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Law creates two classes of homeowners

Posted: August 12, 2012 2:00 a.m.
Updated: August 12, 2012 2:00 a.m.

A law intended to protect homeowners may actually infringe on property rights and creates two classes of homeowners, say some local experts. American Beauty townhomes are featured above.

 

A 2012 law intended to protect the right of homeowners to rent their property creates two classes of homeowners in neighborhoods, property management experts say.

A law that became effective in January intends to protect a homebuyer from being subject to a homeowner association imposing rental restrictions.

The problem with the new law, say homeowner association experts, is that the law only applies to buyers who closed escrow this year. If a revised rental limit is adopted by an association, it will only apply to homeowners who bought their homes in 2011 or earlier.

In effect, the law creates different groups of homeowners within a single development — some of who have the right to rent their property, and others who may be denied the right to rent, experts said.

And, the law may apply to owners of single-family homes as well as condominiums and townhomes.



Purchase date

“Basically the law says if you have the right to rent a condo when you buy it, you continue to have the right as long as you own it,” said Alex Creel, senior vice president of government affairs of the California Association of Realtors, which sponsored the bill.

Realtors reported problems with homes that had restricted rental options in common interest developments, Creel said.

During the recession, people who could no longer afford their homes and wanted to rent them out were often prevented from doing so by the governing rules that dictated the number of allowable rental units in an association, he said.

Rental caps also restricted Realtors from selling homes to investors.

Owners of single-family homes could plausibly be impacted by the law as well, Creel said. If a housing development is classified as a “planned unit development” and falls under the Davis-Sterling Act enacted in 1985, the law would apply to single-family homes as well, he said.

The law, however, creates different classes of homeowners who have to abide by differing rules, experts said.



Varying rules

Prior to the law, whatever rental restrictions a homeowners association had in place would apply to every single homeowner, said Brad Watson, managing director of Valencia-based Property Management Professionals.

The law creates different rules for different homeowners in the same community – effectively creating different classes of homeowners, Watson said.

“How do you tell one person they can rent out their home and the next person that they are unable to rent their unit?” he said.

Typically an association has the right to change their rules and regulations and all owners are required to abide by them. This is the first property law that only applies to owners purchasing after Jan. 1, 2012, Watson said.

Creel disputes that it’s two sets of rules.

“It’s one rule,” he said. “You’re governed by the set of rules in place based on when you bought the home.”

Dan Shapiro, attorney with Wolf, Rifkin, Shapiro, Schulman & Rabkin, a law firm that specializes in the community association industry, disagrees.

“Some people will be affected by rental caps and others won’t be,” Shapiro said. “I can’t think of another situation in community association law where this situation exists.”

A more complex issue, however, is how to apply and enforce the law.



Enforcement

“It would be virtually impossible to enforce,” said Glen Gray, president and owner of Euclid Management and also a 23-year member of the California Legislative Action Committee – Community Associations Institute.

“This is the first time I’ve seen a rule enacted that basically discriminates against the new buyer,” Gray said.

Calling the law an example of when “good bills go bad,” Watson said treating people differently is a slippery slope.

Most people understand a community’s desire to limit the number of rentals, but Watson said he is not convinced this law is the way to achieve that objective.

While Watson believes the law was drafted with good intentions, he said a homeowner who loses their job, and wants to rent their home or unit out to save it from foreclosure because they can’t make the mortgage payments, could be blocked from doing so under the law.

Also, being able to sell a property that might be attractive as a potential rental in the future makes it more marketable to the homeowner.

CAR sponsored the bill to protect private property rights, Creel said.

The law infringes on property rights, Shapiro said. Only some people will benefit from it and others will find it’s not beneficial.

“It’s difficult enough to sell homes now,” Gray said. “The differing rental restrictions might make it harder. It’s a bad law.”

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