner is operating technically within the bounds of the association's declaration.
Hope that helps.
Americorp Real Estate
Brokers Associate, e-PRO
Your statement speaks for itself. You "suspect", but you have no proof. Talk to an attorney, when he asks for a $10,000 retainer (or more) to take such a case you will understand how expensive litigation is to undertake. Things are tough right now, as the others said it is better to have a renter than a foreclosure or short sale in your building.
Would you rather have a tenat or an REO property on your block?
Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors