Associations and 'Unintended Consequences'

Real Estate Agent with RE/MAX Suburban

Unintended Consequences ....

We know that many times one new rule made to benefit others has the opposite effect sometime in thehomeowners association, future.  It's seems to be a new 'law of the universe' over the last few years with mortgages, appraisals and this new real estate economy.

A case in point for associations making rules against owners renting out their units or selling to investors. The rule is 'intended' to clean up the neighborhood making owners a clear majority in the subdivision.  The normal thinking is that owners preserve their properties better than tenants so the entire subdivision benefits.

But do they?  

Let me tell you a story about those unintended consequences.  This particular subdivision stopped allowing renters and investor purchases many years ago and then the economy changed. Owners could not sell their properties and they couldn't rent them either.  The board officers would now be able to hear 'on a case-by-case basis' the homeowner hardships for a variance of this rule.  Another problem occurred when the board just said 'no' or the economic impact to the homeowners didn't seem damaging enough.

So what happened?

What did happen was these owners who were not able to sell and not able to rent their properties were left with one option - foreclosure.  Now, I'm sure that was the furthest thing from anyone's mind when they voted for the anti-renting regulations nearly 10 years ago.  

But things have a way of changing .....

This comes up many times a year when I'm asked and I've changed my stance on rent restrictions.  Does the subdivision really benefit when restricting rental rights? Obviously in this example you can clearly say 'no'.  Personally I would take a tenant in the subdivision over a foreclosure any day.  A foreclosure has a heavier impact on the values than any renter ever could.

It's not always about right now!

Regardless of your age, you want to be sure that your assets passed down to your family are not hindered in any form.  If your descendants can't sell at a decent price and they can't rent either - what are they to do with your home?  It just becomes a money pit which your survivors cannot afford.  Why restrict anything that they could do with your property?

Thank hard before you give up any future ownership rights.

Posted by

lyn sims


  Lyn Sims    Schaumburg IL Area    Northwest Chicago Suburbs  ●  (847)230-7324

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Chris Ann Cleland
Long and Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Bristow, VA

We've got the opposite problem in a condo association here in Gainesville.  The investors are the only ones who can buy because of the delinquency rates of dues and as such, it's about to throw the investor ratio out of whack so that FHA and VA loans can't be funded in the community.  

There are certainly consequences on each side of this issue.  Either way is not pretty, but restricting rentals all together is a bad policy.

Feb 11, 2013 06:23 AM #1
Jean Hanley
Coldwell Banker Kivett Teeters - Hemet, CA
Specializing in Folks Who Want To Buy/Sell Homes

This topic is a sore spot with me.  I live in an HOA that is trying to just this same thing!  We are renting the home we live in, and as I sit in on the HOA monthly meetings, I sometimes have to bite my tongue.  They start talking about the rentals increasing, and fearful of how it will affect the community.  Personally, I will match my home to theirs any day.  Being a tenant is not a curse.  Life is all about how a person lives their life.  So, with all that get what you are saying.

Feb 11, 2013 07:20 AM #2
William Feela
Realtor, Whispering Pines Realty 651-674-5999 No.

Our lawmakers never look to far in front of what they try and pass.  We are having some major issue coming up with some new laws.

Feb 11, 2013 07:23 AM #3
Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Lyn, you're right about over-zealous HOA boards.  Here it's condos and cats.

Feb 11, 2013 12:35 PM #4
Gabrielle Kamahele Rhind
KGC Properties LLC, Tucson Property Management & Real Estate - Tucson, AZ

GOOD MORNING LYN!  Tucson has several of these that do not allow HOAs - they are nearly impossible to sell - and with the prices so low - it defeats the purpose that HOAs are going after in the first place.

Feb 11, 2013 08:21 PM #5
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Area Real Estate

Jean:  It's an 'us' against 'them' attitude & in some instances it is clearly discriminatory. Like being a homeowner in itself makes one better than another in the same room.  I have to laugh also because these are just regular lower end homes.

Gab:  That is one of the problems that I think the board members truly don't understand. Not sure where they are getting their info from.

Chris Ann:  That is exactly what is happening & the owners are getting scared.

Pat:  I've noticed the last year about different places banning cats. Especially in rentals.

Feb 11, 2013 09:17 PM #6
Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Hey, Lyn! I included this post in Last Week’s Favorites.  Enjoy the rest of your weekend.

Feb 17, 2013 12:56 AM #7
Brian Rugg
Rugg Realty LLC Sun City Texas 512-966-3200 - Georgetown, TX
Sun City TX Real Estate - Georgetown, TX Real Est

Hello Lyn:  rarely do more laws, rules, and regulations improve things.  You story is a great example of this very phenomenon. 

Feb 17, 2013 01:05 AM #8
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Area Real Estate

Thanks Pat. I appreciate it.

Brian:  Yep, the more complicated they make it, the worse it becomes. With all the meddling comes the consequences.

Feb 17, 2013 02:07 AM #9
Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

I was on a condo board when we passed with 75% of the homeonwers approval a lease cap.  The building had so many investors that it was not eligible for VA or FHA financing.  Values plummetted when the investors bailed on their units and stopped paying their condo fees pushing the condo to the brink of financial ruin. The rental restriction started a turn around in the building.   Exclusions in the lease cap were provided for active duty military to rent their units even if the current rentals were above the limit.  The building is almost back to being able to qualify for FHA & VA financing again.  

Feb 17, 2013 02:21 AM #10
Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude - Carlsbad


It seems some rules are made without much forethought about possible consequences, and maybe no thought about the greater good rather than pleasing the Board.

The issue we have in many condo communities is that occupancy rates for owners are dropping as a result of the distress sales - lenders will not lend because of high HOA deliquency rates and as more investors buy the lower the owner occ rate. A vicous cycle that will take a long time to correct.

I have no issue with restricting rentals - I have some - particularly if it kee the place from feeling like a hotel, but not allowing at all seems unreasonable.


Feb 17, 2013 05:30 AM #11
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Area Real Estate

Cindy:  Thanks for telling your story. This board will not re-up the FHA certification & I'm not sure why. They have it in the 'planning stages' for the last 2 years.  Supposedly the rental % is not too high so that is not the problem. Not sure why they don't consider 25% of purchasers important.

Jeff:  I agree there are many problems that the market has created. Delinquency rates were eased this year which I am sure helped.

Feb 17, 2013 07:28 AM #12
Mitchell J Hall
The Corcoran Group - Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

Hi Lyn,

There are always unintended consequences. In NYC we have both coop and condo boards and they are now facing unintended consequences from banks. Coops boards have total control over the building, "quality of life" and the owners with their many rules and restrictions.

Buyers that don't want all the rules and restrictions would buy condos so they could do what ever they like with their unit. Today many Manhattan condo boards have "coop envy".

Because of all the new Fannie Mae rules such as only 10% of the building can be rentals, one entity can not own more than 10% of building (a few years ago when the market turned investors were buying bulk apartments), no more than 10% in arrears and many other rules are now affecting buildings that never had any issues with financing before have now discovered that buyers can not get mortgages in their buildings.

Feb 17, 2013 07:33 AM #13
Mike Cooper
Cornerstone Business Group Inc - Winchester, VA
Your Winchester, VA Real Estate Sales Pro

Lyn, that is an excellent point.  This is one of those areas where I always encourage caution when some group is considering more restrictions.  That goes for our government as well.  Regulations and restrictions are a two-edged sword, and unfortunately, they have often done major damage before anyone has the frame of mind to stop them. 

Feb 17, 2013 09:15 AM #14
Dorie Dillard
Coldwell Banker United Realtors® ~ 512.346.1799 - Austin, TX
Serving Buyers & Sellers in NW Austin Real Estate

Good morning Lynn,

I came over from Pat's post on last week's favorites and am so glad I saw this. Some HOA Boards just don't get it. Not everything can be set in stone and needs to change as our world changes around us. Excellent point! Mike says it well..restrictions are a two-edged sword and have done major damage before anyone could stop it!

Feb 17, 2013 07:54 PM #15
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Lynn-- I also came over from Pat's post.  I was going to point out the FHA/VA/Freddie/Fannie issues, but looks like previous commenter beat me to it.  Hope you are having a great Presidents' Day!

Feb 18, 2013 03:58 AM #16
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Area Real Estate

Mitchell:  The FHA condo guidelines have recently been changed to 15% which will help many HOA's.

Mike:  You just never know how things will turn out with too many restrictions. 

Steven:  The board will not get the re-cert for FHA approval. Baffles me why not.

Dorie:  Sometimes they show no flexibility & honestly just don't understand the laws of ownership or mortgage financing. 

Feb 18, 2013 06:02 AM #17
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

I think one consideration of the HOA is keeping homes eligible for FHA lending so first time and underfunded buyers can buy them and live there.

Feb 19, 2013 03:15 AM #18
John DL Arendsen
Crest Backyard Homes designer & builder of ADU''s

Couldn't agree with you more. Great post. Maks sooooo much sense.

Feb 19, 2013 06:48 AM #19
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