Tuesday, January 20, 2015

There Goes the Neighborhood

The community is in an uproar.  Some of the neighbors have been using online services to lease out their homes on a short-term basis, bringing in new faces every few days.  Crime is a concern.  Unfortunately, for years no one has been enforcing the community's rental regulations.  Housing patterns changed in the face of hard economic times, and now nearly half of the homes are non-owner occupied (even relatives are technically renters).

A new Board of Directors has learned that it is legally required to uphold the land use restrictions about rentals.  Fines start being assessed when unauthorized rentals continue.  Now, upset homeowners are working to have these Directors replaced to stop enforcement.  Even one of the Board members has violated his duties to the Association and is assisting with the overthrow.

What to do?

While not everyone can be reasoned with in this situation, education is key.  The Board should send a respectful and professional communication to the community, describing the consequences for non-enforcement.  People often need concrete examples to see past short-term gains:  Hearing about some nebulous potential costs of selective enforcement is unconvincing.  It is difficult enough to have permanent residents understand and abide by noise, odor and visual regulations.  Short-term residents have even less motivation.  By the time citations and fines start accumulating, the tenant has moved out.
You must speak in terms of money.  What comes out of a person's pocket is a powerful motivator.  The lack of commitment by renters to the success of the community is a common complaint.  The wear and tear drives up expenses that result in higher assessments. 

Insurance premiums (both for individual homeowners and for the homeowner association) go up dramatically in communities with substantial rentals.  For example, Citizens Insurance treats any community having more the 25% non-owner occupied homes as a commercial operation.  Any coverages above very basic dollar rates may be at 400% higher premiums. 

And for unrestrained rentals, banks will refuse lending for purchases and refinances.  This depresses housing prices, and limits the pool of potential new homeowners.  One person with an extremely high credit score and 20% down payment was rejected by four banks because of the percentage of rentals in the community in which they were hoping to buy.   

Sharing these examples resonates with resident owners, but many investor owners purchase in cash, so need a larger direct immediate impact:

Bank lending also dries up for the Association, too.  If a project pops up requiring large amounts of cash, everyone may be facing a huge special assessment.   Given the choice of either coming up with $5,000+ (per home) right now, or having a bank loan that is paid back over five or ten years, everyone (including landlords) opt for the loan.

Providing these dollar cost comparisons may be enough.  Or not.  In some communities, homeowners decide to essentially (though not legally) convert to an apartment complex.  Unless there is a disgruntled individual with enough money for a lawsuit forcing the neighbors to live by the covenants, such communities will remain landlord havens.  Until conditions deteriorate to the point that the local government steps in. 

Government action involves imposing daily fines for code compliance, requiring a very large special assessment to cover.  If the community fails to comply, condemnation is the final act, leaving all owners (including landlords) with worthless property.

Discuss the above with your neighbors if you find your community in this situation. Trust us, its not a great place to be!

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