Not everyone wants to actually own a unit in a condominium complex which is why some purchasers buy units as investment properties. The practice has become widespread enough to become a major problem for many condominium associations. To understand the scope of the problem, you need to understand how the secondary mortgage market operates.
The secondary mortgage market is the place where primary mortgage lenders sell the mortgages they underwrite to obtain funds to originate other new loans. Fannie Mae and Freddie Mac are secondary mortgage lenders who originate a large number of condominium loans for purchase and refinance. They impose restrictions on the number of investor units in a condominium association. Usually no more than 40 or 50 percent of the units can be investment properties available for renting. If an association goes beyond these limitations, new purchasers as well as unit owners wishing to refinance find it difficult to get a mortgage from these lenders.
That’s one of the reasons why you need to check that the unit you are contemplating renting is a legitimate rental property under the condo association’s governing documents. They spell out the policy regarding renting. If the governing documents contain no rental restrictions, then owners have the right to rent their units at will. However, some governing documents may allow unit owners to rent, but they must do so for a minimum period. That means you must rent the unit for a specific period of time like a year. This restriction is usually intended to prevent short-term rentals resulting in a revolving door of tenants. If there are specific restrictions allowing the board to make reasonable rules and regulations regarding rental issues; these rules cannot violate any state or federal statutes.
The importance of determining the legitimacy of the rental unit is also imperative in terms of safeguarding your rights as a tenant. There are two areas of major concern, rent increases and unlawful eviction. Your landlord may increase your rent, but the increase must be “fair and equitable.” If you are legitimately renting and you think that the rent increase is not fair and equitable, you can file a complaint with the local governing body that handles rent complaints.
The other concern is protection from unjust eviction. The “Just Cause” law protects tenants who live in a building or complex, which has at least five dwelling units. It says that your landlord can only evict you for certain reasons:
- Nonpayment of rent
- Refusing to agree to a “fair and equitable” rent increase
- Not following rules and regulations of the building
- Not following the provisions of the lease
- Not meeting obligations toward the property such as protecting the property from being damaged, interfering with the neighbors’ peaceful enjoyment of the property; or failing to keep your unit clean and safe
- The apartment is being permanently removed from the housing market
- Your landlord plans to use the apartment as his/her own permanent residence