I Closed but now the HOA rules want allow renters

30 Replies

I closed my deal – but now I can't lease it due to HOA rules .

Well I was planning on writing this blog to explain how I got back into the real estate business after losing several properties in 2008. I had several challenges with buying my first property after rebuilding my credit. I heard a podcast that suggested that I make a list of all of the Community Banks in my area and Credit Unions for possible financing. I called several and researched everyone. I found a Credit Union to write me a great loan with only 5% down for my new purchase….Awesome!

I closed on the apartment last week but I just received a call from a board member saying that they don't allow leasing in the complex. That's a nightmare because now I have a loan in place. Apparently I was supposed to receive paperwork regarding the HOA rules which was never given to me.

I'm wondering since I never saw or signed any documents regarding g the rules under HOA am i held to them? I live in California and my brother mange's the place in Mississippi. The loan closed on 10/2

Can anyone help me with this? 

Ricky,

Did you use an Real estate Agent or Attorney/title company to conduct the due diligence prior to purchase?

Did you request the HOA documentation before making an offer?

Typically the offer (if you used an agent) will ask for the HOA documents as part of the transaction. You should have been given these and signed off on them. If it was in the offer and you didn't get them, call your real estate agent asap.

If you got them, but just didn't read through it - that is a learning lesson.

If you didn't get them, call your agent and see what they can do to help you.  Sorry about this!

I did not..didn't think about asking for such documents. First time buying an apartment. I asked the person to email docs to me for review and signing but she now refuses to do that. She will be speaking with the board to see if she can do that since this will not be my primary residence.

Unfortunate no one brought it up and it was never given to me. 

Can i force them to make an exception since I never saw the docs before closing?

@Ricky Jefferson   You can certainly ask for an exception, however, if the rules state that units can't be rented, then you are out of luck.   

Sell the place, and cut your loses.  Unfortunately, it is your responsibility to know the rules before you buy. 

No. Simply because you didn’t know better doesn’t exempt you from the covenants. This is another case where an agent, or a local attorney, would have come in handy.

Originally posted by @Ricky Jefferson :

Unfortunate no one brought it up and it was never given to me. 

Can i force them to make an exception since I never saw the docs before closing?

 Force them how, like what would your reason be..... how you going to respond when they ask why you never asked for a copy.

I had an attorney and an agent but no one made mention of the HOA documents. Sounds like I have a second home that's gonna cost me. I guess my out is to try and sell it.

@Ricky Jefferson Did you by chance also ask for any financial statements, budget on the HOA? You should know how well the association is run.

Buying into an HOA requires Due Dilligence, and you simply cant rely on others to tell you everything.

Always need to read through those documents first. Happy to assist you in the future 

You should find out whether the law in California (or maybe a Realtors association rule) requires that a community association disclosure be included with a sales contract. I believe that is the case here in Texas. 

If such a requirement exists and you did not receive the disclosure, you might have recourse against the seller or the seller's agent or even your agent. 

Originally posted by @Ricky Jefferson :

I had an attorney and an agent but no one made mention of the HOA documents. Sounds like I have a second home that's gonna cost me. I guess my out is to try and sell it.

 Was your agent aware you were buying this as an investment property? I cant for the life of me imagine a full time agent not requesting hoa/condo docs to verify that the place could be rented.  This is gross negligence.

I agree with @Russell Brazil , this is not normal. Get in touch with your agent ASAP and figure out why you never received the CCR's/HOA documents (but do verify that you didn't actually receive them and you simply glossed over them). I am pretty sure the HOA docs are supposed to be part of the disclosures when you buy in CA.

Your Agent/Broker may hold some responsibility here if they did not ensure the HOA docs were disclosed to you. This sort of situation is the exact reason why agents carry E&O insurance.

Originally posted by @Ricky Jefferson :

I had an attorney and an agent but no one made mention of the HOA documents. Sounds like I have a second home that's gonna cost me. I guess my out is to try and sell it.

Your agent should have put into your contract that you were to receive the HOA rules during the "inspection phase." If they did not, or failed to get them for you and to you, you may possibly have good cause to sue the agent for omitting this VERY STANDARD clause on an offer on any property in an HOA. Also, if the agent KNEW your plan was to rent the property, they should have been diligent on that point themselves. I do have a question though - How did you get non-owner occupied financing in an association that doesn't allow rentals?

This just is not making sense at all. You have in your post that you are in CA but the property is in Mississippi?

How is a credit union funding you at 95% LTV for a non-owner occupied loan. I have never,ever heard of that. Standard is 20% or more down as lenders know when times get tough people fight to stay where they lay their head at night. Properties out of state can easily become out of mind when problems arise.

The credit union is surprising that you are buying out of state and they did not question it as an investment property.

Recheck your loan documents. I hope you did not sign owner occupant loans docs with the intent to rent the place with having to put less down. Not saying that is the case but I have heard of some investors doing that before and it is mortgage fraud.

You should have had a checklist from your credit union on docs needed for underwriting on the loan.

Something does just not add up here.

No legal advice given.  

Something seems off if your facts.

You didn't tell the credit union this was an investment property, did you?

If what you are saying is true, that agent can be held liable. At least here in Nevada if HOA docs are not provided per the contract the buyer does not have to close and can cancel the transaction.

I would read the purchase agreement and see what it says regarding the HOA documents. Here in Nevada, the buyer HAS to sign a receipt of receiving them.

Also as others have stated 5% down on an investment property does sound a bit odd. Especially for out of state. Typically 5% down is owner occupied and has to be in the same state you are employed in. 

in addition to everything said above, there would typically be no recourse against the HOA, only your agents. HOA owes you nothing and you are bound by the governing docs.

very common in Mississippi.... even in large SFR subdivisions CCR's dont allow monthly rentals. one needs to be cautious there.. if you need to move you can't rent... the local homeowners don't want renters in their neighborhood.

I too question how you financined this as a rental with only 5% down.. its sounds like if that is the case you may have todl them your owner occupying and in that case you have done mortgage fraud.. VERY bad... 

again if we can take the facts as you stated them as what really happened.

Maybe it was the SELLER who facilitated the financing? If so, that has fraud-inducement written all over it!

@Ricky Jefferson, NEXT time, we expect a more researched, success story about your re-entry into Real Estate...

I have the same question as some others. How did you manage those terms on a non owner occupied out of state property? I fear that I know the answer and if you told the lender this was an owner occupied property you have committed fraud. Hopefully for your sake I'm missing something...

I didnt catch in the original post that this was 5% down.   Then I can clearly see why an agent would not look into the renatbility of the unit since the buyer was using an owner occupant loan.  If they were using that, then the agents liability disappears

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