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HOA Rules and Tenants

Some homeowner and condo association rules prohibit rentals.  Be sure to review the rules and bylaws before putting a property up for rent, or before accepting a rental for property management. If in doubt about the exact language, consult with an attorney.  The luxury condos Turquoise Towers, in Orange Beach, had a rule prohibiting anything except residential use. The rule was intended to make it illegal to rent someone’s unit as a vacation rental. But, the exact language did not accomplish that. A residential rental is still a residential use.  A resort company was able to buy up 50+ units shortly after the crash, making many unhappy condo owners even more unhappy. An attorney can provide guidance if you are in doubt.

Landlords of properties subject to HOA rules or condo association rules should always provide a copy of those rules to the tenant, and include a lease provision that the tenant will obey the rules.  A tenant who violates the rules could subject the owner to fines, liens, loss of rights, attorneys fees and, possibly, loss of property through foreclosure of the lien.  It is not a defense that the owner did not know of the unauthorized activities. It is not a defense that the owner specifically prohibited those activities in the lease.  If the tenant causes problems, the owner will pay the consequences.

This means the property managers who handle SFR and condo rentals will have to be completely familiar with the rules for the various associations that might be relevant to a property. It might be wise to meet with the manager for the association, and request a warning letter or phone call before adverse action is taken. If they agree, be sure to get it in writing, or write a “This is to confirm our conversation that ….” letter to the HOA contact. Otherwise, if they fail to provide the warning and go straight to sanctions, you will be in a “he-said-she-said” situation.

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Sex Offenders

You can deny housing to sex offenders on the Registry, and not violate the Fair Housing laws, as long as you turn down ALL sex offenders on the Registry. If you are using the Registry as an excuse to turn down somebody who is Hispanic, for example, but White offenders are allowed housing, then you will be in trouble. My authority for this statement comes from the United States Department of Justice information page regarding Fair Housing Act at https://www.justice.gov/crt/fair-housing-act-1

You can also deny housing to anyone who has a criminal conviction for manufacture or distribution of illegal drugs, no matter when the conviction occurred. Same thing as the sex offenders–it can’t be an excuse to turn down some people and rent to others with the same history. My authority for this statement comes from 42 U.S.C. §3607(b)(4); See, also Office of General Counsel Guidance on Application of Fair Housing Act Standards to the Use of Criminal Records by Providers of Housing and Real Estate-Related Activities, April 4, 2016, at pg 8.

Aside from that, you are not allowed to have a blanket prohibition against people with convictions within a certain time frame. HUD says you must take into account the type of crime, the age of the person at the time it was committed, how much time has passed, and rehabilitation evidence in the meantime. Wish I could be less vague, but HUD hasn’t provided any more guidance than that. My advice-continue to turn down people convicted of violent crimes or arson, or multiple property crimes such as theft, and don’t worry about drug use offenses more than a year old.

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Renters Insurance

Landlords should insist on renters insurance for their own protection. As a marketing tool, you can often include the insurance as a free bonus to tenants.

Renters insurance can be purchased for around $210 a year for $10,000 replacement cost coverage, $100,000 liability, and a $500 deductible. That quote is for a policy that does not depend on checking credit scores or insurance history. Tenants who suffer a loss are less likely to sue the landlord (for the tornado, the theft, the fire, whatever) if they have insurance they can use. The money has to come from somewhere, right? The liability portion provides a fund in case the landlord has claims against the tenant for being the one who burned the place to the ground, as one example. Another situation would be if your tenant were sued for harming somebody, he would have money available to pay your rent while his renters insurance pays for legal fees and paying off claims.

Tenants often have no idea the insurance is so cheap. They are usually reluctant to spend the time calling for quotes or filling out online forms. Many have been unable to get economically priced insurance for health or auto. Or, they bought insurance in the past and then lost it when they could not keep up the monthly payments. To them, it seems like a waste of time to try to get renters insurance.

In my experience, a landlord who spends $17.50 a month on renters insurance can almost always price their rent $20 a month above the market, if they offer the insurance at no charge! Plus, just offering the insurance gives them a competitive advantage in the market place.

Call your own insurance agent to check out prices, policy limits, deductibles, and underwriting criteria that might cause the premium to be higher. Then have your lawyer help write up the disclaimer language that goes with your marketing, so you don’t get locked into paying higher premiums than you intended. Let us know how it works for you!