Already facing foreclosure, the owners of eight homes in a Springboro planned community have been sued by the community’s homeowners association (HOA) for renting their property to non-relatives.
It’s a common problem nationally — home owners unable to sell their properties because the value has dropped so much, they would lose money. Less common, though, is the practice of an HOA suing its members for violating their rules by renting to non-relatives.
“If they don’t rent their property, they don’t have any income. If they don’t pay the mortgage, the property goes into foreclosure,” said Thomas Kendo, the lawyer who represented a couple who rented their house in Settlers Walk, the Springboro community, after moving to Colorado Springs, Colo.
More than 30 million Americans are part of about 150,000 homeowners associations (HOA) around the country, including 8,000 in Ohio, according to Community Associations Institute.
Some owners facing the Settlers Walk lawsuits have moved to other states, including North Dakota, Mississippi, Colorado, and California, typically for work or military service. They say they are trying to hold onto the Springboro houses, while sales are slow and at prices well below what is owed on the mortgages.
Originally sought by prospective lenders, rental restrictions are used by HOAs in mixed-use, planned communities around the country to protect property values and keep out tenants thought to be less attuned to keeping up the neighborhood.
“It’s very common,” said Robert S. Griswold of families renting homes in HOAs when they can’t sell and who has testified as an expert witness in HOA cases around the country. “I know it’s a troublesome area.”
Often disputes based on rental restrictions are resolved without lawsuits.
The Settlers Walk board filed lawsuits after exhausting lesser alternatives, according to Jason Covitz, president of the Settlers Walk HOA.
“That’s kind of the last resort,” Covitz said.
Settlers Walk cases
Three of the rental restriction lawsuits in Settlers Walk have been decided, one in a confidential settlement and then sale of the home, another in a default judgment barring rental and awarding almost $1,000 in court costs and attorney fees to the HOA’s lawyer, according to records.
Sadakat and Fari Choudhury were sued by the HOA for renting 88 Crockett Dr. in December 2012 in Warren County Common Pleas after emerging from a foreclosure action for a home they own in nearby Clearcreek Twp. On March 28, Judge James Flannery ordered the Choudhurys to pay $965 in legal fees and granted the injunction barring them from renting the house after they failed to respond to the lawsuit.
The appraised value of the Crockett property dropped more than $30,000 over five years — from $244,450 in 2007 to $211,400 in 2012, according to property records. The Choudhurys didn’t respond to interview requests.
Kendo and HOA lawyer Scott Oxley worked out settlement of the lawsuit filed in 2010 against Scott and Monica Fuchs, who now live in Colorado Springs, according to court records. The Fuchses were barred from continuing to rent 25 Wilkerson Court in a preliminary injunction, but final terms were confidential, according to court records.
Also in June 2011, the Fuchses sold the house for $199,000, almost $10,000 less than the appraised value in 2007, according to property records. The property has since been further devalued to $183,700, according to records.
In October 2011, the HOA and Donald and Deborah Brenneman resolved their dispute over rental of 45 Great Oaks out of court, according to court records
So far there has been little action in five of the other lawsuits, filed in recent months.
Nick and Shawna Dobrzelecki received service of the lawsuit over rental of their home in Settlers Walk, filed on Jan. 28 against them by the HOA in Montgomery County Common Pleas Court, at their new home in North Dakota.
“We have been unable to sell it over the past several years for a reasonable amount due to the number of foreclosed properties in the neighborhood and area,” Dobrzelecki said in an email including a list of 20 nearby properties in foreclosure.
The Dobrzeleckis said they are renting to a member of the U.S. Air Force.
“They keep up the home and yard very nicely. They are upstanding citizens that add value to the community,” Dobrzelecki said. The case has been referred for mediation.
In Ohio, HOAs assume liability for drainage and detention ponds, usually after the development is near completion. Property owners accept basic restrictions covering maintenance of homes and common areas, through covenants, conditions and restrictions signed at closings.
Additional rules, such as ones restricting rentals, are adopted through a popular vote of the property owners.
Adopted in 2008, the Settlers Walk rental restriction is just one of the rules in the 500-page book used to govern the 1,300 home and condominium community along the Montgomery-Warren County boundary. Before building new homes, property owners must satisfy the HOA’s architectural review board, as well as municipal boards in Springboro.
Twice, the growing concentration of population in Settlers Walk — also home to a shopping center, church, YMCA and office buildings — has triggered the redrawing of council ward boundaries in Springboro.
Other HOAs limit rentals to a percentage of the total development. In Settlers Walk, rental is restricted to immediate relatives. One-year hardship exemptions are provided before lawsuits are filed.
“The goal is to prevent rentals,” said Covitz.”Where we can, we work with people.”
The rise of rental restrictions
Oxley, who also lives in Settlers Walk, said he represents 10 HOAs. He said he has only filed lawsuits over rental restrictions in Settlers Walk. Interviews with area lawyers and area court checks failed to turn up other cases involving planned communities.
“Some organizations might not take it as seriously,” Covitz said.
Some experts say some rental restrictions violate basic property rights, as well compromising as the financial prospects of displaced owners who turn to renting.
“People are being forced into financial hardship because boards are enforcing these rules,” said Richard Thompson, who publishes the Regenesis Report on HOA best practices in Oregon. “They come up now because of the state of the real estate market.”
It is not uncommon for homeowner and condominium associations to limit rental activity, said Matthew Watercutter, regional vice president for local real estate firm HER Realtors.
“However it’s a double edged sword,” Watercutter said. “What will damage home values more? A rash of foreclosures and short sales because they had to move and couldn’t sell or having a high number of rentals?”
The restrictions also satisfy potential lenders, according to experts.
“The reality is these laws were written to protect the lenders ultimately,” said Griswold who heads a California-based firm specializing in HOA management. “Everyone’s hurt by lower values.”
While convinced of the need for the lawsuits, Covitz said he sympathized with the former neighbors being sued by the Settlers Walk HOA.
“My house is underwater. I completely understand,” he said. “It’s about what’s right for the community. Our job as a board is to enforce the rules.”