Ballerinababe, Home Owner in Collin County, TX

Can an HOA deny a homeowner the ability to lease their property if the rental cap has not been met? If so, on what grounds?

Asked by Ballerinababe, Collin County, TX Mon Dec 20, 2010

HOA is allowing numerous homeowners to lease out their homes, yet denying other homeowners that opportunity. Is this legal?

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We're not going to be able to adjudicate your problem here, Ballerina. The Board really needs to have a formal set of standards if they're going to play the lease approval game. They also need to ensure that they comply with Fair Housing laws, but that's another story.
0 votes Thank Flag Link Sun Dec 26, 2010
What T.E. says is good advice, HOA's often are run on the Good Ol Boy system where you're either a friend or a foe. My experience with HOA's is that it takes a 75% vote from ALL the homeowners to make a change to the covenants and not a simple vote from all that attend a meeting and that is often hard to impossible to do in a large association. Make sure they did that correctly and recorded the changes with the county.

Next, it is unfair for the board to decide who can rent to whom but they can make other requirements as long as they don't violate a persons equal rights. Your HOA likely has an attorney that works with them, perhaps a call to that person would be your next move.
0 votes Thank Flag Link Sun Dec 26, 2010
You should take the time to read both the CCRs to see how an amendment is supposed to be pursued and the amendment itself to see what it says.

Often the process for amendments requires a supermajority, such as 3/4 of all members to amend the CCRs. This means the whole HOA, not just 3/4 of whoever votes. Some boards erroneously believe that it takes only a simple majority of those who vote to pass an amendment. Amendments frequently fail simply because not enough people voted, even if all of them voted the same way.

You might ask why they wanted the limitation on the number of units that could be rented out. For FHA financing the percentage of investors versus owner-occupants can prevent a loan from going through for a new owner if too many investors own but don't occupy the units. This would be a valid reason to pursue a limitation on the percentage of units that could be leased out.

As to the rules for determining who gets approval for their lease, that could become the subject of a lawsuit. Discriminatory practices are commonly clothed in seemingly "fair" rules. If existing leases were required to be re-submitted for approval and some were rejected, the criteria may be more complex than just a limit. Note that a change in the underlying documents that invalidated an existing lease may be compensable, i.e. the invalidated may not be a business tort, but the value lost to the owners by action of the HOA could require the HOA to pay off all the affected owners who lost money. Consult your attorney.

WARNING: Complex rules can hide practices that the FHEO (HUD's Office of Fair Housing and Equal Opportunity) will investigate if someone complains. If you believe that Federal law has been violated, call them now.

If the amended CCRs don't say how limitations are processed, such as a published list of slots in use and a waiting list for applicant owners, then you're on your own to get it from the board. If the management company is deciding, then the rules must provide for the management company to make those decisions. This is another common error by boards to delegate decisions to parties who simply cannot be empowered to decide. If the CCRs were amended and no power to delegate were already part of the CCRs or By-Laws, then the Board couldn't delegate the decision-making out. Sometimes they think they can empower a sub-committee when only the entire board can decide.

All these issues should be subject to judicial review at the Justice of the Peace court level, but they're not. Write your state representative to change the law.
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0 votes Thank Flag Link Sun Dec 26, 2010
Let me get more specific- The original CC&R's did NOT have a rental cap on the townhome HOA neighborhood. Then, 3 years later they passed a vote and added an amendment to the CC&R's that stipulated that only a certain % of townhomes could be rented at a time. They did not grandfather anyone in- everyone had to submit current lease agreements and re-submit all new lease applications to the HOA Board for their review and them to decide yes/no if that homeowner could lease their property to that potential renter. However, the rental cap has NOT been met- yet they are being dishonest and denying some homeowners from renting their townhomes, while allowing others. For instance one person applied to lease their property in August and was denied- yet four other homeowners were allowed to lease their properties within the next couple of months. The ammended CC&R's regarding the rental cap say NOTHING about the HOA Board getting to simply pick and choose whom they allow or deny. How can that be fair?
0 votes Thank Flag Link Wed Dec 22, 2010
Owner Associations have a lot of power but it is derived from the original Covenant placed on the property when the association was created. Commonly the covenants, conditions and restrictions are referred to as CCRs and are recorded in the county clerk's office for anyone to review at any time.

At the same time the CCRs were filed the responsible body, the association itself, was legally formed. Usually it is a corporation filed with the Secretary of State and the documents include who the directors are and the By-Laws of the association. By-laws also contain rules for how the assocation operates, including rules on electing directors and what the association can do and how.

The board of the association can creates Rules for use of facilities, architectural control rules (above the guidelines established in the CCRs) and operational rules like having to file an annual notice of the names of tenants in your house.

The rules are constrained by the By-Laws and must be based on a power granted in the CCRs. Some associations think they're free to do whatever pleases them. If there is no underlying power in the CCRs, they can't establish one, unless the members of the association vote to do that. That's where the rub comes in. Some boards think they can vote and change the rules regardless of what the CCRs say, but they still need approval of the voting members, usually a super majority, like 3/4.

Rentals are frowned upon universally by owners. Because of the belief that they lower property values. Remember the purpose of the HOA is to preserve value of the properties. So, often the rules are modified to require notification of the number and names of tenants, and whether membership benefits like access to pool are passed to them.

But to ask the amount of rent paid by a tenant would imply rent control or interference in the homeowner's rights (provided they were not already impaired by the CCRs). While Associations do have powers, it is unlikely they have the power to set a rent amount, but only by reading the documents can you find out.

So, get a copy of the CCRs, the By-Laws, and the Rules and read them. If the Rules create a power not authorized by the CCRs or prohibited in the By-Laws, you need to go to the Board and asked how they created the rule. Unfortunately, if their explanation is lacking and they won't relent, you can't just go to Justice of the Peace court and file (which we should all ask our local state representatives to change). Instead you have to hire a lawyer and go to county court. This makes the proposition of getting things resolved cheaply pretty slim.

It would be more appropriate to have a hearing with the board, and if unsatisfactory, go the JP court for $100 to get the board to obey their By-Laws or the CCRs. Write your state rep today to get this changed.

So, to recap
1. Get copies of the CCRs, By-Laws and Rules
2. Read them
3. If you can't find the clause where the association has the power to demand a certain rent, then neither can they.
4. Demand a hearing on the matter and get an explanation, not just some form letter from the association management company.
5. If unsatisfied still, threaten a lawsuit over it. And go to your own legal counsel to get advice.
Of course, you should always seek legal counsel before embarking on a lawsuit.
0 votes Thank Flag Link Wed Dec 22, 2010
Hi Ballerinababe,

Get the information on the diffrent instances where the owners are leasing, compare and present your case to the HOA. If that doesn't work, your next step will be to confer with an attorney.

Good Luck,

Ray Garcia
0 votes Thank Flag Link Wed Dec 22, 2010
Confer with an attorney who can review the HOA rules and regulations. Each HOA stands alone therefore unless entire set of documents are presented for opinion no answer can be provided which be to anyone's benefit.

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
0 votes Thank Flag Link Tue Dec 21, 2010
Likely in your HOA documents. Designed to protect home values.
Appeal with the board.
Foreclosure pricing (if that is the alternative) would be more devestating than rental cap.
Web Reference:
0 votes Thank Flag Link Tue Dec 21, 2010
Bruce Lynn, Real Estate Pro in Coppell, TX
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