Renting Your Home: Does this Violate Your Homeowners' Associations' Rules?

Since restrictive covenants can have a substantial impact on the use and value of a property, potential buyers must review all restrictions and related owners association documents prior to making an offer on a property. It is up to the buyer to determine whether the restrictions create a burden or benefit in the future. Pursuant to the standard North Carolina Offer to Purchase and Contract, the Seller is required to provide the Buyer or their agent all homeowners’ association (HOA) information regarding a property.  Part of a buyer’s due diligence is to obtain and read all HOA documents, including the restrictive covenants. All too often, the restrictive covenants are ignored or aren’t considered until after purchasing the property. 

With the upswing in foreclosures over the past few years, rental restrictions have become a hot topic. As investors purchase foreclosed properties at discounted prices in anticipation of renting them, neighborhoods and their HOAs are either strictly enforcing rental restrictions already in place or amending their HOA documents to limit rentals. Although it remains to be proven, many neighborhoods fear rental homes and their tenants bring down property values.  As a result, potential buyers or investors need to know the restrictions placed on a property and if a homeowners’ association is involved, be prepared for possible amendments to the restrictions. 

When an owner buys a property, the owner is placed on notice that the property is subject to restrictions so long as the restrictive covenants have been duly recorded with the county public registry. Restrictions may be enforced by an individual or by an HOA for properties located in a condominium or planned community. In most cases, the enforcement of restrictive covenants is carried out by the owners association. In cases where HOAs are not in place, individuals that wish to enforce restrictions must sue the offending owner. The North Carolina Planned Community Act and the North Carolina Condominium Act allow owners associations to enforce restrictions using several methods, which can ultimately lead to the HOA having the ability to foreclose on the property.  

The Acts also allow for HOAs to amend their restrictions. Owners who wish to rent their properties need to be aware of current rental restrictions and the power given to homeowners’ associations allowing them to amend their restrictions in the future.  A vast majority of restrictive covenants contain amendment provisions that allow HOAs to alter, add or delete restrictive covenants. All current and future owners are bound by changes in the restrictive covenants as long as the amendment provisions are met and the amendments are applied to all owners. If the restrictive covenants have provisions that allow them to amend the restrictions, then this fact alone places all current and future owners on notice that alterations can be imposed as long as the amendment is valid. 

I always advise my clients and their agents to read any and all restrictions prior to purchasing a property. Whether you are a new homebuyer or a seasoned investor, reviewing rental restrictions during the due diligence period and understanding how restrictive covenants can be amended will prevent lost income or heartache in the future.  

Published on January 11, 2017