Buyers and Condominium Communities: Beware of the Transient Lease

Elina B. Gilbert | Tuesday, January 21, 2014 | Legislative Miscellaneous

Not only have condominium communities felt the heat of the FHA when it comes to leasing restrictions, but individual buyers of condominium units have also experienced their share of grief.  For example, on July 19, 2013, FHA started requiring all borrowers to sign a HUD form at closing providing that as long as mortgage insurance is outstanding, no portion of the housing shall be used for hotel or transient purposes. 

What exactly is considered to be “hotel or transient purposes”? Generally, this means any rental for a term of less than 30 days.  The FHA has also found that any rental (regardless of term), which provides renters with hotel-like services, such as room service, maid service, laundry service, etc.is also considered to be for hotel or transient purposes and not allowed under FHA guidelines.  However, FHA has made some rulings along the way making it a little easier for condominium communities to “fix” this defect should their governing documents contain such language. 

Recently, the FHA published an e-newsletter indicating it would be pushing back the deadline for compliance with the July 19, 2013 requirement.  This decision was based on feedback received from the industry concerning challenges to complying with the requirement.  How has the transient lease issue affected your condominium community or condominium purchase experience?  Are things getting any easier for anyone?

For additional information about the FHA, see our article “FHA Condominium Certifications: The requirements and Prohibitions”.

Comments

The declarations of the communities I have managed have always contained a prohibition against short-term leasing, and I have always advised them to adopt a rule setting the minimum period at 6 months. In one community, the developer's attorney felt that the association did not have the "right" to dictate what an owner can do with his unit, and I respectfully disagreed.

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