Posts Tagged ‘Home Owners Association’


Home Owners Association

February 5, 2009

I am a member of the board on my condo building’s Home Owners Association.  It is a small building of just 20 units.  The board is composed of 5 members, the President, Vice President, Secretary, Treasurer, and member at large.  Our By-Laws include a rule that only 4 units can be rented out at any given time.  Any other units in addition to the 4 would have to petition the board for a hardship case in order to be allowed to rent.  It hasn’t been often that any of those 4 spaces have been open.  In the past several years that I’ve served on the board we have reviewed several hardship cases.  We have been strict in our interpretation of a hardship.

Case 1:  Owner is in graduate school at a local university.  He changes his mind about his course of study and has to relocate to a university out of state or possibly out of the country.  The board asks that he try selling the unit first.  We ask that he put the unit on the market for a minimum of three months then after that time if it hadn’t sold he could repetition the board.  Luckily during the three months one of the 4 rental spots became available and the owner was able to rent out his unit without the hardship.

Case 2:  Owners purchase a unit with the intention to sell their current home and then move in.  Their current home was getting no shoppers or offers and a sale seemed unlikely for the near future.  The board denied the hardship stating that they should try to sell the unit first.  When you have something you can no longer afford, you attempt to sell it.  However, the unit never went up for sale and has been vacant.

Case 3:  Owners have been renting out unit for 4 years.  Tenant turns in 30 day notice.  Owners from case 2 are notified on the same day that one of the 4 rental spots is currently without a lease.  Owners from case 2 still have the lease ready to go from when they petitioned for their hardship and turned it in the very next day.  Case 3 owners now have to petition the board for a hardship, sell the unit, or let it sit vacant until one of the 4 rental spots opens up again.  The board voted 4 to 1 against granting the hardship.

I am the one member of the board that voted to grant the hardship in case 3.  It really comes down to the definition of hardship.  I feel that the choices available to the owners from case 3 are all unfavorable.  Sell = in today’s market a sale may take upwards of a year.  If priced significantly below market value it may sell faster.  Let it sit vacant = possible risks of break ins and damage caused by lack of maintenance and cost of mortgage without a tenant.  If that does not constitute a hardship in the minds of the other 4 board members that leads me to believe that they qualify hardship based on proximity to foreclosure or bankruptcy or some other more definable marker.  Below is the email that I wrote to the board after the decision was made asking for them to reconsider.

 I’d like to make a few points for your consideration regarding the hardship request made by X.
The owner recently wrote an email to my real estate agent containing the following lines.
“I own the unit right across the way, and had been renting it out for the last few years. The association is trying to tell me that I can no longer rent it, so I have got it for sale now – CHEAP!”
“I can’t afford to make the payments on it without a tenant, so I am going to sell it  VERY cheap. I hate to do this to everyone else there, but they have forced my hand.”
Originally he had it listed for $159,900.  He has now dropped the price to $154,900.  I think he probably has room to go even lower.  The standard expectation is that a good offer is about 90% of your asking price.  That puts this unit selling in the $130’s best case scenario.  It is a two bedroom corner unit on the top floor.  That is shockingly low for this unit.  Our building hasn’t seen a two bedroom sell for that low in a really long time.  They average in the $160’s.  Once the property sells, it will have always sold for that amount.  For any of our two bedroom home owners, when we go to sell, refinance or take out a mortgage there will be a new comparable sale that will lower the property value by about $30,000.  I do mean comparable.  It is in good shape.  It isn’t a foreclosure and it doesn’t need $30,000 worth of work.
I understand that we have a rule that limits our rentals to 4 units.  This is a really good rule.  However, hardship cases are viewed differently as they are considered a temporary situation.  There is guideline that some mortgage products follow regarding the percentage of owner occupied units versus rentals.  For some the cut off is 20% and others it goes as high as 51%.  Even so, these guidelines are only for some mortgage products aimed at buyers with poor credit and or no money for a down payment.  Not all buyers fit in those categories.  Our property values are not and should not be determined by a sampling of mortgage products currently available.  These products and guidelines change over time.  Our main concern should be protecting our investments. 
I think we should grant them the hardship in the interest of maintaining our property values.  It will only be a temporary situation versus a more permanent, low priced comp in our building.
This is a very different situation than any of the other hardship case we’ve reviewed together.  Case 1 had a mortgage that limited the amount he could lower his sales price and, he never attemptedto list it so much lower than market value.  Case 2 never even listed their unit for sale.  Those were about individuals.  This is about our building and 19 other units with considerable investments here.
One final less important point.  With in a 12month period any of our current rentals could/may change so, even if X is granted a temporary hardship, within one year we will have 4rentals again and maintained our property values.
The reply I got from the one board member who replied contained a concern that we live in a building where several of the residents purchase 15 to 20 years ago and could also afford to sell their units below market value and that that was just part of it and we would have to accept it for what it is.  My reply to that is what reasons might drive someone to sell a property below market value?  Answer: a Hardship.  That is why the rule is in the by-laws.  Another excerpt from the reply follows: “do we really think he is going through a hardship at this point in time?  I don’t think that being without a renter now for 4 days qualifies as a hardship.  He has had the benefit of rental income from this property alone for 4 years as it is my understanding.  If he bought the unit for such a low price and had a very little (or no) mortgage, then he has had the benefit of a lot of rental income over a 4 year period, and I do not feel that being without a renter for 4 days is a hardship. I think he is addressing the hardship situation now because he knows this situation could potentially become a hardship.  I agree that this could become a hardship, and at that time, I would encourage him to re-address the board but he hasn’t proven any hardship to us at this point in time.”
I replied, “just spoke to the President and I got the impression that my opinion on this matter is tainted due to my home being on the market now.  I want to make it clear that granting him the hardship will probably limit my pool of buyers based on the fact that right now, in today’s market, many potential buyers will be relying on mortgage products such as the ones the property manager’s email from a lender mentioned.  I feel so strongly that granting him the hardship is the right thing to do for our building that I’m willing to take that chance.  I don’t believe X wants to sell his unit for such a small price.  I think if we allowed him to rent it for one more year and then possibly sell it when the market is stronger his price will be higher.  I’m sure he IS trying to bully us.  It certainly doesn’t say much for his character.  However, his listing price is $154,900.  Even if a buyer negotiates more than 90% of his asking price, which would be amazing in this market, that still puts him selling in the high $130’s or low $140’s.  I would feel differently about this if his asking price were $175 or so.  What I’m saying is I don’t think he is threatening us.  I think he will sell it for that low.  His asking price (before negotiation) is lower than any sales we’ve seen in many years!  I understand the hesitation.  I want our board to be strong and, I want to be able to rest upon our our decision knowing that it was in the best, long term interests for our building.  I think we have a responsibility to all the other home owners to protect their investments.”
Her reply, “As the other four of us (to the best of my knowledge) are not in agreement with you that he is facing a hardship, I ask you to consider what hardship he is facing today, right now.  I have not changed my mind on this.  With all sincerity, please be assured that I do not mean to sound curt, I just simply don’t agree with you.  I agree that we are all in a shitty situation (pardon my French) and there is no ideal outcome.  There are negatives to granting and not granting a hardship case.  He has had the benefit of a renter for 4 years.  Based on an unfortunate turn of events where he lost his renter and now another homeowner, who deserves to have equal rights as him, has found a renter during a time where we were open to have a 4th renter.  Yes, it stinks for him.  But he is not automatically allowed to always retain a renter simply because he had the benefit of doing so for 4 years.  That’s not fair to other homeowners.”
To that I only replied “OK”.  I felt the conversation ended.  I would really like to know what others think about this.  Is the owner from case 3 or X in a position of hardship?  What should constitute a hardship in these cases?