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Should HOAs Relax Their Rules to Increase Occupancy?

We recently received a question from a reader: how lax should homeowners associations be these days in their rules when it comes to helping homeowners sell units or keep them occupied with renters?

Answer: homeowners associations have to be very careful here. On the one hand, it’s in everybody's best interest to ensure that homes are occupied and that what was once a "field of dreams" doesn't become a field of "For Sale/Rent" signs.

Depending on the circumstances, associations may want to seriously consider relaxing some of their rules/covenants. For example, a very restrictive pet rule which limits the number of pets to one or to a particular size, may limit the number of eligible buyers/renters at a time when qualified buyers/renters are few and far between to begin with.

Similarly, many associations are living to regret the adoption of rental restrictions which in many cases were adopted under a much different economic climate and which were intended to limit the number or percentage of homes which could be non-owner occupied.

On the other hand, the enforcement of rules and covenants may be what is keeping property values up in spite of the economic crisis. Many people move into covenant-restricted neighborhoods because they like the appearance of these neighborhoods. An attempt at relaxing the aesthetic and other standards might backfire on the board of directors.

It should be noted that boards should not just ignore their rules and covenants even if they determine that they are in need of change. In most states, and under most declarations (i.e., the legal, contractual document that contains the covenants and which runs with the title to every lot), the board may have the authority to change certain rules by board vote followed by publication, but the board typically must put changes to the covenants in the declaration to a vote of the members. In some cases, a vote, or at least a survey, of the members may be preferable notwithstanding the board's authority, if any, to unilaterally amend the rule or covenant.

Lastly, the new regulations in effect for federal mortgage agencies (such as FHA and VA) are making it harder to get loans in condominiums by imposing additional requirements on owner occupancy and other matters typically overseen by the associations. Any condominium board seeking to relax its covenants should first consult with an experienced Community Association attorney.

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