Rental Restriction With a Vague Hardship Clause

[SamsonW]

My question involves a condominium located in the State of California.

I'm an owner in a CA condo, there are only 12 units in our complex and we have a leasing restriction limiting the amount of rental units to three. The same three units have been for rent since the rule went into effect in 1991, and there is no mechanism for other units to enter the rental pool unless the owners of the three rentals decide for whatever reason that they no longer want to rent.

My family has to relocate due to a temporary job training program for 2 years. With the market the way it is, we would pretty much have to walk away from our property if we cannot rent it to at least cover the mortgage. Even though the HOA's rules and regulations have a hardship clause, it is very minimal. Basically all it says is that the board will consider hardship appeals. It has no details on what factors they will consider, or even what percentage of the board must be in agreement to grant a hardship exception.

I just joined the board this year, and there are only two other owners on the board. One is sympathetic to my position, the other is not. The latter owner denied my hardship request unilaterally, but i can find no clause anywhere in the rules saying that the board must be in complete agreement, nor can I find a clause saying I must disqualify myself from being involved with a decision because my unit is at issue.

Another owner was recently put on active duty and he was granted a hardship clause. While I am not moving due to military service, I think I am in a somewhat similar situation.

Thanks for bearing with me on the facts. Here are my questions:

1) Is the hardship clause as written vague enough that it could be challenged in CA court?
2) Is there a case to be made that the HOA is administering the clause in a non uniform matter?
3) Is the fact that the same three units have been renting the unit for nearly 20 years, with no procedure for other owners to enter the rental pool itself a situation in which the HOA is administering its rules in a non-uniform matter?
4) Do courts even care whether HOA boards enforce rental restrictions in a uniform matter? And even if they do, would they just defer to the board's decision that two situations are "different enough" for the outcome.
5) Any idea what my legal options are? Would I have to sue for an injunction on the HOA trying to enforce the lease restriction rule? I'm not looking for legal advice, just wondering what I could expect to hear from a lawyer if and when I seek one out.

Thanks so much!

[SChinFChin]

I've invested in rental condos and ran across some of these issues.

The key issue is FNMAE, which buys mortgages from banks, and they would not provide mortgages at condo complexes where the percentage of RENTAL condos reached 50% or greater. At least that was the guideline.

So you got three people out of 12 since day one renting out, one hardship exemption granted already. Say you are successful in forcing the issue, you get a hardship exemption, and all you need is one more harship exemption,i.e. six out of twelve being rentals, and the whole complex would run into a big problem.

What problem?? Buyers would have a hard time getting a mortgage if at all. I was investing in foreclosures in MA, where condos sold for #100K, selling for $40K to $50K. I thought prices were good and I bought some. Well, I was told at a condo complex not far away, units were going for $10K, the reason being so many unit became rentals that buyers can't get mortgages at all, sellers can't sell, so they just walked away. Now, why would I invest in condos that I can't sell?

Here in NY, courts have held HOA's have absolute power, and unless the HOA is violating some state laws such as discrimination, they cannot intervene.

[Mr. Knowitall]

1) Is the hardship clause as written vague enough that it could be challenged in CA court?

Anything can be challenged in court, but I'm not seeing what you believe to be vague about the clause. You describe rules that state that you have no right to rent, but which vest the board with discretion to consider hardship appeals. The impact on the other owners is highly relevant, so it's not a situation in which they can set forth criteria that an owner must meet in order to be sure that he qualifies for a hardship waiver - the number of condos already being rented and the impact of more tenants on the community are valid considerations. The quorum and voting rules will be set out in the bylaws.

2) Is there a case to be made that the HOA is administering the clause in a non uniform matter?

You mean, can you sue merely because they denied you after approving one other appication over the entire board history, even though your circumstances are different? That's not going to establish a pattern, let alone one of non-uniformity.

3) Is the fact that the same three units have been renting the unit for nearly 20 years, with no procedure for other owners to enter the rental pool itself a situation in which the HOA is administering its rules in a non-uniform matter?

You knew the situation when you made your purchase, right? Or if you didn't, it was because you chose not to read the closing documents, community rules, etc.? What do you propose is non-uniform about the application of the rule?

4) Do courts even care whether HOA boards enforce rental restrictions in a uniform matter? And even if they do, would they just defer to the board's decision that two situations are "different enough" for the outcome.

There is a significant difference between being transferred by the military and taking a job in a different location, and courts and legislatures recognize that fact. If you're asking, "Can a court find that two different sets of facts justify two different outcomes," yes, a court can do that.

5) Any idea what my legal options are?

You need to start by reading the bylaws to find out if you are allowed to vote on the matter, if so whether that means the vote passed, and if not whether that means the vote failed or if there is a tie-breaking mechanism. You can then consider such options as putting the condo on the market. If you want to try to sue, start interviewing real estate lawyers.

[SChinFChin]

One important point I want to mention.

Just to add that at the rental condo I owned, the HOA found that by adding the already rented out condos to those with hardship waivers, it looked like sooner or later the dangerous tipping point of 50% would be reached.

What they did was to start granting waivers on a year to year basis, so at the end of the one year term, it expires, you can apply to have it extended. This way if you keep extending it, and already had a waiver for a few years in the future, then if someone else has a hardship, then you'll be asked to give up your waiver, and someone else can have it.

It's an idea you can throw out there where the HOA can avoid being locked in with too many rental units going into the future, and sellers would then find themselves locked out of the mortgage market, and nobody can sell any units.