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HOA rental percentage can affect FHA financing

During the second homeowner forum at one of my associations, one of our homeowners wanted to discuss the rental percentage issue concerning Federal Housing Administration loans.

The homeowner referenced an article that was published in the Review-Journal that I had written Oct. 30, 2005. The article was in response to a reader whose association were losing its FHA certification because of excessive rental units. My homeowner asked me a “simple” question, how does rental caps and FHA loans apply to this association?

Back in 2005, the Legislature passed Nevada Revised Statutes 116.335. This law has been amended several times. Section 1 of this law prohibited homeowner associations from establishing any rental caps. The only exception were those associations that had rental caps before the passage of NRS 116.335. Section 3 of the law stated that if an association had a rental cap before the passage of this law, the association could not decrease the maximum number or percentage of units that could be rented.

During the Great Recession, significant numbers of association homes became rentals, thereby potentially jeopardizing the ability of homeowners to obtain FHA loans depending upon the percentage of rentals within the community.

I checked with attorney John Leach on this issue. Here is what he said:

“That is such a great question. In fact, I posed a similar question to the Legislature years ago. Please note that existing rental caps are enforceable. The problem is adopting new ones. In the Red Hills case, the Nevada Supreme Court concluded that unanimous consent was required because of the language in the covenants, conditions and restrictions, which was copied from NRS 116.2117 (4).

“We have several homeowners associations that are still considering adopting rental caps, but they understand that they may be challenged. NRS 116.2117 (2) appears to grant an owner one year to challenge a recorded amendment. In addition, the recent rental cap amendments have only been applicable to owners that acquire title to property after the rental cap has been recorded. In other words, all owners in existence when the rental cap is recorded are grandfathered in and allowed to rent in spite of the cap. I wish I had a good answer for you, but there just doesn’t seem to be one.”

After I read John’s response, I sent him one final email which read: “So bottom line, FHA can refuse to fund an homeowner because of the high percentage of rentals in their HOAs and the HOAs cannot do anything because the law does not allow HOAs to establish a rental cap if one had not already existed prior to the new law? Correct?”

John’s response to me: “I think that is a fair and accurate assessment. Time to get the law changed.”

For those readers who have been following my column for many years, I have often stated that this law needed to be changed as homeowner associations were becoming “ apartment communities.” For some associations, this is not an exaggeration. Are the interests of investor homeowners the same as resident homeowners? For many associations, the answer would be no.

I don’t know if the legislators that supported this law over the years realized the financial crisis that they have imposed upon those homeowners who want to buy a home or refinance a home with an FHA loan. It is time for change. The only way this law will be modified will be because of you, the reader. Start the process of discussing the issues with your state representatives to draft a modification of the law.

Q: I approached my HOA about adding a motion sensor solar light to the rear of our complex where the lighting is less the 1 foot-candle ( measured it) at the access gate. My son is visually impaired and is blind in darkness because of a progressive disease — retinitis pigmentosa — which makes it difficult for him to see the lock to open the gate. I was told unequivocally, no. I question whether or not the light levels at the manual gate are even legal, but is there any code that would allow me to make them address this? It would only cost a few hundred dollars to add a solar cell with a motion sensor. There might be a tree that is blocking the streetlight from lighting the gate, but I have not verified that. The tree is on private property. It seems like I could make them add a street light to ensure the area meets the minimum lighting levels, but I do not want to do that because it would cost a great deal more to the HOA. They seem unreasonable.

A: Based upon your information, the association would fall under both the Fair Housing Act laws of the state and federal government, the section, titled, “accommodations.” This is an inexpensive fix for your association, significantly less expensive than defending their actions in a civil rights case. Your board should rethink its decision. You can contact the local HUD office at 702-366-2100 for help.

Barbara Holland is a certified property manager, broker and supervisory certified association manager. Questions may be sent to holland744o@gmail.com.

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