FHA Condo Approval Specialist: What Condominium Leasing Restrictions Are Allowed by FHA?

What Condominium Leasing Restrictions Are Allowed by FHA?

FHA-allowed leasing restrictions in condominiums has been a hot topic as of late.  As we all know, a condominium’s legal governing documents may place restrictions on the leasing of units in the condominium.  These restrictions can vary greatly and recently HUD clarified what is and is not allowable.

[For information on the background of why certain restrictions are not allowed, you can follow THIS LINK to an article about 24CFR203.41.]

During the roundtable session that Eric attended in late August, the facilitator offered this broad statement:

“If the homeowners association has approval authority of a unit owner’s ability to lease his/her unit either directly or indirectly, the condominium is ineligible for project approval with FHA.”

During the ensuing discussion, the following clarifications were offered.

Allowable Leasing Restrictions

The association can

• Restrict total number of units that can be rented at any given time

• Restrict the total percentage of units that may be leased at any given time

• Create a hardship clause for exception to the first two above

• Require that the Board be provided with a copy of the lease

• Require that the lease must be in writing

• Request the names of the tenants

• Require that the lease conforms to the legal governing documents of the association

• Set minimum and maximum lease periods

• Require unit owner to check the Registered Sex Offenders list

• Require rent to be assigned to association if the unit owner is delinquent in the payment of his/her common charges

• Provide corporate leasing restrictions

• Require Board of review of lease [May not require Board approval of lease]

• Require that the lease be on a specific form

Non-allowable Leasing Restrictions

The association cannot

• Outright restrict leasing of all units (at least one unit in the condominium must be allowed to be leased) [**See Note below]

• Require that the unit owner inhabit the unit for a period of time prior to being allowed to lease the unit

• Require Board/HOA approval of lease

• Require Board/HOA approval of modifications to, alterations of, amendments to or extensions of lease

• Be granted automatic power of attorney by the unit owner upon purchase of or the leasing of a unit

• Restrict a unit owner’s ability to lease if delinquent in the payment of common charges

• Require potential tenant to sit/interview with the Board

• Require credit references

• Require criminal background checks (except for Registered Sex Offenders list)

• Require Board/HOA approval of tenant

• Have the power to void leases (leases cannot be voidable by a third party)

• Allow transient leasing

• Allow accommodations typically associated with a hotel, such as maid or front desk service.

**NOTE: There are two exceptions where an association can outright restrict leasing: age-restricted communities and condominiums where 100% of the units are under Affordable Housing restriction.

If you have specific leasing restriction questions, please contact us.  We would be happy to answer any of your questions on this matter.  approvals@readysetloan.com